St Mary Magdalene and Holy Jesus Trust: Leasehold

Chi Onwurah Excerpts

Wednesday 1st November 2017 Commons Chamber

[Chi Onwurah (Newcastle upon Tyne Central) (Lab)]

I wish to start by declaring an interest: the landlord of my current constituency home in Newcastle, funded by the taxpayer, is potentially affected by the grotesque situation that I am about to outline.

I have called this debate on the Mary Magdalene and Holy Jesus Trust to expose a situation that combines all the worst parts of Dickensian legal tragedies, Kafkaesque bureaucracy and Catch-22 conundrums, with charitable oppression thrown in. My constituents, who have worked their whole lives and invested in property, as they have been encouraged to do, are now facing their greatest asset becoming their greatest liability. Why? It is because of an obscure loophole in an obscure 1960s law, the failure of the Charity Commission to give clear advice on the good citizen role of charities, and the complexity and inadequacy of the leasehold system.

I do not know the total number of my constituents in this grotesque situation, but five of them have made the brave decision to come forward and speak publicly. Howard Philips and Phyll Buchanan purchased their leasehold house on the open market in 1998. At the time, no caveats were raised by the conveyancing solicitors or by the solicitors that handled their re-mortgage in 2003. They are now in their late 70s and feel that the time has come to move on. As they say:

“The house is not suitable for our old age. The cost of maintaining these Victorian Grade II listed houses is substantial and will be a burden for the remaining years on the lease. We cannot easily manage the six flights of stairs or afford to maintain the property.”

But they cannot downsize because they cannot sell their property. Their lease has 70 years remaining and no mortgage company will advance a loan until the lease is extended. They cannot extend their lease because the charity that owns the freehold, the St Mary Magdalene and Holy Jesus Trust, refuses to do so.

The trust was formed for the benefit of the freemen of Newcastle upon Tyne and their wives and children, and is now a considerable property owner in Newcastle. It owns the freehold of the St Thomas area of Newcastle as well as numerous properties in this and other areas of the city. There is also an intermediate lessee and managing agent—Home Group, a housing association. In refusing to extend the leasehold, the trust is causing misery for leaseholders and forcing many into financial distress. For example, Michael Armstrong says:

“We are a low income family with three children and had planned to pay off our mortgage by selling the house and downsizing once our children had grown up and left the family home…Due to the fact that we cannot extend our leasehold, or buy the freehold…we are basically trapped in a very worrying and insecure situation and face the real possibility of losing our family home.”

Sasa Savic tells me:

“When I arrived in the United Kingdom as a refugee having lost everything during the war in the former Yugoslavia, I would have never imagined that I would be facing yet another battle to save my home.”

Since purchasing the property, Mr Savic has married and has two children. The property has only one and a half bedrooms, so the family cannot live there. He has to let it out, but that does not pay the mortgage. In effect, he is working to subsidise someone else living in it. What would happen, he asks himself, if he fell seriously ill? He says:

“That question has haunted me many times in sleepless nights. I usually do any repairs…on the property by myself, but this is getting harder and more difficult as my physical health is preventing me from doing as much as I once could.”

When Mr Savic purchased the property, he was not made aware of any leasehold restrictions that could occur in future years and, indeed, was offered the freehold to purchase by the trust in 2005. Unfortunately, he was not financially able to do so at that time.

Denise Cook, who bought a house in the St Thomas area for her elderly mother to live in, says:

“My mum spent thousands on this property...and to find now we can’t extend or buy the lease has been extremely upsetting for us. We now find ourselves having to still pay the mortgage and associated costs for the next 60 years, we are now 60 my husband and myself and our own mortgage is coming to an end. We have no idea what the future will hold and it is of great concern we pass this debt on to our family.”

I could go on, as many more constituents are affected, but I hope that the Minister now comprehends the worry and misery this situation is causing.

Let me explain as best I can the complex combination of circumstances that have caused this situation. We all know that the leasehold system has fallen into disrepute and that is why the Government have recently conducted a consultation that received more than 6,000 responses. I welcome this and hope that the Government will soon bring forward legislation on the matter. But the specific legal issues surrounding the St Mary Magdalene and Holy Jesus Trust relate to an amendment of the Leasehold Reform Act 1967. The amendment—in section 172 of the Housing Act 1985—states that if a charity owns a freehold, it is not obliged either to sell or extend the lease of houses on its land. So my constituents cannot extend their lease and they cannot buy the freehold. In Mr Philips’s words,

“we are devastated to find that our house is unsalable and our nest-egg is worthless because the charity that owns the freehold is refusing to extend our lease.”

Under this Government social housing tenants have a right to buy after only two years, but my constituents are not even allowed to extend their leasehold. The Minister has said that we need to help more people to achieve their dream of home ownership, so how can it be acceptable that my constituents stand to lose their homes because of this legal anomaly? As Mr Philips says:

“Every day we have to face this nightmare and it is taking a toll on our health.”

