Jim Fitzpatrick
Main Page: Jim Fitzpatrick (Labour - Poplar and Limehouse)
Jim Fitzpatrick (Poplar and Limehouse) (Lab)
I beg to move,
That this House has considered leasehold and commonhold reform.
I am grateful to the Backbench Business Committee for accepting the bid for the debate from the all-party parliamentary group on leasehold reform. I co-chair the group with the hon. Member for Worthing West (Sir Peter Bottomley), who I am happy to see is present. More than 50 Members of both Houses have joined the APPG since our inaugural meeting, which took place only a short time ago. I want to record the group’s thanks to Martin Boyd of the Leasehold Knowledge Partnership and Sebastian O’Kelly of the Campaign Against Retirement Leasehold Exploitation—Carlex—who act as our secretariat and advisers.
This debate is overdue. The front page of a library briefing makes the fundamental point. It states:
“Despite a good deal of legislative activity in this area, dissatisfaction remains.”
I am sure that, were this not the last day before the Christmas recess, many more Members would be present, because the issue affects millions of homeowners. Under the heading “The extent of leasehold ownership”, the briefing states:
“DCLG published a technical paper…in August 2014…to produce a new estimate of 4.1 million leasehold dwellings in England in 2012-13…The Leasehold Knowledge Partnership …estimated that there were around 5.37 million leasehold properties…at the end of 2013.”
On commonhold, the briefing states:
“Commonhold tenure is viewed as offering several advantages over the leasehold system. It does not remove the obligation on residents to contribute to management/maintenance and major works, but it is argued to be a more transparent system.”
Describing the advantages, it states:
“Commonhold will address the problem of lessees being beholden to an absentee landlord who cannot be bothered to carry out building maintenance and management, or who is more interested in trying to make a profit at their expense.”
I shall say much more about that later. The briefing continues:
“Commonhold will also remove the problem of leasehold property being a wasting asset. Commonholders will each have a perpetual interest, effectively akin to a freehold, in their individual unit. Standardised commonhold constitutional documents should be of general benefit.”
In my constituency, as in many, there is a mix of leaseholders: those who have bought former council properties under right-to-buy legislation—perhaps second, third or even fourth purchasers—and/or those who have either bought new properties built in east London as part of its regeneration, or bought into converted warehouses and the like which have been transformed into homes. The constituency contains the second highest number of leasehold properties in England, after Cities of London and Westminster.
Common issues affecting both types of property, new private sector and former public sector, include the length of leases, service charges, insurance fees, refurbishment costs, recognition rights, ground rents and dispute resolution procedures. I shall deal with all those briefly, but I shall not cover event fees, forfeiture or retirement homes, because I am much less familiar with those problems and I know that other Members intend to raise them.
The length of leases varies from 99 to 999 years. Many people who buy their homes under leasehold believe that they are purchasing their property, but they are not; they are leasing it. Because some ground rents double every 10 years, mortgages can be more difficult to secure later in the lease for resale. As for service charges, in the former public sector there have been improvements in recent years, with more transparency of costs and detail to show reasonableness of charges. Previously, constituents of mine have been charged for lifts in blocks with no lifts, and for garden upkeep in places with no gardens. Despite the improvements, however, there are still anomalies. The HomeOwners Alliance writes:
“Many new build freehold houses…on new housing estates are being sold by developers subject to a requirement for the owners to pay maintenance/service charge for common areas on the estate…freeholders in this situation (unlike leaseholders) are unable to bring claims to the Property Tribunal if they feel these charges are unreasonable.”
My wife and I own such a freehold property.
Also in the private sector, I have tried to help residents on two large sites in my constituency, Canary Riverside and West India Quay. Both are controlled by a gentleman—well, I would rather say a person—called John Christodoulou, under the Yianis group. LKP has been very involved in assisting the residents. Both sites have tried to work constructively with the landlord’s managing agents over many years, but have suffered from very poor management. Both had not had accounts for years, regardless of what the legislation may say is required. Only when the Canary Riverside site took its latest action through the tribunal process, to replace the landlord’s agent through fault, did the accounts emerge, and what they showed was a far from pretty picture. In the decision, the tribunal was highly critical of many aspects of the landlord’s management, including the fact that it had not had a professional planned maintenance programme and then, having obtained one, had failed to implement it.
