Leasehold Reform

Clive Betts Excerpts

Thursday 11th July 2019 Commons Chamber

[Mr Clive Betts (Sheffield South East) (Lab)]

I beg to move,

That this House takes note of the Twelfth Report of the Housing, Communities and Local Government Committee, HC 1468, on Leasehold Reform and the Government’s response, CP 99; welcomes the Competition and Markets Authority investigation into the extent of any mis-selling and onerous leasehold terms; believes there is no reason why the majority of multi-occupancy residential buildings could not be held in commonhold; calls on the Government to remove the incentives for developers to build new leasehold properties; and further calls on the Government to bring forward legislative proposals to amend onerous permission fees and ground rents in existing leases.

In March, the Housing, Communities and Local Government Committee published its 12th report following a six-month inquiry into leasehold reform. We received more than 700 submissions in initial evidence, and during our evidence sessions many leaseholders got in touch with us saying “Me too! I am in exactly the position that is being explained to you by the witnesses.” We have now received the Government’s response. While we are pleased by their support for some of our recommendations, we feel that more could be done for existing leaseholders, and I shall say more about that in due course.

Might I intrude on the previous debate, Mr Speaker, and refer to the issue of devolution? Yes, in England we are interested in it. Indeed, the Select Committee announced today its intention of holding an inquiry into devolution in England, which I think is a positive development. [Interruption.] I am sure that the hon. Member for Perth and North Perthshire (Pete Wishart) will read about this tomorrow in Hansard.

The Committee uncovered a scandalous situation—or, rather, scandalous situations, because they varied in many respects. Developers often sell their properties, funded by the Help to Buy scheme, and give purchasers inducements to use a solicitor of the developer’s choice who does not explain to the purchaser the full impact of the purchase, does not give the full information about ground rents or permission fees, and sometimes does not even make clear the difference between leasehold and freehold. Purchasers are promised that “it will be all right, because you can buy your freehold following a given period and for a given sum”, only to find when they try to do it that the freehold has been sold on to a third party. We heard about some other really bad examples: for instance, people in flats were being faced with unexplainable and unjustifiable service charges, and, of course, excessive commission fees as well. In the worst cases, people have been left trapped in unsellable and unmortgageable homes.

The Committee concluded that

“too often leaseholders…have been treated by developers, freeholders and managing agents, not as homeowners or customers, but as a source of steady profit.”

That is simply unacceptable. We also concluded that there was no link at all between the ground rents that were paid and the service that was delivered to the leaseholders. We were completely unconvinced that, in most circumstances,

“professional freeholders provide a significantly higher level of service than that which could be provided by leaseholders themselves”.

Ours is a comprehensive report with a great many recommendations. I shall list some but not all of them, because there are so many. I pay tribute to the work of the all-party parliamentary group on leasehold and commonhold reform, many of whose members are present today and who did an awful lot of work, to all my colleagues on the Committee—this is a unanimous report, although it contains controversial and far-reaching recommendations—and to the Leasehold Knowledge Partnership and the National Leasehold Campaign, which have done a great deal of work to put this issue into the public domain.

In their response, the Government are generally positive about new properties, but probably less committed to certain recommendations for existing leaseholders. They have agreed to a ban on leasehold on new houses, which is certainly needed. In the case of future leaseholds, there should be a peppercorn rent; the Government’s original proposal was a £10 charge. We have asked for clear standardisation for leaseholders when they buy their properties. The Government have accepted the recommendation in respect of new purchases, but not for resales. We may need to return to that issue, because it is important.

We have not made as much progress on commonhold. We were positive about its future, suggesting that it should become the primary form of tenure; the Government called for it to be a “viable alternative”. We know that there is work to be done on the legal position relating to commonhold and the availability of mortgages, but the Government ought to be a bit more enthusiastic than perhaps they have been so far. We also called for a ban on inducements for purchasers to use particular solicitors. The Government have not gone that far; they have talked about better redress, greater transparency and asking the regulators to be more proactive. We do not think that goes far enough.

We also called for any permission fees that are in the original lease to be no higher than the administrative costs of those fees. The Government have said that that is a matter for Lord Best’s review of the regulation of property agents. We hoped that the Government would say that they were looking forward to implementing recommendations from the review, but they have not gone that far either.

On existing leaseholders, we still have more progress to make. We recognise the complications of this. Nevertheless, we also recognise the suffering of leaseholders at present that does need to be addressed. On the positive side, we called for the Competition and Markets Authority to conduct an inquiry into mis-selling. I met Lord Andrew Tyrie. He is committed to the inquiry that he has announced. He wants to do something. He recognises the problem and we look forward to that. I hoped the Government would have said, “Yes, we want the inquiry and we want to implement what it finds.” Instead we are in a, “We look forward to the inquiry, but are not quite sure what we are going to do with it when we get it” situation.

We have also called—these are important issues—for onerous ground rents and onerous permission charges to be dealt with retrospectively. They both need addressing. We could do it in the human rights legislation. We took detailed advice and evidence on this. Again, the Government’s response seems to be, “Well, voluntary deals are being done with various developers about this.” Frankly, we are concerned about the level of trust the Government are placing in the same industry that created the onerous leases in the first place. The Government do not go far enough. Often the links to the retail prices index can lead to high figures. Often deals do not apply to the resale of property and of course they do not cover permission charges or any of the arrangements that have been arrived at. So we certainly want to go a lot further than that.

