Leasehold and Commonhold Reform

Jim Fitzpatrick Excerpts

Thursday 21st December 2017 Westminster Hall

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

Sir David, it is a pleasure to serve under the chairmanship of a fellow West Ham United supporter; I know that you will show no favour. Your experience is very welcome here.

I am delighted to follow the hon. Member for Worthing West (Sir Peter Bottomley), and I pay tribute to him for his leadership on this issue over many years. I am proud to be his co-chair of the all-party parliamentary group on leasehold reform. I am pleased to see my right hon. Friend the Member for Wentworth and Dearne (John Healey), the shadow Secretary of State for Housing, in his place, demonstrating how seriously the Opposition take this issue. I am very pleased to see the Minister, who is highly regarded and who will take this issue forward. We are cheering from all sides of the House to give him a fair wind.

As co-chair of the all-party group, I wish to place on record my thanks to Katherine O’Riordan for her hard work for the group and for her professionalism, and to Martin Boyd and Sebastian O’Kelly of the Leasehold Knowledge Partnership, who act as our secretariat and have given us sterling support over the years, working with organisations such as the National Leasehold Campaign, which has been pushing on this issue for a long time.

I want to start by welcoming the Government’s efforts, including today’s announcement. Together with the housing White Paper, the consultation in September that led to today’s announcement, the call for evidence that the Government issued, the extra staff for the leasehold section of DCLG, more money for LEASE—despite our criticisms of the way it has operated previously—and today’s announcement all signal that the Government know there are problems. This will be the third time in recent decades that a Government will try to fix the abuses of leasehold tenure. The last two failed in 1993 and 2002. Hopefully this one will not.

However, today’s announcement must only be a start. Commonhold should be the real objective of our campaign. Although many people are clearly content with their leasehold properties, there are abuses for tens of thousands, if not hundreds of thousands, of leaseholders across England and Wales, and there are poor redress arrangements available.

[Mark Tami]

I praise my hon. Friend for all the work he has done. I very much welcome what the Government have announced, but a great number of people who already have leaseholds are affected, and it will obviously be very difficult for them to sell those properties. I know it is not easy, but we really need to get redress for those people as quickly as possible.

[Jim Fitzpatrick]

My hon. Friend puts his finger on the key point. We will be looking to the Minister for reassurance on the 5 million leaseholders who will not be covered by future regulation and legislation and many of whom are disadvantaged and are looking to the Government to address those concerns. I will come back to that later in my contribution.

According to House of Commons Library figures, my constituency has the second highest number of leasehold properties in the country. In 2016, it had the highest proportion of leasehold sales, at 97%. Only a couple of years ago, DCLG figures calculated that there were 2.3 million leasehold properties in England and Wales. Under pressure from the LKP and others, the Department adjusted that figure to 4.1 million, which is quoted often, even by the Library, as being as a more accurate figure.

However, as the hon. Member for Worthing West mentioned, the LKP now estimates that there are 6.2 million homes provided with leasehold services. That means millions of homes and homeowners are vulnerable to inflated service charges, exorbitant insurance costs, a lack of tender transparency and poor standards of work—original or repairs—as well as refusal to recognise properly constituted resident or tenant associations, mismanagement of funds and other fundamental problems. I hope that the Minister will elaborate on how today’s announcement will help to address many of those concerns.

I want briefly to focus on the post-Grenfell fire safety costs being inflicted on many leaseholders. On Monday, I asked the Secretary of State for Communities and Local Government when he made his statement on Grenfell Tower and building safety whether he could tell us how many applications for the costs of cladding replacement and fire precautions, including fire marshals, have been registered with the first-tier tribunal by landlords and freeholders. In relation to meeting the costs of building safety, he said:

“I have made it clear that I expect private sector landlords to take the lead that has been shown by housing associations and local authorities.”—[Official Report, 18 December 2017; Vol. 633, c. 784.]

That is, that leaseholders will not be charged for the costs. David Orr, the chief executive of the National Housing Association, said in correspondence today:

“As freeholders of leasehold properties, our members”—

housing associations—

“have legal responsibilities as part of their leases and are therefore legally entitled to recoup the reasonable costs through service-charges”.

That is hardly a ringing endorsement of what the Secretary of State said.

Equally, information from the first-tier tribunal shows that 17 applications have been made to it. I would be grateful if the Minister confirmed whether those were to dispense with the full section 20 consultation process or to gain prior approval, under section 27A, of the amount the landlord proposes to spend on cladding and pass on to leaseholders. Ministers have been positive in asserting that costs for removal and replacement, and so on, should be borne by the owners, freeholders and agents, but the experience on the ground may be different.

In my constituency, for the New Festival Quarter development, HomeGround, Bellway, Pinnacle, Adriatic Land 6 and Family Mosaic have informed me—after many calls and emails—that they have secured confirmation that the works costs will be met, but the cost of fire marshals, originally set at £32,000 a week plus VAT, will be met by leaseholders. That figure, after much examination and pressure, is now down to just under £20,000 a week plus VAT, but will run from October to at least February 2018, and I suspect probably longer. My question to the Minister is this: does he think it is fair that residents should pick up the tab? It is obvious from previous statements that he does not, so what further steps can they take to protect themselves? To be fair, the housing association Family Mosaic is opposed to leaseholders footing the bill, but managing agents Pinnacle are not so inclined—certainly not so far.