Since the court’s appointment of a new manager, which began in October this year, the landlord’s solicitor, a Mr David Marsden of Trowers & Hamlins, appears to have bombarded the court-appointed manager with a huge number of emails: 22 in October, 29 in November, and 37 so far this month. It strikes me as very important that when the landlord’s management is removed through fault, as happened in this case, the tribunal should act to protect the court-appointed manager from what appears to be little short of harassment. The residents at Canary Riverside wrote to me yesterday, saying:
“In addition to bombarding our Tribunal-appointed Manager with emails, the Manager is being ground down by the continuous litigation being brought by the landlord in an attempt to undermine the FTT’s”—
first-tier tribunal’s—
“decision and frustrate the new management.
There is a real risk that Canary riverside lessees could find themselves in a worse position than if we had never taken the Section 24 action: i.e., back under the management of a landlord who knows the law does not protect lessees in large mixed-use developments.
The FTT-appointed Manager is increasingly finding himself in an untenable position, forced to spend more time dealing with the landlord’s demands and injunctions than resolving the estate management issues he was appointed to remedy.
Section 24 appears only to work if the landlord agrees, even if a decision is unequivocally in lessees’ favour.
Christodoulou is currently seeking a Judicial Review in an attempt to undo the FTT’s decision (having had three appeals fail at the FTT and Upper Tribunal).
He is also taking every opportunity to apply to the High Court to chip away at the Manager’s powers. On Friday he obtained an injunction that effectively granted him and his staff unfettered access to the Canary Riverside estate. An estate he no longer manages.
The lessees at Canary Riverside spent over two years securing the FTT’s decision—at a considerable cost, both financially and in respect of the time and energy needed to pursue legal action. It has been a huge endeavour.
But it seems the…hearing was just the beginning of our legal battle. The landlord’s fees were £335,000 for the FTT hearing. Since then there have been three appeals, a Judicial Review pending, and several High Court injunction hearings. Legal fees could easily top £500,000, and our (billionaire) landlord knows that the more legal resources he throws at winning, the more likely he is to win.
Section 24”—
and I say this to the Minister—
“is not fit for purpose, and we”—
the residents—
“will end up over £500,000 poorer”—
half a million pounds worse off—
“and with nowhere else to turn.
None of this impacts the value of Christodoulou’s investment—the only people damaged by poor estate management and high service charges is the lessees.”
I should welcome the Minister’s comments on that.
Over at West India Quay, Christmas eve will mark a new and dismal milestone: the sixth year of accounts will become overdue. The residents have had none since 2010, and more than £10 million of their cash is unaccounted for. In its 14 years of occupation, their building has never been subject to a planned preventive maintenance report. I ask the Minister, “How can that be allowed?” In fact, it can be allowed because there is no enforcement action for the residents to try to ensure that the property managing agents and owners do something about it.
Those are two examples of the problems faced by residents who are up against powerful, uncaring and unscrupulous landlords.
In 2012, the consumer organisation Which? estimated that £700 million was being overcharged in service charges each year. That was when everyone thought that there were between 2 million and 2.5 million leasehold homes. Given the size of the sector as we now know it to be, that suggests that £1.4 billion may be being overcharged each year. That cannot be right either.
Freeholders in one block in my constituency were asked for £78,000 to insure a building containing about 32 flats. Several of them worked in the sector, and they were sure that £15,000 would have been a more appropriate charge. They settled for £22,000 after negotiation.
Refurbishment costs mostly affect former council blocks, and leaseholders are almost at the mercy of councils or housing associations. Trying to secure detailed bills or tenders, guarantees on completion of work being undertaken and assurances of the quality of the work being undertaken has proved very difficult and unreasonable, especially from public sector organisations. Fortunately, this is changing, but progress is very slow.
Recognition rights is a source of much consternation in both the private and the public sectors. I have one group of residents in Campbell Road who won the first-tier tribunal for recognition of their residents association, but their social landlord, Tower Hamlets Homes, is appealing against the ruling. There is an inbuilt sense of reverse snobbery and prejudice against leaseholders among some in the social housing sector.
