Leasehold Reform

Bob Blackman Excerpts

Thursday 11th July 2019 Commons Chamber

[Bob Blackman (Harrow East) (Con)]

It is a pleasure to follow the hon. Member for West Lancashire (Rosie Cooper).

When the Housing, Communities and Local Government Committee started looking at this area, one thing the user groups that came before us wanted was the outright abolition of leasehold. In fact, they regard it as “fleecehold.” I am concerned about the Government’s responses to our detailed report, which makes excellent recommendations —I would say that, because I was party to the report and agree with every one of its recommendations. The Government have just said that they note what the Select Committee has said. There has been no commitment to action, and my request this afternoon is for the Government to take action to implement our report.

I draw an immediate distinction between the sale of houses and the sale of flats. There is clearly no justification whatsoever for a house to be sold on a leasehold basis, but there is a justification for flats. There needs to be more promotion of commonhold to encourage people to participate and use it, but we must always remember that some elderly and vulnerable people do not want to exercise more control and may be happy to have a leasehold property, with someone else managing it for them. We have to be cautious on that subject.

The Government are leaning on the fact that the Law Commission and the CMA are doing reports but, in their response to our report, they have made no commitment to implement whatever recommendations they make, and I hope we will get to that position.

The Select Committee’s report draws attention to the role of lenders and the fact that relatively few will lend on commonhold properties. That was true, but more lenders will now lend on commonhold properties. On mis-selling, most people who buy a leasehold property are first-time buyers. They are often naive and do not understand all the detail, and they learn by their mistakes. The introduction of transparency is therefore vital, as it is not good enough for developers to mislead potential purchasers. It is vital that we legislate for mandatory information, rather than relying on a voluntary code.

On the imposition of freehold purchases, a leaseholder should have the absolute right to purchase the freehold from the developer, either at the point of sale or at some future stage. During our inquiry, we had the scandal of the chief executive of Bellway Homes telling our Committee that after six months it sells all the freeholds to a finance company and washes its hands of them. I said at the time that that is a scandal and I retain that view, and Bellway Homes should stop that practice right now. Given that it does not want to do so, we should legislate.

[Sir Peter Bottomley (Worthing West) (Con)]

Not only do we think it is a scandal, but the buyers—the finance company—must have known it was a scandal. If the Government, Law Commission or Parliament come forward and say that those houses can be enfranchised on the basis of a formula that means that those buyers do not get their expected bounce of bonus or excessive profits, it will be their fault because they knew.

[Bob Blackman]

I thank my hon. Friend for that. He is absolutely right, and I compliment him on the measures he has taken on behalf of leaseholders over many years.

The issue of legal advice for individuals who are purchasing, particularly for the first time, is crucial. We found when we took evidence that developers give incentives, discounts and all sorts of other encouragement to first-time buyers to use the same solicitors as they are using. Of course, these solicitors are then acting on behalf of both sides and are not acting independently. That must be bad and this must be made clear in legislation.

On our recommendations on ground rents and onerous terms, the Government have said they have taken note but they have taken no action. The key here is that the Government seem to be driving the view that voluntary action is sufficient. After looking through all the evidence and hearing everyone who has come before us, my view is that voluntary action is not acceptable: we have to legislate and force developers to do the right thing, otherwise they will not.

I also think we have to draw a distinction. We need to legislate to protect people going forward and then consider retrospective legislation to right the wrongs that have been done to leaseholders over many, many years. I also believe that we should legislate to intervene on existing ground rents that are onerous—not only should we do this for future cases, but we should intervene to correct the position on existing leases, because we now have a position where first-time buyers have entered into a lease and cannot sell their property. It is outrageous that we have allowed them to get into that position.

The Chair of the Select Committee has mentioned the position on permission fees. It is outrageous that someone can put a conservatory on a property that they have bought and suddenly the developer is saying, “I want thousands of pounds because you put something on the back of your property.” That should be outlawed.

On service charges, sinking funds, estate management, enfranchisement and forfeiture, it is not good enough for the Government just to lean back and say, “We note what you’ve said and we will consider what needs to be done.” We need legal action. I suggest that when the Law Commission and the CMA report, we come forward with a substantial piece of primary legislation to correct this market, as that is what will be needed. Unless we commit to doing that right now, these developers will carry on fleecing their customers.

--- Later in debate ---

[Justin Madders]

My hon. Friend is absolutely right. I do not see that we need to wait for the Competition and Markets Authority investigation to conclude before we come up with tangible legislation to help leaseholders now. It is important that that investigation is carried out, however, because I think it will shine a light on wholesale practices. I have seen evidence such as the CBRE market review of 2013 saying that “leases had been optimised” in terms of rent review clauses, notice fees and other provisions to maximise freehold sale receipts for developers. It talked about soft income being generated from insurance premiums, commission, service charges and enfranchisement premiums. There is clearly an industrial-scale racket going on, and it is important for the future of the industry that we get to the bottom of it and find out who is responsible and make sure that they never get the chance to do it again.

Perhaps what is most concerning in this respect is that evidence has emerged of what are described as forward purchase agreements. These are contracts between an investor and a house builder to acquire a scheme before the individual units have been sold off on long leases. These agreements can often be in place as construction is ongoing, or even before commencement. It would be interesting to know which developers had forward purchase agreements in place before completion of their developments, because if they did they surely had a responsibility to inform the prospective leaseholder prior to their making their purchase that such an agreement was in place.

Instead, what we have heard from constituents is that they were told the exact opposite: they were told freeholds would be available to purchase after two years. Was this a deliberate deception? What did the sales staff know? Just how deep does this scandal run? For those reasons and more, we need a fully independent inquiry into the whole scandal so that those responsible are held to account for their actions and we get a house building sector that works for everyone, not just itself.

[Bob Blackman]

I thank the hon. Gentleman for his contribution thus far. One aspect that has not come out during this debate, however, is the excuse used by developers about the use of common areas that need to be built on or utilised for the common purposes of all the houses in the development. Does the hon. Gentleman agree that that scandal needs to be exposed as well?

[Justin Madders]

The hon. Gentleman is absolutely right to say that that is used as an excuse. When I was growing up, the common areas were usually run by a body called the local council, and rates or council tax would be paid to cover the costs. We need to look at the way that has been developed in recent years. Now, it is all about maximising profit.

I appreciate that we are pressed for time, so I will conclude by making a direct plea to the Minister. If the Government are serious about ending the abuses in the leasehold sector, they should adopt my party’s proposals to allow leaseholders individually or collectively to buy their freeholds under a fixed formula paid to the landlord. This is similar but not identical to my 2017 private Member’s Bill. The Government could also cap existing ground rents at £250 a year or 0.1% of capital value, whichever is lower, and cap the cost of buying the freehold at 1% of the capital value. Alternatively, they could just do a multiple of the ground rent. I am not precious about my private Member’s Bill; I just want to see something done—anything that gets us to a place where existing leaseholders can find a way out of this.

There are many things that can be done—there are many things that need to be done—and there is no reason why we cannot get on with them now. Parliament has been stuck in a rut for months because the Government have lost control of the Chamber, but if they came forward with a proposal along the lines we have been talking about today, there is no doubt that they would find more than enough support on both sides of the House for getting real tangible laws on the statute book as soon as possible to offer help and hope to the many thousands of people still stuck with toxic leases. I say to those on the Government Front Bench: work with us now; let us end this scandal once and for all.