Leasehold Reform

Heather Wheeler Excerpts

Thursday 11th July 2019 Commons Chamber

[The Parliamentary Under-Secretary of State for Housing, Communities and Local Government (Mrs Heather Wheeler)]

First, I wish to thank all the hon. Members for their detailed contributions on an issue that affects so much of England; nobody can fail to be moved by the stories we have heard today. Obviously, I wish to thank the hon. Member for Sheffield South East (Mr Betts) for raising this issue and for his work as Chair of the Select Committee on the recent inquiry and the 18 contributors today.

There are more than 4 million leasehold properties in the UK, and leasehold tenure allows people to complete the journey towards ownership. As many Members will know, the Committee’s report contained a number of recommendations concerning both existing and future leaseholders. The Government have welcomed, considered and responded to the recommendations, and we will now press ahead with our programme of reform.

When we first announced our plans to reform the leasehold sector in December 2017, we said that we wanted to get the detail right. That is why we consulted last year on the implementation of our proposals, including the leasehold house ban and ground rent reduction. We received nearly 1,300 responses, many of which were from leaseholders hungry for change. The responses have also allowed us to fine-tune our proposals, which will remove many of the current injustices from the future leasehold market.

We will go ahead with our original plan to reduce ground rents on future leases to a peppercorn, as opposed to £10. Through the Committee’s inquiry and our own consultation process, it has become clear that a peppercorn is clearly understood and is best for the consumer—this is a peppercorn of zero. In practice, this will mean that leaseholders will no longer be charged a financial sum for which they receive no material benefit. It will also remove the current financial incentive for developers to build leasehold properties, as ground rent income will no longer present a lucrative profit stream.

[Maria Eagle]

rose—

[Mrs Wheeler]

I will not give way, as I have a lot to get through and I believe I have some answers for people.

On the leasehold house ban, I am pleased with the profound impact our original announcement and the work of campaigners have had on the market. When we made the announcement in 2017, 11% of new build houses in England were sold as leasehold, whereas today the figure stands at 2%—I repeat that it has reduced to that level. Despite that progress, we will still legislate to ensure that in the future—save for in the most exceptional circumstances—all new houses will be sold on a freehold basis. Developers will no longer be able to use leases on houses for their own financial gain, a practice that had become the norm in some regions of the country and, as we appreciate, particularly in the north-west. These reforms will remove the incentives for developers and freeholders to use leasehold to make unjustified profits at the expense of leaseholders, and we will be pressing ahead as soon as parliamentary time allows.

On the matter of where ground rents are so high that it—

[Sir George Howarth]

On a point of order, Mr Speaker. The Minister has just said that she would want to press ahead as soon as parliamentary time allows. I wonder whether you could confirm that the one thing this Parliament is not short of is time.

[Mr Speaker]

If it were for the Chair to decide, I would happily allocate time to all sorts of worthy purposes, but, sadly, the powers of the Speaker do not extend that far. If the right hon. Gentleman is bidding to increase my power, far be it for me to say no.

[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.

[Mr Speaker]

To wind up, I call Mr Clive Betts, the Chairman of the Housing, Communities and Local Government Committee, an august figure in the House.