There is recognition resistance in the private sector, too. One of my first such cases, nearly 20 years ago, was from residents in the Cascades block, the first high-rise private residential block on the Isle of Dogs in docklands. The freeholder was harassing them in an attempt to frustrate their efforts to set up a residents association to represent them on service and maintenance charges.
On dispute resolution procedures, I have mentioned the problems at Canary Riverside and West India Quay, but the costs of high-powered barristers defending freeholders at tribunal is now a disgrace. The procedures were originally supposed to be relatively informal. That has totally changed. A constituent of my hon. Friend the Member for Wolverhampton South West (Rob Marris), Paddy McHugh, has written to me saying:
“Any lessee who files a case at tribunal can expect to face a Barrister acting for the landlord. The costs in issue can outweigh paying for legal representation while a landlord is usually free to put his legal costs onto the service charge even against lessees not party to the case, whether or not the landlord is the respondent.”
This surely cannot be right either. Where is the justice in a system that favours billionaires protecting their profits over ordinary working people trying to protect their homes?
Ground rents have been the subject of a number of articles in the press and media reports recently.
James Berry (Kingston and Surbiton) (Con)
I congratulate the hon. Gentleman on securing a debate on this important topic, which was raised with me by the Charter Quay residents association in Kingston—and since he raises the point, I should say that I am a barrister, although thankfully not in the landlord and tenant sector. Does he agree that many people entering these leaseholds are entirely unaware that the landlords have the power to make huge increases in ground rents, and if this practice is deemed acceptable, at the very least tenants going into these agreements should have very clear information about what the landlords can do, and what their rights are as tenants and how they can challenge the landlord?
Jim Fitzpatrick
I am grateful to the hon. Gentleman for raising that point. As has been evident at a number of meetings that the hon. Member for Worthing West and I have had with legal and property experts and individual constituents from across the country, many people do not recognise the significance of this issue, including many lawyers. People are keen to get their hands on their first home or their new property and therefore will take the advice of lawyers who may not be fully conversant with the implications in this regard.
There is, to an extent, some relatively good news. After the outcry in a number of media reports, several of the large developers have announced that their policy of doubling ground rents every 10 years, which is the equivalent of 7% interest rates in perpetuity, is untenable and they are returning to the retail prices index. I am sure that the hon. Member for Worthing West, who is my hon. Friend for the purposes of this debate, will be raising that more extensively later. This is a success that the campaigning charities, residents associations and others have had. A number of the developers are backtracking, but that is not happening right across the piece. The question to the Minister is how we protect everybody from the rogues who will not do the right thing and prevent them from being subject to this abuse.
Sir Peter Bottomley (Worthing West) (Con)
I am grateful that the hon. Gentleman has brought this subject up. My calculation is that if a £250,000 house has a £250 ground rent that doubles every 10 years, over 60 years the successive leaseholders will have paid £157,500. For that still to be 1% of the value, the house will have to be worth £80 million; that is in the first 60 years of a lease.
Jim Fitzpatrick
The hon. Gentleman emphasises the absurdity of this situation and the abuse. It is a big issue, as he knows; he has been campaigning on it and the all-party group will continue to campaign on it. We have had a modicum of success so far. I think there is an opportunity to drive this issue into reverse and deal with this charge, which should have been peppercorn or tokenistic, but which is now a much more difficult issue for purchasers. There is an opportunity to take it back into the realms of where it should have been or to abolish it altogether.
The aims of the all-party group are relatively simple: to reduce the opportunities for exploitation; to alleviate the distress and hardship of leaseholders, particularly the elderly; to do away with the high costs of the property tribunal; to examine incidences of lease forfeiture; to examine the value of retirement leasehold properties; to unearth and publicise scandalous behaviour of professionals involved in the leasehold sector; to examine insurance commissions and matters where leaseholders pay but are not party to the contract; and to ensure that the right-to-manage legislation acts as intended.