Their situation, however, is additionally Kafkaesque because the exemption applies only to houses. To quote Mr Philips again:

“Our neighbours who own maisonettes and are in a similar situation to ourselves have a legal right to extend their leases and even buy their freeholds from the charity, but the owners of houses…have no such rights.”

Will the Minister attempt to justify a situation where house owners are discriminated against when compared to flat owners with regards to leasehold law? It is 100 years since the Russian revolution, but this legal conundrum would not be out of place in Tsarist Russia. It is not a situation that should endure in an accountable democracy worthy of the name and certainly not under a Government who claim to champion a property-owning democracy.

You may argue, Mr Speaker, that just because the charity does not have to extend the leaseholds that does not mean that it should not or cannot. Well, Mr Speaker, you would be right and wrong. We have heard that in the past the trust did offer to sell freeholds, but more recently it has changed its position. My constituents have tried to be flexible. Mr Savic says:

“I offered to sell them the property at 25% below what I paid for it. I am desperate to be free of the problem and I thought that their aim must be to use the property for their charitable purposes, but despite spending over £6,000.00 on both of sets of lawyers and surveyors all I got as a response through my lawyer is ‘no’, without even a letter of explanation why.”

As a consequence, the leaseholders have become mistrustful and suspicious of the trust and its motives, yet they have no recourse to the law.

As Mr Philips says:

“Litigation is not an option against a charity, especially one with assets of £44million.”

The Trust did respond to my enquiries. The St Mary Magdalene and Holy Jesus Trust said it is “sympathetic to the residents” and acknowledges that this is a

“horrible position to be in.”

But it claims that it

“cannot change it as things presently stand.”

This is because it has received legal advice informing it that it is under no obligation to sell or extend the lease, and fears repercussions from the Charity Commission if it does so. It pointed out to me that it has

“a duty to existing and future beneficiaries and to preserve the assets of the charity.”

In other words it would like to sell or to extend the lease, but feels that it cannot contravene advice that has been given to it as the Charity Commission would “take a dim view” of that.

[Ian Mearns (Gateshead) (Lab)]

Is my hon. Friend aware of whether the beneficiaries, or potential beneficiaries, of the trust are particularly needy or destitute?

[Chi Onwurah]

I thank my hon. Friend and constituency neighbour for his intervention. I would not like to pass judgment on the beneficiaries of the trust, but they are freemen of the city of Newcastle, and their children, wives, widows and associates. I therefore do not think they can be considered to be the most needy people in Newcastle. I also do not believe that these assets would meaningfully enrich the most needy in Newcastle.

When contacted, the Charity Commission said:

“Charities are independent organisations and their trustees are legally responsible for all aspects of their management and administration and compliance with charity law. It is important to emphasise that although”

the Charity Commission’s

“functions include encouraging and facilitating the better administration of charities, and taking remedial action to tackle misconduct or mismanagement, the law prohibits the Commission from acting directly in the administration of a charity.”

Basically, the Commission claims this issue is nothing to do with it, even though it does advise charities to take legal advice. It does not, however, advise them to be good neighbours or good citizens. My constituents are therefore left with no recourse to justice, while the charity and the Charity Commission pass the blame between themselves.

I am therefore calling on the Minister to put an end to this situation. Will he first commit to closing this loophole as part of his proposals for leasehold reform? The Labour party has pledged a full review of leasehold, so I hope he can commit to freeing my constituents from their current grotesque impasse as part of his proposals.

Will the Minister also join me in imploring the Charity Commission to make it clear that while charities must act in the interests of their beneficiaries, that should not be at the cost of making life a misery for others? Charities must be good citizens of the communities they are part of and on whose generosity they depend. That is certainly not the case here. Will the Minister also urge the Mary Magdalene charity to be charitable in its actions as well as its words?

As a good socialist, I find it ironic that I am advocating for property rights that this Conservative Government are denying. Some might argue that the houses should never have been sold to their tenants, given the complexities of the charitable leasehold system and the need for social housing in Newcastle and elsewhere, and some might think they had a point.

Housing remains one of the top three issues in my constituency, and we are all aware that house building is at 164,000 homes per year, which is far below the required level. Government proposals to build an average of 15 homes per local authority per year are not going to make much of a dent in the 7,000 waiting list we have in Newcastle.

However, these houses were sold and bought, and what faces us now is an issue of social justice. The life’s work of these people is tied up in their property, and control of it is being withheld from them by impersonal bureaucratic forces beyond their control. As Mr Philips says:

“We are being held hostage by an obscure law originally drafted for a different purpose. Time is rapidly running out for us. We feel as if we are sinking in the bottom of a deep well and that nobody can hear our cries for help.”

I can hear those cries. Those who are here today have heard them too. I very much hope that the Minister is listening.

[The Minister for Housing and Planning (Alok Sharma)]

I thank the hon. Member for Newcastle upon Tyne Central (Chi Onwurah) for the timely manner in which this issue has been raised. I do empathise, as I am sure we all do, with the experience of her constituents, as she has related it. I want to be absolutely clear: the Government want to see fairness in the housing market, and that absolutely extends to the leasehold sector. She alluded to the fact that the Government have clearly signalled their intention to strengthen leaseholders’ protections against unscrupulous abuses by freeholders, landlords and managing agents.

