Protection for Homebuyers

Jim Fitzpatrick Excerpts

Thursday 13th December 2018 Westminster Hall

[Jim Fitzpatrick (Poplar and Limehouse) (Lab)]

It is a pleasure to see you in the Chair this afternoon, Ms Ryan, presiding over the debate. I congratulate my hon. Friend the Member for Stretford and Urmston (Kate Green) both on securing this important debate and on her excellent opening speech, which covered so much ground. I am grateful to the House of Commons Library and to the Leasehold Knowledge Partnership for their briefings. I will focus on two points: leaseholder tenure, which my hon. Friend mentioned, and, briefly, fire sprinklers.

I co-chair the all-party parliamentary group on leasehold and commonhold reform with the hon. Member for Worthing West (Sir Peter Bottomley) and the right hon. Member for Kingston and Surbiton (Sir Edward Davey). It is good to see our inestimable vice-chair, my hon. Friend the Member for Ellesmere Port and Neston (Justin Madders), in the Chamber.

Governments of both persuasions have recognised that homebuyers are vulnerable to purchasing a property that does not meet their expectations. The Tories legislated in this area in 1986 and 1993, and Labour did more in 2002. Despite incremental increases in protection, the Government recognise that more needs to be done. As a result, the Prime Minister, and successive Secretaries of State and Housing Ministers, have been making promises on ground rents, the conduct of property management companies, the right to manage, dispute resolution and commonhold. We have had various statements—written and oral—a White Paper, calls for evidence and consultations. The Law Commission has been tasked with a major review of the law and is on the case.

The first anomaly comes with the purchase of the property. I say “purchase”, but as the Library briefing makes clear:

“Owners of long leasehold properties do not necessarily appreciate that, although they are owner-occupiers, they are in a landlord and tenant relationship with the freeholder.”

It might not be clearly pointed out by the solicitor acting for the purchaser. As my hon. Friend the Member for Stretford and Urmston mentioned, that is perhaps no surprise when those solicitors are recommended by the selling developer and, it can be reasonably suggested, manage to juggle a conflict of interest that would be beyond most of us.

My constituency of Poplar and Limehouse has the second highest number of leasehold properties in the country, and had the highest number of leasehold sales in 2015. Whereas the Home Builders Federation says that more than 90% of new homebuyers say that they would buy a new-build home again—somewhat contradicted by the nightmare stories articulated by my hon. Friend—a national survey in 2016 conducted by the Leasehold Advisory Service, the Government-funded advisory body known as LEASE, found that 57% of leaseholders regretted buying a leasehold property. That is quite a contrast.

LEASE has come in for quite a bit of criticism for not doing enough for leaseholders. When Mr Gavin Barwell was Housing Minister, he stated that LEASE should be the leaseholders’ champion, but LEASE still has a remit for freeholders and developers. That looks like a conflict of interest, and I would be grateful if the Minister would give her view of where LEASE sits within the legislative framework.

There is no doubt that some leaseholders are perfectly happy with their homes. However, many are not. The duration of leases can be anything from 99 years, 125 years, 250 years or 999 years. That is quite a range. The Library briefing lists a range of potential problems, some of which were mentioned by my hon. Friend. They include high service charges and a lack of transparency over what people are being charged for; freeholders blocking attempts by leaseholders to exercise their right to manage; excessive costs for building insurance; administration charges; applications to extend lease agreements; and event fees.

I was contacted by a group of leaseholders in my constituency only last night, on the Aberfeldy village estate, complaining that their property management company, Rendall and Rittner, had raised service charges in 2016-17 by 12%, and this year by 6% in a new estate. Residents are also complaining about the poor service for the significant charges that they are paying—nearly £3,000 per year. The Leasehold Knowledge Partnership, the campaigning charity in this area, and the all-party parliamentary group secretariat, run by Martin Boyd and Sebastian O’Kelly, ably assisted by Ms Katherine O’Riordan, have been lobbying the Government on those matters for years.

One of their notable successes early on was getting the Department for Communities and Local Government—now the Ministry of Housing, Communities and Local Government—to revise the figures for leasehold properties. The Department was working on the basis of 2.3 million properties for a number of years. LKP persuaded it eventually that there were many more, and the Ministry now uses the figure of 4.3 million. However, LKP calculates that there are more than 6 million such properties, and the all-party parliamentary group knows which figures we think are likely to be more accurate.

The Select Committee on Housing, Communities and Local Government is in the middle of an inquiry, the conclusions and recommendations of which are keenly anticipated by the sector. There is strong pressure to regulate the sector in respect of property management companies. Some are trying to do a professional job and are observing their own voluntary standards in the meantime—many are members of the Association of Residential Managing Agents. However, many others need regulation that requires them to perform to professional standards. Lord Best has been leading a working group developing a regulatory regime, which the Government have committed to introduce.