We have had a number of successes so far, including the growth of the all-party group. It has been well attended, with many professionals at the round tables organised by LKP and us, helped by Miss Katherine O’Riordan from the hon. Gentleman’s office, to make sure that the meetings are successful. We have had significant media interest, and interest from Ministers and shadow Ministers; I am pleased both the Minister for Housing and Planning and his shadow Minister are in their places today. We look forward to hearing what they have to say on these issues. We have had interest, too, from senior civil servants at the Department for Communities and Local Government, which we are grateful for because it demonstrates that both Government and Opposition are taking this matter seriously. There is a recognition that everything is not quite well here and things need to be examined. We also have today’s debate in which to raise the issue.
Some matters are easier to resolve than others, and some will require legislation, but it is not all bad news. The industry is also trying to clean up the sector, with the Association of Residential Management Agents, led by Dr Nigel Glen, introducing ARMA-Q, its code of practice for property management companies, and the appointment of a regulator for the sector to oversee and assist in dispute resolution procedures. Many decent professional organisations have joined, and even a number outside ARMA are decent companies too, but sadly there are still too many bullies, cowboys and crooks in the sector. For the Government to feel comfortable with the legislation as it stands is unacceptable. We need not only better regulation, better protection and advice, but legislation. Millions of citizens are looking to their politicians of whichever party to remedy their distress.
In conclusion, I return to my original comment from the Library:
“Despite a good deal of legislative activity in this area, dissatisfaction remains.”
This problem goes back to the ’90s. Governments of both main parties have tried to resolve it and have been unsuccessful, so in some senses it is not a party political issue. But until a Government recognise the unfairness, the robbery and the dissatisfaction, many good people are condemned to suffer. Politically, for me this is a vote winner for whichever party pledges action, and all parties should.
Sir Peter Bottomley (Worthing West) (Con)
The hon. Member for Poplar and Limehouse (Jim Fitzpatrick)—my hon. Friend—referred to things going wrong on purpose, and things sometimes going wrong by mistake.
To avoid something going wrong by mistake, I ask the Government, and particularly the Ministry of Justice, to abandon the opportunity of winning a forfeiture order on a residential home over a smallish debt. By all means, in extremis, an asset might have to be ordered to be sold, but the surplus value should certainly go to the leaseholder and should not be forfeited to the freeholder.
One of the worst cases is that of Plantation Wharf in Battersea. Two elderly people applied to challenge management costs of about £9,000. The leasehold valuation tribunal—the lower property tribunal—agreed with them in large part and struck off about £7,000. There were then applications for costs. One of the leaseholders had read on the Government website that the cost of going to the leasehold valuation tribunal was £500 and therefore assumed that there was nothing in the cost application. By inattention, he ended up bouncing between various courts and owing over £70,000. A forfeiture order was granted, with even the mortgage lender not realising that its part of the asset would be forfeited as well.
When the insurance company that provided the mortgage woke up at the last moment—at the prompting of the Leasehold Knowledge Partnership, to which I pay tribute—the debt was settled and the man was able to go off to his new home with the bulk of his equity. He should never have been forced to pay anything, because if someone wins £5,000 out of £7,000, for example, or £7,000 out of £9,000, that should be regarded as a win, not a score draw. At it happens, the freeholder in that case was not an avaricious crook, but people who were more used to commercial dealings and thought that everyone was professionally advised and could afford to pay costs.
I have a challenge to everybody in the field: do not assume that other people are as clever, wily or crooked as you are. Whether this was criminal or not is not for me to judge, but one crook is Martin Paine—pain with an e on the end—who has taken “lease” beyond sleaze, almost by adding a letter at the beginning, and into an art form. He owns a number of short leases, and anyone who wants to sell them has to get an extension. My understanding is that he offers legally valid, informal extensions. Under a formal extension, the ground rent reverts to virtually nothing.
Martin Paine’s informal leases contain a provision that doubles the ground rent every 10 years or so, but that is written into the lease in such a way that even experienced solicitors fail to find the wording or to connect the clauses together. A person, who may be a first-time buyer of a low-value flat, may then discover that they are asked for enormously high ground rents, and they are enormously high because Martin Paine has written the provision back to the first granting of the lease, not from the time of the extension. A flat might therefore be worth £150,000, but the leaseholder will be asked for thousands of pounds a year in ground rent, with the prospect of that going up. When the leaseholder complains, Mr Paine’s practice, as I understand it, is to say, “Sue your solicitor.” I therefore recommend that providers of indemnity insurance for solicitors get together, which I think they can do without being a cartel, and ask, “What pattern of claims have we had from those we insure?” to see whether this crookedness can be stopped.
