Leasehold and Commonhold Reform

Lord Hanson of Flint Excerpts

Thursday 21st December 2017 Westminster Hall

[Mr George Howarth (Knowsley) (Lab)]

Thank you, Sir David, and merry Christmas. It is a pleasure to follow the hon. Member for Witney (Robert Courts); it was interesting to hear his experience as a law student. A ground rent of £2 was probably a bit of a bargain compared with the problems faced by many of our constituents.

The House of Commons Library notes on the subject point out that there was a spike in leasehold sales in the north-west of England; 69% of all new properties in the north-west were subject to leasehold arrangements in which the developer retained the freehold. Several hundred of those properties are in Knowsley. For those who do not know my stance, I am one of those people who is not quite sure what the north-west is, but whatever it is, we in Knowsley are getting the phenomenon on a large scale.

I pay tribute to the hon. Member for Worthing West (Sir Peter Bottomley) and my hon. Friend the Member for Poplar and Limehouse (Jim Fitzpatrick), who have been raising this issue for a long time, whereas many of us have come to it more recently through the experiences of our constituents. I will highlight a couple of points, and then say a few words about the measures announced by the Secretary of State last night.

First, others have made the point about the use of conveyancing solicitors recommended by the developer who also work for the developer. The best that can be said is that that creates the impression of a conflict of interest. From what constituents have said to me, there was a conflict of interest in some cases. The hon. Member for Hazel Grove (Mr Wragg) was right to mention a need for more transparency. There is also something inherently wrong about the same legal practice dealing with both the developer’s interest and the purchaser’s interest.

Buyers were not informed that they could purchase the freehold. I have ample evidence from many constituents, which I will quote, that that did not arise in conversations with sales staff. Even if they were vaguely made aware, they were certainly discouraged from exercising the option to purchase the freehold. To achieve that, they needed a great deal of persistence, because it was part of the business model that the developer retained that interest, either to have continued income or to sell the freehold to another managing agent.

[David Hanson (Delyn) (Lab)]

Does my right hon. Friend accept that many of the purchasers in my constituency—and no doubt in his—were first-time buyers using Help to Buy, who were not clear about the house-buying process as a whole? In the circumstances that he has mentioned, they find it even more confusing.

[Mr Howarth]

My right hon. Friend is absolutely right; that is another complicating factor. I will quote what some of my constituents have said about this—I will not name them because I have not asked their permission. The first said:

“Why were we not given the full facts of exactly what it was we were buying into? We haven’t bought a home, we’ve bought a license to live in the house until the lease expires. Please tell me, where is the security in that?”

Another constituent said that:

“we bought a Bellway home in Huyton unaware that Bellway were going to sell on the freehold to a private company without giving us the chance to buy. The increase is immoral and totally unfair”.

The third constituent said:

“I was never told I could purchase the leasehold although I now know some people on the estate purchased the leasehold at the time they were buying. I thought Bellway would manage the property for many years to come, not be sold off to the highest bidder who would raise their fees whenever they want to. I feel ripped off by Bellway”.

That is what some of my constituents say.

Most of the properties in Knowsley that I am talking about are houses—starter homes, as my right hon. Friend the Member for Delyn called them. On some estates, some flats are mixed in. One constituent asked my office to contact the developer of his flat, Redrow, to find out what would be involved in purchasing the freehold. Eventually, somebody called Steve at Redrow replied—“kind regards, Steve.” We got a reply; the company conceded that the residents in the flats could purchase the freehold, which, of course, is their statutory right. The end of the reply, from December, states:

“As you will appreciate the 2 month notice period is only a first step, and should give residents time to decide whether it would be something they would wish to pursue.”

A group of residents makes the effort to look at a freehold arrangement, but they only have until the end of January to find out where they would get the money from, and to find out whether a majority of them want to go down that route. I would think that that is almost impossible. Anyone who has ever been involved in a house purchase knows that these things take a lot longer than that. There is a lot going on.