[Helen Goodman]

Does my hon. Friend not agree that it sounds as though there has been some serious mis-selling, and the Minister ought to refer it to the Financial Conduct Authority?

--- Later in debate ---

[Jim Fitzpatrick]

There are certainly anomalies in the whole system. I think that there are more problems with the actual tenure of leaseholds, which makes buyers vulnerable to a range of things. Developers and freeholders then abuse the power and privilege that they have. Whether that is a matter for the FCA or not is another matter. The Minister might want to comment on that when responding.

My last point about leasehold relates to cladding. After the tragedy of the Grenfell fire, and following a major review of high-rise properties across the country, many blocks were found to be at risk. It is welcome that the Government set aside £400 million for councils and housing associations in the public sector to remove and replace defective cladding in homes and carry out remedial work. However, in the private sector the Government have restricted themselves to encouraging and exhorting freeholders and developers to do the honourable thing and accept the costs. Sadly, that has not worked in all cases. More troublingly, where it is not working, in blocks such as New Providence Wharf in my constituency, companies such as Ballymore are passing the costs on to leaseholders simply because they legally can.

In some buildings, the National House Building Council 10-year warranty has provided protection, as it has in New Festival Quarter in my constituency. Along with the positive decision by Bellway that has already been referred to, that stands in stark contrast to Ballymore. These costs run into millions; most of the residents of these flats are young professionals who are mortgaged up to the hilt, with no capacity for additional borrowing even if they wanted that option.

On 29 November, the Secretary of State published a written statement on the matter, in which he stated:

“I am…writing to local authorities with buildings where the owner refuses to remediate unsafe ACM cladding, to offer them our full support to take enforcement action. This will include financial support where this is necessary for the local authority to carry out emergency remedial work.

Where financial support is provided, local authorities will recover the costs from the building owner.

I am determined that building owners will not evade their responsibilities and that local authorities will have all the support they need to ensure that all high-rise buildings with unsafe ACM cladding are made permanently safe for the people who live in them.”—[Official Report, 29 November 2018; Vol. 650, c. 18WS.]

Further to that statement, I submitted a written question asking

“what legal powers local authorities have to recover costs.”

The Minister for Housing answered:

“The Housing Act 2004 allows local authorities to take enforcement action…If local authorities need to take emergency remedial action but are unable to fund this work up front, we will consider requests for funding which would be repaid once the local authorities recover the costs from the building owner.”

I would be grateful if the present Minister confirmed, first, whether the 2004 Act is the relevant legislation, secondly which section of the Act can applied—perhaps her officials could highlight it for us—and thirdly how much money is being set aside for such contingencies.

Most of what I have to say about tenure relates to points that I have raised before, but I make no apology for raising them again because they still need to be pressed. The Government’s work programme is very welcome, but we want to see it reach a conclusion.

My final point, which is somewhat connected, is about fire protection and the use of fire sprinklers. The Scottish Government are legislating for fire sprinklers in houses in multiple occupation, following a private Member’s Bill, the proposed Social Housing (Automatic Fire Suppression Systems) (Scotland) Bill. The Welsh Assembly has passed building regulations to require an automatic fire suppression to be introduced into new and converted homes, which is due principally to my former Fire Brigades Union colleague, Ann Jones AM. Wales was the first country in the world to pass such legislation: the Building Regulations &c. (Amendment No. 3) and Domestic Fire Safety (Wales) Regulations 2013, which came into effect on 1 January 2016.

In its ninth report of 2017-19, published on 18 July 2018, the Housing, Communities and Local Government Committee recommended:

“Where structurally feasible, sprinklers should be retro-fitted to existing high-rise residential buildings to provide an extra layer of safety for residents. The Government should make funding available to fit sprinklers into council and housing association-owned residential buildings above 18 metres, and issue guidance to that effect to building owners in the private sector.

We heard strong evidence recommending the Government require sprinkler systems be installed in a wider range of buildings, including student accommodation, hospitals and large commercial warehouses. The Government should undertake a consultation into whether it would be appropriate to require the installation of sprinkler systems in these buildings too.”

I would be grateful if the Minister updated us on where the Government stand on the installation of fire sprinklers in homes for vulnerable people, HMOs, buildings above 18 metres and high-rises above 30 metres, and gave us the latest news on sprinkler retrofitting.

There is much more fire protection work that can be done to protect people. The Government are moving towards better protection for people who have leasehold tenure, but that protection cannot come quickly enough. I look forward to the speeches of the Front-Bench spokespersons, especially that of my fellow West Ham United supporter, the Minister.