Martin Paine will then occasionally buy back the flat at a low price and remarket it with the same terms. To do that once could be regarded as incompetence; to do it twice on the same property is deserving of the word “crooked.” Every single auctioneer should do what we had to recommend to one respectable auction house: look at the leases. It turned out, of course, that Martin Paine had not actually supplied the lease to the auctioneers early on—it was withdrawn.
We should not have to rely on the chance action of a campaigning charity such as LKP or Carlex—the Campaign Against Retirement Leasehold Exploitation—or a passing Member of Parliament, to get things put right.
I ought to declare an interest in that I own the lease on a flat in a freehold building in Worthing. We had a good landlord and a good managing agent, which has now been succeeded by another good managing agent. The freeholder decided that he was going to retire and suggested to the six leaseholders that we might like to buy the freehold from him—and we did. We have not had any problems at any point. Together, we are a good association, and we had our most recent meeting on Friday. However, that is not the experience of all others.
I come now to one of the latest manifestations of things going wrong. Over the past 20 years, some house builders have returned to selling houses on leasehold terms. I have it by communication from one house builder that the price it can get for selling a house leasehold is within 1% of selling it freehold. What is the reason for selling it leasehold? Some argue that the tradition in the north-west is different—it should not be—and some say that if someone can get away with something, others will copy. There are now examples in north London of builders producing roughly the same kind of home on either side of the street, with some freehold and some leasehold.
If a leasehold contains a provision that doubles the ground rent every 10 years, the example that I provided earlier on applies. I might have got the maths wrong because I was doing this late at night, but it is wrong to argue that an ordinary home that started at £250,000 needs to be worth £80 million in 60 years’ time to justify a ground rent that doubles every 10 years—by the rule of 72, we know that that means that it is going up by over 7% a year. I ask the corporate responsibility experts who occasionally go to the annual general meetings of quoted companies to start raising that with the house builders. I would also like the Home Builders Federation to talk about how the practice is justifiable. Its representatives might say that it is just a commercial deal by some of its members and nothing to do with them, but I say that it is to do with them.
I see that the hon. Member for Brentford and Isleworth (Ruth Cadbury) is in the Chamber. The people who established and ran Cadbury were the sort of people who did not need Members of Parliament to remind them of how to behave; they knew in their bones, their blood and their heart that people should be treated properly.
I own some shares in Persimmon and some in Taylor Wimpey, and I might buy some shares in other builders. If necessary, I shall go to their AGMs, giving notice in advance, to ask what they will do to unwind the problems that they created in the past. Taylor Wimpey says that it was unaware of what was going on before it came together, because it is an amalgamation of many businesses, but it knows now. The problem comes with putting things right.
If a building firm—I am not focusing on Taylor Wimpey, because I think it has realised that there are issues to investigate—sells the freeholds, it prevents itself from being able to treat its leaseholders properly.
Many leaseholders buy a flat through solicitors who work for the seller, and those solicitors will probably have attendance notes and perhaps some letters that point out the provisions of the ground rent. That may or may not be the case. What I doubt—I asked one solicitor, but have not yet received the evidence—is whether the attendance note and the letters point out that if someone were to buy their freehold in the first three years, they might be able to get it very cheaply, perhaps at a multiple of 10 times the ground rent, but that if they wait and the first freeholder sells to another, the new freeholder may say, “Actually, because interest rates have gone down, the value of the ground rent has gone up, and you have to buy it at the new multiple of the value of the ground rent.” Why do the Government not just agree a straightforward graph to show what the purchase price for a freehold ought to be at various stages?
I interrupt myself now to say that I was going speak for a long section on hedonic regression and Sloane Stanley Estate v. Mundy. As part of that case, Wellcome Trust interests managed to persuade an upper property tribunal of two people to make a change in the valuation of short leases, which probably lifted the apparent cost of extending leases by about 40%.