I welcome the announcement by the Secretary of State. The hon. Member for Hazel Grove said, “So far, so good”. We hope that the work that the Law Commission will be asked to do will provide a way forward for my constituents who have bought new homes, although there is no guarantee. It worries me that a lot of those developers will see some kind of control or legislation that will curtail their activities looming ahead of them and will hurry to sell those homes so that they are not left with a liability. I realise that with potential legislation pending, that might not be the most attractive sale ever, but nevertheless it is a worry.

--- Later in debate ---

[David Hanson (Delyn) (Lab)]

I thank the hon. Member for Worthing West (Sir Peter Bottomley) and my hon. Friend the Member for Poplar and Limehouse (Jim Fitzpatrick) for securing this debate. I shall say straight away that I welcome the Government’s action last night, which will be helpful for the future.

My concern, which relates to that of other right hon. and hon. Members, is about what happens between now and the point at which any legislation is implemented, and what happens for all our constituents who have faced difficulties and challenges in the past. Those challenges have been so difficult for some of my constituents that they do not want the estates and houses that they have been involved in to be publicly identified because they fear a further loss of income on any future sale of their property.

Before I ask the Minister some specific questions, I will touch on a number of key areas of concern—similar to those outlined by other hon. Members—that have been raised with me: first, the lack of information at the time of purchase, which has been mentioned already; secondly, the concerns and information around the onward sale of freeholds to third parties; thirdly, the issue of what happens on split sites, which my hon. Friend the Member for Weaver Vale (Mike Amesbury) mentioned in his intervention; and fourthly, the element of devolution.

On the lack of information, I feel like I am in an echo chamber. The points that have been raised with me have also been raised throughout the debate, but are worth repeating. My constituents, of whom many were first-time buyers purchasing with Help to Buy and who were grateful to the Welsh Assembly and the UK Government for helping them, were forced to use solicitors recommended by the building company; did not get an explanation about what freehold or leasehold mean; did not get an explanation about potential future charges; never had it explained that those freeholds could be sold on to a third party, which might impact on their finances at a future date; and were offered different prices by the same company for the same freehold.

For the same house and the same freehold companies offered £1,500, £5,000 and £7,500 at the same time at purchase. People said, “Well, I cannot afford that now because I am on a Help to Buy scheme. I’ll undertake whatever you think is best for me,” and the advice was to have the leasehold, so people have found themselves on that. We need to revisit that for the future and get some clarity from the Minister about what that means now for people who have undertaken that scheme recently.

Onward sale is important. I know that the Minister will deal with that for the future and will consider completely banning the sale of leaseholds as a matter of principle, but I have a situation now where my constituents bought a property and the leasehold from what they thought was a reputable company, but found that the freehold has been sold on to a third party. Shockingly, my constituents did not even know and were not offered the chance to buy it at that time. In one example, one person happened to see the sales director of the company on site and asked to buy the freehold, which was sold to them, but the freeholds of the other 21 properties were sold to a third party. Only later did my constituents find out that that sale had taken place. They were not offered the chance to purchase as a first port of call, even if they had wanted to.

[Sir Peter Bottomley]

I think I am right in saying that the law is that if they had been in a residential flat, the freehold could not have been sold without it being offered to them. That should have been the law for the houses, but I suppose it was not because no one imagined that anyone would ever sell a leasehold house again.

[David Hanson]

I am grateful for that clarification.

This is not about the future; I am sure that the Minister is already receiving representations on a cross-party basis about what should happen in future. It is about how we deal with the past. For example, my constituents who wished to purchase the freehold from the company that had bought it—as they found out only at a late stage—not only have to pay an initial investigatory charge of several hundred pounds, but a premium of £1,000 on the purchase price. Many of the people in that position are either first-time buyers or retired. One of them, a former constituent of the shadow Secretary of State, my right hon. Friend the Member for Wentworth and Dearne (John Healey), who moved to my area to retire, has raised the issue with both of us. What is the situation with buy-back at a fair price and with fair charges? How will the Minister deal with those issues?

