Leasehold Reform

Geoffrey Clifton-Brown Excerpts

Thursday 11th July 2019 Commons Chamber

[Sir Geoffrey Clifton-Brown (The Cotswolds) (Con)]

Thank you for allowing me to catch your eye, Mr Speaker. I am really pleased to follow the hon. Member for Sheffield South East (Mr Betts). As Chairman of the Select Committee, he is one of the most knowledgeable people in this House, and I pay tribute to him for the excellent work that his Committee has done in this field. I am one of the few chartered surveyors in the House, and I draw hon. Members’ attention to my entry in the Register of Members’ Financial Interests. I have managed properties of all sorts for more than 40 years and I therefore have a degree of knowledge in this area.

The basic property law in this country dates back to the time of William the Conqueror, and in particular to 1086, when the Domesday property book listed every property in England. The law has progressed since then. In particular, the law on leasehold arose because landowners wanted to come to an agreement with one or more persons to occupy their land for a variety of functions. Sometimes it was to farm it, sometimes it was to build buildings and sometimes it was to run a business, and the leasehold law arose. It has been amended many times since then, as the hon. Gentleman has said.

In recent years, there have been a number of scams in my constituency relating to the leasehold law and, in particular, to the freehold law, and I want to go into one or two of those. As the hon. Gentleman said, the two areas in which these leasehold scams arise are ground rents and service charges. The ground rents in older leases tended to be a fairly small proportion of the total cost, but in recent years modern developers have hiked the ground rents, often doubling them every 10 years. The so-called proposals to modify this with reference to the retail prices index could lead to an even greater scam, because if inflation started to rise, ground rents could double not every 10 years but every five years. We need to look very carefully at that proposal. There are other proposals to make ground rents more moderate.

The other area, which is perhaps a bigger concern, is that of service charges. They can often be completely unknown, and they can include elements that are not immediately apparent to the person buying a leasehold. Those elements include administration fees, accountancy fees, commissions, insurance—the list goes on forever. The problem with all that is that a purchaser’s solicitors often assume that their client has a greater knowledge than they really have and are not explicit about what the obligations amount to.

I will move on quickly, because time is running out. I have constituents in the Gallery who have had equal and similar problems with scams relating to freeholds. Freeholders buy their properties with a covenant—many covenants in some cases—that contain unquantified and unspecified obligations relating particularly to the common parts of their estate. When pressed, the smart salespeople in the smart furnished flat or house on the estate often say, “Well, it’s only a small amount. It will amount to a few hundred pounds.” However, when the buyer gets their first bill, they suddenly realise what they are locked into. In some cases, the charges are so high, as they can be with leaseholds, that the properties are effectively made unsaleable.

We need to look carefully at the purchasing system in this country, and the Government need to work with the Law Society to ensure that all solicitors make it explicitly clear to their prospective purchasing clients what they are letting themselves in for. In my experience—I do not wish to knock either my own profession or the legal profession—they tend to be fairly blasé about inquiring into what the arrangements are for managing these common parts, which can be very expensive. The Government need to examine the arrangements to make it much easier for groups of people representing their estate to take over its management. What actually happens is that the management tends to be vested in a company that is owned by the estate’s original developer, and then people who cannot get out of dealing with that company are locked into whatever said company chooses to charge them.

I pay great tribute to Amanda Davies from Burton Chase and Mike South in Victory Fields for bringing some of these anomalies to me. Like the hon. Member for Sheffield South East, I have written to the Competition and Markets Authority with a draft of how my constituents think the current system is being mis-sold. I hope that the CMA will take close notice of that.

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[Liz McInnes (Heywood and Middleton) (Lab)]

I am grateful for the opportunity to take part in this important debate and I thank my hon. Friend the Member for Sheffield South East (Mr Betts) for his excellent speech and for all the work done by the Select Committee.

I took part in a similar debate in December 2017, just after the Government had announced for the first time an end to leaseholds for new-build houses, but there is a still a huge amount of work to be done to help those caught in the leasehold trap, like many of my constituents. I first became aware of the issue in 2016, when I was contacted by a constituent, Linda Barnes. She told me that her house, which she had bought from Taylor Wimpey in 2011 for £147,000, had a ground rent that doubled every 10 years and that had been sold on by Taylor Wimpey to E&J Estates. Linda had been quoted a price of £35,000 to buy the lease before it doubled—that is a quarter of the value of her house.

