Leasehold and Commonhold Reform

George Howarth 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.

[Mike Amesbury]

In my constituency of Weaver Vale, Morris homes is selling houses in a development in expectation of the new arrangements, and literally on the other side of the street, people are caught in the scandal we are talking about. Their homes are simply unsellable.

[Mr Howarth]

My hon. Friend makes a very good point. Was someone else trying to intervene?

[Hilary Benn]

If my right hon. Friend is offering, I will.

[Mr Howarth]

I did not have my right hon. Friend in mind, but I can never resist giving way to him.

[Hilary Benn]

My right hon. Friend is most kind. Listening to the powerful testimony on all sides of this Chamber, peeling the layers of an onion to see the full nature of this scandal, does he agree that it is impossible to reach any other conclusion than that the developers are responsible for this? They must have known what they were doing and what they hoped to gain by selling the freehold on to others who then engaged in the sharp practice that we have heard about. They bear the responsibility. The law will stop them from doing it anymore, but they also need to compensate people. Bearing in mind what has happened to developers’ profits —Miller Homes, which I mentioned earlier, announced earlier this year a 44% increase in their pre-tax profits—they can afford it, and they have a moral responsibility to compensate people they have put in an untenable position.

[Mr Howarth]

I am glad that I gave way to my right hon Friend; the point he makes is right. People should be compensated for what has happened to them. It is disgraceful and it should never have happened.

I conclude by asking the Minister—I realise that it is quite a delicate thing to do—to consider whether the Government can discourage developers from disposing of freeholds to management companies until it is clearer exactly how this problem will be tackled? That would be very helpful. I realise that it is a tricky area legally speaking, as we heard from the hon. Member for Witney. Nevertheless, I would certainly welcome whatever could be done to discourage or freeze any further transactions for the time being, and I know that all my constituents who have been affected would welcome that, too.