--- Later in debate ---

[Drew Hendry (Inverness, Nairn, Badenoch and Strathspey) (SNP)]

It is a pleasure to serve under your chairmanship this afternoon, Mr Sharma. I congratulate the hon. Member for Stretford and Urmston (Kate Green) on bringing not only a very important but a highly interesting debate to listen to, which has included various Members around the Chamber. It is very challenging to sum up the debate because there have been so many powerful points made by so many hon. Members, but I will do my best to pick out some of the key points as I saw them.

The hon. Member for Stretford and Urmston talked about the unhappy homebuyer experience and the impact that has on people when they have made a huge investment in their future. She also mentioned the number of problems that occur, particularly with new homes. Giving due praise to good home builders is important, because there are many. I am very fortunate: in the highlands, due to the scale—it is probably not the same scale as in other urban areas—the home builders are very good in general. They are not without problems—there are still issues, which I will talk about later. The hon. Lady was right to pick out those large developers who are getting away with some of the things she described.

The hon. Lady said that buying a home was one of the big, significant life changes, but that buyers were having to buy their houses more or less without having seen the final build. She also talked about the introduction of the new homes ombudsman. Like her, I would like to know more about what that will entail. It would be useful if the Minister covered some of those points, albeit she may want to do so briefly. The hon. Lady was right also to highlight the dangers of a voluntary approach when there is clearly such a widespread problem in house building.

The hon. Member for Poplar and Limehouse (Jim Fitzpatrick) mentioned issues for leaseholders as opposed to freeholders, and went on to address issues with ground rents and service charge hikes. I will talk later about property factoring charges. Those are important issues for people. Importantly, he also mentioned fire safety and sprinkler legislation, and pointed out the moves to tackle those issues in both Wales and Scotland.

The hon. Member for Ellesmere Port and Neston (Justin Madders) mentioned shocking additional charges that homebuyers uncover after purchase. That is clearly wrong. No one should be put in a position where they buy blind and suddenly find additional costs coming out of the woodwork—literally, in this case.

It is important to highlight the serious issue of solicitors’ conflict of interest, which a number of Members raised. It makes no real sense for the system to exist in that way. Clearly, there has to be segregation so people have confidence in the legal process when they buy a new home. The hon. Gentleman talked about people being pressured to use a solicitor from a panel due to purchase time pressures. Consumers should not be put under pressure when making a purchase of such magnitude in their lives. He challenged the Minister on those issues. He also raised the issue of paying maintenance charges twice, which I will come to, and suggested that the Minister might want to look at a retention scheme.

The hon. Member for Kingston upon Hull North (Diana Johnson) told us, shockingly, that she had waited five years for a meeting. That is disgraceful, and she rightly named and shamed Persimmon for doing that. She mentioned the issue of sinking gardens, which sounds horrendous, and one householder’s fear that her fence and land would slip into the drain, which the council could not take enforcement action on. Since Persimmon was mentioned a number of times, it is important to touch on the obscene bonuses paid to its chief executives. Surely, such grandiose remuneration is unacceptable.

Other hon. Members talked about completion and adoption, promises that are made about facilities and the scary arguments that come later with developers about costs. It is common for problems to occur a couple of years after the purchase price is paid and people move in, and for the developer either to be nowhere to be found or to argue. That is simply not good enough.

We do not know what consumer protection measures will be proposed—as was highlighted, they have yet to be published—but they are unlikely directly to affect Scotland because of the devolved nature of housing. However, that does not mean they will have no effect, so I am keen to see what comes from them. For a number of years, homeowners have had issues with property factors. The UK Government recently consulted on the issue as part of its implementation of reforms to the leasehold system, which is very different.

The Scottish Government brought forward the Property Factors (Scotland) Act 2011, which means that since 2012, registration has been compulsory for property factors operating in Scotland and they have had to follow a code of conduct outlining minimum standards. There is also a new dispute resolution system. The homeowner housing panel, and now the housing and property chamber of the first-tier tribunal for Scotland, have allowed homeowners to challenge property factors in Scotland.

[Jim Fitzpatrick]

Property factors being property management agents in Scottish speak, yes?

[Drew Hendry]

I am grateful for that translation from the Scots.

A test case was brought by Mr Michael Marriott, a householder in Clackmannanshire, against Greenbelt Group in 2015. He took his case to the Lands Tribunal for Scotland and won, because it was found that the deeds were not compliant with the legislation. Perhaps that is a learning opportunity for the UK Government. Where there is a clear breach, homeowners can pursue a course to get factoring clauses taken out of their deeds altogether.

That has made a big difference, but it would be foolish to say it has cured all the problems. There is much more work to be done in Scotland, including on issues with shared factor arrangements on private housing estates. There is one such estate in Milton of Leys in my constituency. One of my constituents was advised that his factoring bill had risen from £100 in 2005-06 to £173 in 2017-18, with no explanation—it was just applied to the costs.