I heard from another constituent, Jonathan, who bought a house from Countryside Properties using the Government’s Help to Buy scheme. Jonathan said that he had been made aware that the development was to be leasehold and that an annual ground rent of £200 was payable to Countryside Properties. Six months after he moved in, Jonathan received a letter informing him that the freehold had been sold on to a company called Tuscola Ltd, based in the British Virgin Islands. He was quoted a price of more than £6,000 for the freehold. He also discovered a doubling clause in his lease which meant that by 2055, the ground rent would be £1,600 a year. That is naturally causing him a great deal of concern, because by the time he reaches retirement age, his ground rent will be unaffordable and will make his home unsellable. As Jonathan said,

“Considering the significant cost of new homes one would have thought that the last thing one should worry about is the land the house sits on and that it can seemingly be sold on from underneath you.”

I have been contacted by many of Linda’s and Jonathan’s neighbours, and they all tell the same story: that they were encouraged to use the developer’s choice of solicitor when they bought their homes, that they were not informed of the doubling clause, and that the prices that they are being quoted for the purchase of the freehold are simply unaffordable.

Many residents are rightly angry that the developer sold off the freehold to a property investment company without first consulting the homeowners and offering them the first chance of purchase. Many pointed out that the leases on their homes are for 250 years; if the ground rent doubles every 15 years, it will be £13 million by the end of the lease. If the Government do just one thing, they must ban this exponential growth in ground rents. I heard from Lee, who told me:

“We are unable to sell our house…as the true nature of this mis-selling has now been revealed. We have a 10 year doubling ground rent on our house that is now known to be toxic. The only option currently offered by Taylor Wimpey is to convert us to an RPl lease and somehow this is supposed to remedy their wrongs.”

William, who contacted me, has also been offered an RPI ground rent. He took advice from a barrister who said that although it was not a good deal, it was better than a doubling ground rent. He advised William to accept the RPI deal and take out a professional negligence claim against the solicitors, who had been recommended by Taylor Wimpey. So my constituent is now embroiled in a professional negligence claim and an unsatisfactory ground rent deal, when all he wanted and aspired to was a home of his own. He points out that he is paying, in addition to his mortgage, estate management fees, service charges and ground rent in what was supposed to be an affordable home—but it is not all about money. William said:

“This is causing so much mental stress and is affecting the quality of my life with worry.”

[Sir Geoffrey Clifton-Brown]

One of the worst scandals of all has not yet come out in this debate. When people buy their houses, part of the contract states that they must obtain a compliance certificate before they will be allowed to sell them. If they are in arrears with any of the charges that the landlord has imposed on them, if they are in dispute or if they have not paid the interest, they will not be able to obtain the certificate, and they will not be able to sell their houses.

[Liz McInnes]

The hon. Gentleman speaks from a position of knowledge, and I am grateful to him for introducing an issue that does not feature in my speech.

I have been contacted by many other constituents with very similar stories. Sarah said:

“The Leasehold itself makes me feel like the property isn’t ours, having to pay fees for the most simple changes to your house, like painting the door and changing its colour…The leasehold is simply a joke and should never be allowed in law to happen to New Homeowners…or anyone.”

The north-west has one of the highest percentages of leasehold new-build homes, so sadly it comes as no surprise that so many of my constituents are struggling. We in the Labour party have said that we will abolish ground rents for new leases, will cap ground rents for existing leases at 0.1% of the property value up to a maximum of £250, and will introduce a simple formula for leaseholders to buy their freehold or commonhold, capped at 1% of the property value. We will crack down on unfair fees and contract terms, and will introduce new rights for residents to take over the management of their homes themselves.

Will the current Government do the same, and end the misery of the leasehold trap? Will they also launch an inquiry into how this was allowed to happen, similar to their inquiry into the mis-selling of payment protection insurance?

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[Mrs Wheeler]

Thank you, Mr Speaker. Time is rocking on, so I will rush. We have been talking today about a situation where the ground rent is so high that it becomes an assured shorthold tenancy and so people can be evicted. The Government have committed to changing legislation to close that loophole, so that a leaseholder cannot be evicted on that basis. I am glad to answer that one.

We will not stop there. As our recent publications show, these reforms are only one part of the plans we have for the leasehold sector. This is why we were able to accept, in full or in part, most of the recommendations made by the Select Committee. Let us consider the work Lord Best is doing on the regulation of property agents. His working group is looking at a number of things, including having an independent regulator with a legally enforceable code of practice, which will require all property agents to register; and nationally recognised qualifications for property agents to practise.

We have also asked Lord Best’s group to look at the transparency of service charges, as well as the use of administration and permission fees, and consider in what circumstances they are justified and whether they should be capped or banned altogether. This work will allow us to raise standards of property management and give leaseholders the confidence that they are being charged fairly—both things that were called for by the Select Committee. We look forward to receiving Lord Best’s report, which will also be published for all to see very shortly.