I mentioned split sites. There is a very big development site in my constituency, and when this scandal broke halfway through the development, the company in question decided, “Let’s get out of this quick—let’s forget this and try to limit our liabilities. We’ll sell the freeholds to the customers buying the houses.” Half the massive estate of 400 or 500 houses now has a leasehold with the company, and the other half is being developed without leasehold. How will somebody who has bought one of the houses with a leasehold ever be able to sell it, when—as my hon. Friend the Member for Weaver Vale pointed out—owners of houses on the other side of the street have a different situation as regards the leasehold and potentially different liabilities? Nobody will buy a house from the half of the estate with leaseholds if they can buy one from the half without.

I approached the company, which I will name; it is Persimmon, whose chief executive’s bonus this year was £118 million. When I asked whether it would sell or give the freehold to my constituents on the same basis as to the others, the answer was no. It said that it would sell it for £3,750—at a time when it is giving £118 million to the chief executive alone. My constituents, who have stretched themselves to buy their house in the first place, cannot afford to pay that. I then asked the company whether it would ensure that it did not sell the ground rent on in the meantime. Very gratefully, I am sure—that was sarcasm, for Hansard’s purposes—its reply said that

“we will not sell the ground rent to any third party until at least two years following the purchase of their leaseholds. In the circumstances we are prepared to confirm a minimum date of 14 July 2019, being two years from the date of our meeting.”

So Persimmon has said that it will not sell that on for the next two years, but there is no guarantee beyond that. My constituents cannot sell their houses, because over the road similar houses are being sold as freehold, but they are finding it difficult to pay the £3,750 because they are already stretched. That is particularly important for the Government, because many of these people are on Help to Buy. When the value falls, not only do the constituents struggle, but the Government lose out on any potential sale.

My last point relates to my personal circumstances. My constituency is as near to England as the south side of the river Thames to the House of Commons; we are literally two or three miles across the border. My hon. Friend the Member for Alyn and Deeside (Mark Tami), who was present earlier, is in a similar situation. The majority of houses in my constituency are built by companies based in Manchester, in the north-west of England. What discussions has the Minister had with the National Assembly for Wales, which has devolved responsibility for housing issues, about his proposals and plans for the future? If he introduces a ban in England, will it cover companies based in England on sites based in Wales? If he introduces regulations, what will the parallel consequence be for the National Assembly for Wales? My constituents are using these schemes, but the materials have been made in England, the profit is going to England and the policy was developed in England. That needs to be clarified, so will the Minister tell us what is happening with the Welsh Assembly?

I have three solutions for the Minister. First, he could work with the National Assembly for Wales, as well as in England, to give a definitive right to buy to constituents who have a leasehold with a third party or a particular company. There is even an argument that he should exert real pressure for a right to be given the freehold as part of the price. In my constituency, houses are being sold at the same price freehold as they are leasehold. That is simply not tenable. It is an extra piece of profit for a company that is already paying its chief executive £110 million.

If the Minister cannot get freeholds given freely, he needs to consider a price cap—and if he cannot solve that problem, he should at least consider a price cap on the charges that may accrue for future generations. The continued rise of the price as regards leaseholds is not acceptable. If he cannot find a mechanism to compensate people, he could legislate to freeze the price at its current level.

The Minister should also consider helping people who have bought a house on the Help to Buy scheme, but who now wish to actually buy what they thought they were buying in the first place: the land on which the house was built. Introducing a mechanism to give financial support to them to buy the freehold would be an extremely good contribution.

I welcome what the Minister has done so far. I know that we are in a pickle and a mess, although in a way I am relieved to hear that the problem affects not just people in Delyn and north Wales, but many others. There are real challenges for the people who are in this mess, and the Government and the Welsh Assembly have a duty and a responsibility to try to resolve it.

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

It is an absolute pleasure to serve under your chairmanship, Mr Bone. I congratulate my hon. Friend the Member for Worthing West (Sir Peter Bottomley) on securing this incredibly important debate on leasehold. As Members have made clear, he—along with the hon. Members for Poplar and Limehouse (Jim Fitzpatrick) and Ellesmere Port and Neston (Justin Madders) and other members of the all-party parliamentary group on leasehold and commonhold reform—has demonstrated real dedication to championing leasehold reform.