It is good for the Wellcome Trust to get good publicity for saying that it will give £1 billion to good causes—mostly medical research—this year. I do not mind its chief investment person being paid £3 million if they have lifted the capital value of the assets by 18% in the last year.
If £1 billion of those assets involves the estate that was bought from the Henry Smith Charity, which was established to help children and others with its income, and if the Wellcome Trust bought that estate because it managed to persuade people, without a public interest representative present, that the cost of enfranchisement or extension should go up so enormously, something is seriously wrong. It will take people in government and their advisers to work out what that is.
If there is an appeal against that Mundy case, I hope that the Government will associate themselves with it and try to make sure that, on the hedonic regression, the calculations go back to before the Leasehold Reform, Housing and Urban Development Act 1993, because after that Act the values were affected by what it said. I think that James Wyatt and Parthenia Valuation are more likely to be right. I hope that the appeal succeeds, and that the Government will make sure that if it does not, the decision in the Mundy case will be reversed by statute.
I return to the issue of smaller leaseholders. If I were a small leaseholder applying either for an extension or to buy my freehold, I would find that the freeholder’s costs has could be put back on to the leaseholders, as was pointed out by my hon. Friend the Member for Poplar and Limehouse. But what about the costs to me? I have to go to surveyors and lawyers. I am new to this and I am dealing with freeholders who do this multiple times a week or a year. They are very experienced and they are often very rich.
Perhaps the Government could bring in simple graphs to cover most cases where people could ask, “Where do I stand on the graph? What is the length of the lease? What are the terms?” The Government could say, “By the way, there is going to be a cap on ground rents, so you can’t go monetising those and making the leaseholder buy them out on some prospective multiple just because the bank reference rate is very low and the apparent cost of buying them out becomes very high.”
Jim Fitzpatrick
I apologise for interrupting as the hon. Gentleman is making a good point. When the dispute resolution procedure was originally designed, was it not supposed to create a relatively informal arrangement whereby residents could go to a tribunal to argue their case? That has been completely distorted by some of these unscrupulous freeholder landlords bringing in high-powered barristers and then charging their fees to the residents, whether they win or lose.
Sir Peter Bottomley
I agree completely. Moreover, that reminds me that the Government have had a review of LEASE—the leasehold advisory service—and I fear that the decision for it to try to make itself sustaining within the next four years is wrong. LEASE is chaired by Roger Southam, and he and his wife know quite a bit about leasehold property. His predecessor was Deep Sagar, during whose time LEASE would hold fundraising conferences where it would take the surplus, and the people who paid to come would listen to experts explaining how they could gain extra income from leaseholders. For example, someone might have stood up there and said, “Do you know, the freeholder gets the managing agent to arrange the insurance, it is paid for by the leaseholders and the commission can stick with the freeholder end?” My hon. Friend the Member for Plymouth, Sutton and Devonport (Oliver Colvile) may address the issue of insurance later. So if the commission happened to be 40% or 50%, a leaseholder would be paying twice as much as they should.
What happens when the leaseholders want to get together? Again, that will be a point of law for the Government to consider. I do not think that anyone expects the Minister to be able to answer all the points raised today, but we will want to see early in the new year a proposed programme of action, which can then develop into reducing the abuse and improving the happiness.
The Minister for Housing and Planning (Gavin Barwell)
I congratulate my hon. Friend the Member for Worthing West (Sir Peter Bottomley) and the hon. Member for Poplar and Limehouse (Jim Fitzpatrick) on securing this really important debate. I also thank the Backbench Business Committee for granting their request. Both hon. Members have shown over the years a real dedication to leasehold reform, and I appreciate their advocacy not only for their constituents, but for prospective and existing leaseholders across the country.
As we have heard, there are more than 4 million leasehold homes in England. That figure represents an important and significant proportion of the housing market. It is also a growing proportion of the housing market: 43% of all new build registrations in England and Wales in 2016 were leasehold.
Jim Fitzpatrick
I apologise for intervening on the Minister so early in his speech; we look forward to hearing what he has to say. May I remind him that it was campaigning by LKP and others that got the DCLG to review the figure and change it from 2.1 million to 4.1 million? The hon. Member for Worthing West (Sir Peter Bottomley) has already called for a statistical review, because LKP thinks that the figure is closer to 5.5 million and might even be higher. The number to which the Minister refers, which is a significant part of the housing market, may be even bigger.