On charges, it is unacceptable that some residential freeholders are unable to challenge excessive fees for the maintenance of their estates. I am happy to confirm that under the new legislation, freeholders will be given the right to challenge the reasonableness of such fees. They will also be able to apply to tribunal for the appointment of a new manager. This will help to increase the transparency, accountability and reasonableness of fees, which is something else the Select Committee wanted to see.

I understand that many existing leaseholders want the Government to legislate to amend onerous ground rent terms. As I pointed out previously, the inclusion of legislation to amend existing contracts presents problematic human rights implications, as has been made clear in the information put out recently by the Law Commission. Despite that, I firmly believe that doubling ground rents are unacceptable and should be varied, which is why we are encouraging the sector voluntarily to vary leases and show that it is willing to solve the problems of its own creation. I have been encouraged by the response we have received. More than 60 leading developers, freeholders and managing agents have signed a public pledge that will free leaseholders from the shackles of doubling ground rents.

[Sir Geoffrey Clifton-Brown]

Will my hon. Friend give way?

[Mrs Wheeler]

I really do not have time. Unfortunately, there is other business that needs to be done tonight.

I am aware that many leaseholders believe they were mis-sold their properties. Many people write to me to say that the leasehold tenure was not properly explained and that onerous terms were not made it clear to them. Others were promised that they would be able to buy the freehold for a certain price after two years, only to find that had been sold on buy an investor in that time. I am delighted that we have a commitment of action from the Competition and Markets Authority, which will look into the issue. It will use its consumer protection powers to determine whether leasehold terms, including onerous ground rents and permission fees, can be classed as unfair. If the evidence warrants it, the CMA will consider bringing forward enforcement proceedings. I look forward to hearing about the CMA’s progress and hope that its work complements the reforms we already have in train.

The issues I have just outlined show us that better information and advice is needed for potential and existing leaseholders, which is why we recently updated our “How to lease” guide, which now gives clear information on what leasehold tenure is, the costs associated with being a leaseholder and the rights and responsibilities that leaseholders have. This will give people a better understanding of what it means to be a leaseholder. If things go wrong, though, I want them to receive quality, free and independent advice, if they want it. I am pleased that many campaign groups have played an active role in this subject area, supporting leaseholders who have found themselves in difficult circumstances.

I specifically thank my hon. Friend the Member for Worthing West (Sir Peter Bottomley) and the hon. Member for Poplar and Limehouse (Jim Fitzpatrick) for their work as co-chairs of the all-party group on leasehold and commonhold reform, and I am grateful for their comments. We value the work of the Leasehold Knowledge Partnership and how it works with the Department. I am clear that LEASE is absolutely on the side of leaseholders. Its advice has helped many leaseholders to understand what is in their lease.

We have heard a lot today about the work of the Law Commission. The House should be confident that the Government are committed to improving the leasehold sector. Although leasehold as a tenure will continue to be used for flats, we have committed to reinvigorate commonhold, as mentioned by my hon. Friend the Member for Harrow East (Bob Blackman). The Government support the wider use of commonhold, which allows homeowners collectively to own and manage the common parts of a residential building.

Although commonhold works well in other countries, there are currently fewer than 20 commonhold developments in Wales. That is because of deficiencies in our legislation; it is clear that reform is needed. For that reason, the Government are working with the Law Commission to make the legal changes needed to see more commonhold developments emerge. The Law Commission is currently analysing the responses to a consultation on that very subject, and I look forward to receiving its report. We continue to work with the Law Commission and to fund it, and we look forward to its conclusions.

As the House can see, we are pushing ahead with our plans to improve the system for leaseholders today and tomorrow. We will create a market that really works for consumers—one that is fair, simple and transparent. We are taking action now to ban the sale of leasehold houses through Help to Buy programmes. Homes England will negotiate contracts with all Help to Buy developers to rule out explicitly the building and selling of leasehold houses, except in the very limited circumstances when it is justified. On 2 July 2018, the Secretary of State announced that no new Government funding schemes would be used to support the unjustified use of leasehold for new houses, and that includes the new Help to Buy scheme from 2021. That announcement alone has brought down sales from 11% to 2%.

The hon. Member for Newcastle upon Tyne Central (Chi Onwurah) talked about her issues with the St Mary Magdalene and Holy Jesus Trust. I am very sorry that, obviously, my letter to her had not arrived by the time that she had written her speech. I have written to her in the past three days, so I am very sorry that she has not got it. It does clarify the position.

The Chairman of the Select Committee needs a couple of minutes in which to speak, so I will conclude. We will create a market that really works for consumers: one that is fair, simple and transparent. In that spirit, I thank hon. Members for their speeches and questions today. I thank my brilliant civil servants for all their hard work. I thank LEASE and all the committed people involved in this area, and I look forward to driving ahead with our programme of leasehold reform.