On permission fees and retrospective action, the Government said, “Look for the CMA report.” We understand that that report will be about not just mis-selling, but whether the conditions so far imposed are unfair in consumer law. We will want to have a look at that when it comes out. We hope the Government will act quickly on that report and the report being done in parallel by Lord Best, the review of property agents, which will look at permission fees as well.

Some of those fees are scandalous: £3,500 to put a conservatory in, before starting with the cost of the conservatory; £68 for a doorbell; £100 to answer an inquiry. These are outrageous fees. They are not justifiable. They are unfair and scandalous, and action needs to be taken on them.

We have clearer statements from the Government on some areas and we should recognise that. The Government want to see standardised forms for service charges. We received lots of evidence that service charges just came out of the blue; it was not possible to explain what they were or justify the amounts—in some cases it was not even possible to find the service being charged for. So that needs to be addressed. Lord Best’s review is looking at that and we hope that the Government act quickly when it is published.

We said that, where a freehold was bought, some of the freehold agreements themselves kept service charges and permission fees embedded in them. We could see no justification for that and the Government agreed with our position. We called for greater clarity on communal areas on freehold estates in terms of who was responsible when the council and the developer did the initial planning agreement, and the Government supported action there.

Enfranchisement is a big issue. We know that the Government agree with our recommendation for a clearer and simpler system. Again, the Government are waiting for the Law Commission, but we hope that their commitment in principle will soon produce action. We also recognise the Government’s commitment to change the current system: there is only first refusal for flat owners in terms of the sale of freehold; in future that will apply to houses as well, which is a step in the right direction.

We also recognise the Government’s commitment in most cases to ban the freeholder collecting from leaseholders the costs of going to a tribunal when the freeholder loses. That is an important step. It is frankly outrageous that someone can win a case in a tribunal and then find that they are paying the price of winning through extra lease and service charges.

The Government are being a bit mealy mouthed on forfeiture, even though it is completely wrong and unjustifiable. It might not happen very often, but the threat of forfeiture forces many leaseholders not to challenge and to back off, so we need action there as well. An important issue that is often forgotten about is sinking funds. They can be very large, and they are currently unregulated. The Government have suggested that Lord Best’s review should look at the issue. We look forward to that review because there are a lot of things it will have to look at.

There are many other issues. I cannot go into them all in detail, but there is a very long list of recommendations and responses from the Government. The Government are positively trying to look at the issues around redress, but I ask them please to get on with the housing court. Having a housing court would mean that people who had problems with their housing, whether as tenants, leaseholders or in other circumstances, knew where to go for a simple and effective form of redress. We welcome the Government’s commitment to this in principle, but that principle has been sitting there for a long time and we need some action on it.

In the end, the Government are right to say that this is a really complicated area of law. There are lots of Acts of Parliament and lots of regulations, so what we in the Committee have suggested is very simple. Let us recognise the changes that need to happen, but let us also recognise that there will be enormous long-term benefit for everyone if we have a wider review of all the legislation on leaseholds. We should give the Law Commission the funds to do that, but again the Government have really backed off the proposal. I ask the Minister at least to agree to that today, because it is a very simple suggestion that could have enormous long-term benefits.

[Several hon. Members rose—]

--- Later in debate ---

[Mr Betts]

I am not sure about that, Mr Speaker.

Certainly, I thank all Members who have made their contributions today and particularly those—I think it was all of them—who have expressed support for the Select Committee’s report. I will pass those kind words back to all members of the Committee, particularly to our excellent Committee specialist, Nick Taylor, who has done so much work for the Committee on this issue.

The Minister said that we would get answers. I do not think that any of the answers went beyond what the Government have already said. I think that the clear message to the Government today is that what commitments they have made so far do not go far enough. There needs to be further action. Although we look forward to the reports from the Competition and Markets Authority, the Law Commission and Lord Best’s review, a number of very key matters need addressing. It would be helpful if, eventually, the Government got round to saying, “Yes, we are going to do them.”

There is a need to end onerous ground rents not just by voluntary agreement but legally. There is a need to end onerous permission fees not just on new properties, but on existing properties. We want the introduction of a clearer and simpler enforcement enfranchisement regime; action to achieve clarity and transparency in service charges and the process of buying leasehold properties; improvements and promotion of commonhold as the primary means of tenure for flats; and, finally, for heaven’s sake, an end of forfeiture. If anything goes back to the feudal age, that is it, and ending it would be a clear symbol that we will have real action in this area.

Question put and agreed to.

Resolved,

That this House takes note of the Twelfth Report of the Housing, Communities and Local Government Committee, HC 1468, on Leasehold Reform and the Government’s response, CP 99; welcomes the Competition and Markets Authority investigation into the extent of any mis-selling and onerous leasehold terms; believes there is no reason why the majority of multi-occupancy residential buildings could not be held in commonhold; calls on the Government to remove the incentives for developers to build new leasehold properties; and further calls on the Government to bring forward legislative proposals to amend onerous permission fees and ground rents in existing leases.