Gavin Barwell
The hon. Gentleman makes his point forcefully. Whatever the actual figure—clearly, the work that was done resulted in the increase to which he refers—I think we can all agree that it is a significant part of the housing market, particularly in Greater London, which he and I have the privilege of representing.
Leasehold legislation has been amended on many occasions over the past 50 years to improve leaseholder rights, including the right to extend their lease, appoint a new manager, challenge unreasonable service charges and purchase the freehold. All of that legislation has helped, but it clearly has not solved the problem, which is probably a lesson for all of us. Why has it not solved the problem? I think that we can point to two clear things. First, the legislation is seen by many as complex, as a number of hon. Members have said, and that can cause problems for leaseholders and freeholders alike. Secondly—the hon. Member for Brentford and Isleworth (Ruth Cadbury), who spoke on behalf of the Opposition, referred to this—the 2016 national leasehold survey showed that 57% of leaseholders either somewhat or strongly agree with the statement:
“I regret buying a leasehold property”.
That is a pretty sobering statistic.
We should accept at the outset that, whatever changes we make to the law, and whatever system we have for managing properties where a number of people have an interest in the land, some tension is inevitable. Even in those countries that have a commonhold system, some people in a particular block of flats might be keen for further improvements to be made, while others, who might be more financially challenged, might be more nervous about their service charge bills.
The hon. Lady said that she was concerned that I was going to respond by saying that the concerns that we have heard are just exceptions that do not represent the real problem. I assure her that the leasehold survey shows that they are not exceptions and that there is a widespread problem that needs to be addressed. I was asked directly whether I felt comfortable with the current situation. I assure hon. Members that I most certainly do not feel comfortable with the level of concern right across the country. Indeed, I am very keen to explore how we can promote greater transparency and fairness, and to work with all interested parties to improve leaseholders’ experience of home ownership.
This is a timely debate because it has highlighted concerns that others have raised, including the Law Commission as part of its consultation on the 13th programme of law reform. We are working closely with the commission and will use the examples raised today in our discussions with it.
I want to consider the issue of houses being sold as leasehold, which my hon. Friend the Member for Worthing West and the hon. Member for Ellesmere Port and Neston (Justin Madders) have mentioned. Leasehold has been a part of the housing market in this country for decades, even centuries. In the right circumstances, with the right safeguards, it can serve both leaseholders and freeholders well. As we have heard today, however, that is often not the case.
Analysis by LKP suggests that nearly 9,000 houses were built and sold last year as leasehold. Some have no shared services or estate management functions. In fact, they seem to exist only to create a reliable income stream from the ground rent, permissions to alter the property, and selling on the freehold at some point in the future. Developers can maximise their return by selling the freehold interest to the leaseholder at a higher value after they have moved in, or by selling it to a third party without informing the leaseholder. That is a critical point: if a freeholder wishes to sell a leasehold flat, the leaseholder has the right of first refusal, but that right does not extend to those in leasehold houses.
Those practices are not illegal, but it seems to me, and to the Secretary of State, to be one of those cases where there is a gulf between the letter of the law and our sense of what is right. Some of the cases that we have seen in the media and heard about today have highlighted some truly appalling behaviour. The Secretary of State and I have been looking closely at the issues raised in recent weeks and we are both absolutely determined to stamp out unfair, unjust and unacceptable abuse of the leasehold system.
A number of references have been made to Taylor Wimpey’s announcement that it will address some of our concerns about its use of leasehold. I am keen to hear more about what it plans to do, not just to stop such practices in the future, but to help homeowners who are currently stuck with ground rents rising much faster than inflation. The hon. Member for Ellesmere Port and Neston made that point powerfully. The leaseholder does not have to be very far into the lease in order to be stuck with that problem, which relates not necessarily to their actual payments at that point in time, but to their ability either to extend the lease or to sell the property to someone else.
Gavin Barwell
The 2016 Act does not give a right to veto, but it gives improved powers to residents associations. Groups have had some difficulties in exercising those powers. If the hon. Lady will give me a second, I will try to explain what we seek to achieve.