We have had incredibly thoughtful contributions today. This is Parliament at its best, where we all come together and speak with one voice. We have had humour in the debate, but it has underlined a serious issue that colleagues care deeply about, and we know that our constituents care about it as well.

To respond to the right hon. Member for Wentworth and Dearne (John Healey), in terms of the broken housing market, I hope we all acknowledge that the reason we are where we are is because successive Governments over many decades have not presided over the building of enough homes. In terms of leasehold, successive Governments have left the business unfinished. I absolutely get that what the House wants from this Government is to finish that piece of business.

I have attended and spoken to a packed meeting of the all-party group and heard at first hand the anguish of some of those affected by the leasehold issues we are discussing. Indeed, many Members have highlighted individual cases from their constituencies. I am also grateful for the welcome from right hon. and hon. Members for this morning’s written ministerial statement to the House from my right hon. Friend the Secretary of State for Communities and Local Government. As has been said, today we have also responded to the consultation on leasehold held earlier this year. My remarks will very much echo the Secretary of State’s statement.

A number of colleagues noted this, but in February the Government’s housing White Paper, “Fixing our broken housing market,” set out our commitment to promoting fairness and transparency for the growing number of leaseholders. I do not want to rehearse the whole issue around leaseholders and the number of people affected—we know that a lot of people have leasehold homes.

Of course, ground rents on many such properties have risen from historically small sums to hundreds of pounds a year. As colleagues have pointed out, in some cases ground rents have spiralled into significant sums. That is why the Government acted and published a consultation over the summer. I am grateful to everyone who participated and provided evidence—particularly Members of the House and of course the all-party group. The consultation received an overwhelming response: there were more than 6,000 replies, and the vast majority were in favour of widespread leasehold reform.

I repeat the point made by the right hon. Member for Delyn (David Hanson) about being in an echo chamber when we have talked about the issues affecting constituents. It is clear that many purchasers did not make an informed choice to buy a leasehold house. Far too many reported being surprised to find that their home had been sold on to a third-party investor, and the cost of buying the freehold had risen considerably—as we have heard, sometimes running into tens of thousands of pounds.

[David Hanson]

Is that not a prima facie case of mis-selling?

[Alok Sharma]

I will come on to talk about the work that the Government will be doing with the Law Commission.

We have also heard of consumers with very onerous ground rent terms who are effectively trapped in their own homes, unable to find a buyer. Some of those people have not been able to get redress and do not know where to turn for support. It is clear that the leasehold system as it stands is not working in many consumers’ best interests. Even most developers accept that use of leasehold for new build houses, unless in exceptional circumstances, is entirely unjustified. This has got to stop. That is what we all want.

The Secretary of State’s statement noted that, alongside publishing a response to the consultation, the Government have set out a package of measures to crack down on unfair practices, which includes introducing legislation to prohibit the development of new build leasehold houses, other than in exceptional circumstances. The Government intend to ensure that future legislation to ban the sale of leasehold houses applies to land that is not subject to an existing lease from today’s date. We will continue to work with the sector and other partners to consider the case for exemptions to the policy and its retrospective application, in particular to mitigate any undue unfairness.

We are restricting ground rents in new leases of houses and flats to a peppercorn, and we are addressing loopholes in the law—for example, to ensure that freeholders have a right to challenge unfair service charges. We are also working with the Law Commission to support existing leaseholders, including by making the purchase of a freehold or extension of a lease easier, faster, fairer and cheaper and, of course, by reinvigorating commonhold.

The right hon. Member for Wentworth and Dearne and the hon. Member for Brentford and Isleworth (Ruth Cadbury) raised the issue of the Law Commission. I can confirm that the Government will be funding the work. We will be funding five lawyers and five research assistants, a proportion of the managers’ and the commissioners’ time and some peer review and external consultancy. That work will start in January.