With regard to the specifics of the case the hon. Lady has raised, I know she corresponded several times with my predecessors. Her constituents will be incredibly grateful to her for continuing to highlight this issue of great importance for them, and to the hon. Member for Gateshead (Ian Mearns) for attending the debate as the hon. Lady’s constituency neighbour.

I will return to the specifics of the case that the hon. Lady has raised, but first I would like to use this opportunity to set out the Government’s position on tackling leasehold abuses and clarify how the current legislation is applied to charitable organisations.

[Chi Onwurah]

I recognise the advantage of the Minister setting that out, but I hope that before he concludes his remarks he will specifically say what he will do for my constituents, for whom I called this debate.

[Alok Sharma]

I always try to respond to the issues that are raised in a debate, and I hope I will do so in this case too.

Many leaseholders have concerns about fairness and transparency within the leasehold sector. Our housing White Paper, and the all-party parliamentary group on leasehold and commonhold reform, have helped to move leasehold issues up the political agenda. The White Paper identified pressing areas for reform. We have talked about galvanising the house building market overall, but specifically in terms of leasehold. In our recent consultation, “Tackling unfair practices in the leasehold market”, we consulted on whether new-build houses should be sold as leasehold and on the issue of onerous ground rents.

The consultation, as the hon. Lady pointed out, has closed. It clearly struck a chord with consumers and leaseholders. As she said, we have received over 6,000 responses, many of them extremely detailed. My officials are currently analysing those responses. I would like, before the end of the year, to announce the Government’s response to the consultation and propose reforms to be taken forward.

Let me now turn to the hon. Lady’s direct concerns about charitable organisations such as the St Mary Magdalene and Holy Jesus Trust. I understand that, as she set out, a small number of individuals have in the past acquired leases of houses on the St Thomas estate and now wish either to extend the lease or acquire the freehold. The freehold is owned by the Mary Magdalene and Holy Jesus Trust, and the head lessee is Home Housing Association. Both organisations have charitable status. Unfortunately, as she outlined, the leaseholders have not been able to enfranchise—that is, purchase the freehold interest—or, indeed, extend their leases. The frustrations and anxieties that this has caused are clearly evident in the stories that she relayed—particularly, as she pointed out, for families who wish to sell and relocate. The remaining terms on a lease may well mean that a prospective purchaser will find it very difficult to secure a mortgage.

So, specifically, what I am going to do? I have asked my officials to be in direct contact with the trust to see what help can be provided to leaseholders with regard to their desire to exercise their right to buy in terms of the freehold. We will cover what flexibilities there may be for the trust to apply existing legislation to help to resolve some of the issues raised by the hon. Lady, especially where the trust and the leaseholders are both willing and agree to progress either lease extensions or the purchase of the house freeholds.

Returning to the wider recent consultation, we will look at the responses and also consider issues on the disposal of charitable leasehold homes. This will need to show fairness to the needs both of the freeholder and the leaseholder, and also strike a balance with the needs of charities to remain on a sustainable footing to continue their good work. It may be the case that the hon. Lady’s constituents were not fully informed about their rights and responsibilities when they acquired their leases, especially the whole issue of enfranchisement exemptions attached to these particular charitable leasehold properties. That leads me to another general area of concern about the transparency, or lack of it, in the way some leasehold property is marketed—in particular, whether there is clarity over the terms of lease agreements at pre-purchase, and whether sales teams are working in the best interests of prospective leasehold purchasers.

I will, as part of our wider work on leasehold reform, consider whether changes to legislation are required to improve transparency and fairness for leaseholders who want to enfranchise, where their freeholder is a charity and both parties agree that a lease extension or enfranchisement is mutually beneficial. I also want to ensure that the future marketing of leasehold homes, whether for private or charitable provision, is clearly promoted and advertised by charitable organisations to their beneficiaries. I hope that my comments have provided some comfort to the hon. Lady and her affected constituents. My Department will absolutely continue to liaise with her.

--- Later in debate ---

[Alok Sharma]

I do not think it is appropriate for me to comment on the beneficiaries of the charity. What I would say—I think this will be of interest to the hon. Lady—is that one of my officials has already spoken to a trustee, who has outlined that they may well be willing to sell the property, extend the lease or carry out the enfranchisement. Lawyers in the Department are looking to see what flexibilities are available.

[Chi Onwurah]

I thank the Minister for his comments and the tenor, which I appreciate, of his response to my debate. Will he confirm that he will work with the Charity Commission to ensure that, in this regard, charities set out to be good citizens and good neighbours, and that the brand of charities is not open to criticism?

[Alok Sharma]

I will, of course, consider what the hon. Lady has suggested. In terms of providing a positive outcome for her individual constituents, perhaps the most appropriate thing to do is to have that conversation with the trust directly. As I have said, the Department will continue to liaise with her on this case, and I hope that we will reach a conclusion that is satisfactory for her and her constituents.

Question put and agreed to.