Section 130 of the 2016 Act will make a big difference to residents associations, which are finding it difficult to obtain the number of members needed to help them to apply for statutory recognition and the additional rights that that brings. It will do so by requiring a landlord to supply to the secretary of a residents association information that would allow contact to be made with absent leaseholders for the purposes of increasing the association’s membership and therefore its likelihood of achieving recognition.
Another important aspect of the Housing and Planning Act 2016, concerns a landlord’s recovery of litigation costs from leaseholders as administrative charges, which the hon. Member for Poplar and Limehouse raised. He gave a pretty horrific example from his constituency of how that is being abused in a particular case. At present, where a lease allows a landlord to recover the costs of legal proceedings through the service charge, a court or tribunal can decide to restrict the amount that can be recovered in that way. Courts or tribunals do not have similar powers where recovery of the costs of proceedings as an administration charge is permitted by the lease.
Gavin Barwell
The hon. Gentleman is nodding; that is the situation in the case that he mentioned. That can lead to unfairness, because the leaseholder will have no choice but to pay the costs of proceedings as an administration charge, regardless of the proceedings. That discourages leaseholders from exercising their rights to challenge the amount of a service charge, particularly as the landlord’s costs in the proceedings could well exceed the amount that is being disputed. The commencement planned early in the new year of section 131 of the Housing and Planning Act will enable the tribunal or court to consider, on application by the leaseholder, whether it is reasonable for a landlord to recover all or part of those costs.
The complicated nature of leasehold can make it challenging for people to ensure that they follow the correct legal procedures. To help leaseholders to navigate through the system, the Government provide access to free, independent legal advice and information through the leasehold advisory service, or LEASE, as it is known. My hon. Friend the Member for Worthing West referred to it in his speech. Last year, Government provided LEASE with more than £1 million of funding, and 850,000 people across the country benefited from free advice.
Jim Fitzpatrick
This has been an important debate. We have had fewer contributions than we expected when we put in a bid for this space at the Backbench Business Committee, but it is reassuring that so many colleagues have come into the Chamber to listen to the Minister’s winding-up speech. They recognise that this is an important issue, and they therefore wanted to hear what he had to say. Perhaps that will reassure him about his popularity: he did not realise it was quite as widespread as it is.
The hon. Member for Worthing West (Sir Peter Bottomley) comprehensively exposed the abuses and he named names. He said this goes “beyond sleaze”. My hon. Friend the Member for Ellesmere Port and Neston (Justin Madders) said this is the PPI scandal of the property sector. The hon. Member for Plymouth, Sutton and Devonport (Oliver Colvile) talked about the unfairness in the system. The shadow Minister, my hon. Friend the Member for Brentford and Isleworth (Ruth Cadbury), quoted the Daily Mail. She said it is not her usual read, but even the Daily Mail gets some things right occasionally, which is reassuring. She gave many examples of poor, shoddy and criminal practices, and on behalf of the official Opposition she made several commitments on leasehold and commonhold. We heard interventions from the hon. Members for Kingston and Surbiton (James Berry) and for Bolton West (Chris Green), and my hon. Friend the Member for Harrow West (Mr Thomas), who gave examples of problems in their constituencies. I thank the Minister for his response, including his declaration that he is uncomfortable with the current situation. He said that there is “a gulf between the letter of the law and…what is right”.
He indicated that he will look at this issue in the new year and do something about it, and we welcome the promises he has made on behalf of himself and of the Secretary of State.
The all-party group will continue to campaign on this issue. We look forward to engaging with the Minister and his civil servants, as we have during the past year. We intend to engage with the Government not only to examine and address the abuses and anomalies in the system, but to put the position straight. On behalf of the all-party group, the hon. Member for Worthing West and I wish you, Madam Deputy Speaker, and all colleagues, as well as all the staff of the House, a very happy Christmas and a decent break. We look forward to 2017, when leasehold and commonhold will be back on the agenda.
Madam Deputy Speaker (Mrs Eleanor Laing)
Thank you, and may I return the compliment of the hon. Gentleman and the House by wishing everybody a very happy Christmas and a good new year?
Question put and agreed to.
Resolved,
That this House has considered leasehold and commonhold reform.