Can the Minister tell us how many other blocks are affected across the country? Page 74 of Dame Judith Hackitt’s interim report, published this week, says:

“In a significant proportion of buildings visited, fire and rescue services had to issue notices”.

As I understand it, these notices are known as NODs—notices of deficiencies, not alterations, enforcement or prohibition notices. Can the Minister tell us—or perhaps write to us afterwards—how many NODs there have been, and how many developments have confirmed no costs to leaseholders?

Returning to the Government announcement today, the Minister will know that Lord Justice Bean, chair of the Law Commission, issued a statement last week, saying:

“We are delighted to be able to confirm that Commissioners agreed that a project on residential leasehold and commonhold should form part of the 13th Programme and this has been approved by the Lord Chancellor.”

He goes on:

“Our project will commence with a review of leasehold enfranchisement, commonhold and managing agent regulation.”

He concludes:

“On the basis of receiving funding from the sponsoring Government Department, we expect to start work immediately.”

The question for the Government is: have they confirmed that they have the funds to carry out that fundamental job?

In conclusion, leasehold is not only well past its “sell by” date or its “best before” date; it is clearly at its “time to do something now” date. The media have woken up to the abuses. We have had more coverage of leasehold abuse in the past three to six months than we have had for the past decade. House buyers and mortgage lenders have woken up, by not buying where possible and declining to lend on many properties. The Government have reached a point where they need to be seen to be doing something, and they are. However, it is only a start. There are more than 5 million home owners now exposed and vulnerable, with more joining them in almost every new development. Urgent and fundamental reform is required. The Minister is just the chap to deliver. He has allies across the House; many he can see here today and others mentioned by the hon. Member for Worthing West. The fact that we have 130-plus members of the all-party group for leasehold and commonhold reform across both Houses demonstrates that this is a huge issue for millions of people across the country. They are looking to the Government to deliver for them. I look forward to the Minister’s response and other contributions in this debate.

--- Later in debate ---

[John Healey (Wentworth and Dearne) (Lab)]

I was delighted that Sir David was in the Chair at the start of the debate—he has a particular personal interest in many of these issues because he chairs the all-party fire safety rescue group—but I was even more pleased to see him hand on the baton for the final lap to you, Mr Bone. We are all grateful to you.

This may be one of the final events this parliamentary term, but I have found it one of the most encouraging. The Government’s announcement is certainly welcome as far as it goes, but as the Minister has heard from every contribution, they need to go further. In many ways, I see the debate as a reflection of Parliament and Ministers coming to terms with the first minority Government for 38 years. I see it as a reflection of the Government recognising that they do not have a domestic policy programme, because it is not covered by their deal with the Democratic Unionist party. I also see it as a reflection of the Prime Minister admitting that policy and market failures in housing over the past seven years were a big part of why her party did so badly at the last election.

Importantly, the debate has shown that Parliament now has a bigger influence on Government decisions and policy than it did at the beginning of 1997—sorry, 1917. [Interruption.] Sorry—it really is getting too close to Christmas to make much sense. Parliament now has much greater influence over Government decisions and policy than it did at the beginning of this year, especially when there is cross-party concern or agreement about what needs to be done.

There are three factors behind the strength of the speeches we have heard and the strong momentum for substantial leasehold reform. The first is the all-party group on leasehold and commonhold reform. I cannot pay strong enough tribute to the combined work of the hon. Member for Worthing West (Sir Peter Bottomley) and my hon. Friend the Member for Poplar and Limehouse (Jim Fitzpatrick). They were pursuing these issues when they were not popular issues and when the all-party group did not have 130 members, as it does now. It is one of the largest and most active groups in Parliament, as the hon. Gentleman said, and it is reinforced by outstanding individual campaigns, not least by my hon. Friends the Members for Ellesmere Port and Neston (Justin Madders) and for High Peak (Ruth George).

I like to think that Labour Front Benchers have done their bit, too, in the past couple of years. We went into the election in June with a commitment to legislate for a cap on the ground rent that leaseholders pay, to ban the use of leasehold for new homes as a matter of course, and to carry out an urgent review to try to ensure that we could deal with many of the problems for existing leaseholders that we have heard about. I say to my hon. Friends that, to some extent, this is unfinished business for Labour. We introduced the Commonhold and Leasehold Reform Act 2002 because we wanted to end leasehold for good and provide commonhold as an alternative. That did not work in that decade; we must ensure that it works in this decade.

The second factor is the fact that the industry has stepped up its use of leasehold for newly built homes. The Secretary of State says in his written statement that the proportion of new homes built on a leasehold basis has more than doubled in the past 20 years. He puts the figure at around one in six, although many experts—not least the Leasehold Knowledge Partnership—put it a great deal higher, and Members suggested that that is particularly the case in the north-west. In any event, the Leasehold Knowledge Partnership confirms that at least 260,000 new homes have been built on a leasehold basis since 2010.

The third factor is that greed has clearly got the better of many of the people involved in these arrangements. My right hon. Friend the Member for Delyn (David Hanson) said that he sometimes feels that this debate takes place in an echo chamber. We all have constituents who have been ripped off—fleeced—by such leasehold arrangements. In my area, there are regular reports about people who bought their homes on new developments using the solicitor that the builders put great pressure on them to use, who claim and feel that they never realised that they were buying on a leasehold basis, who were not made aware when the freehold was sold on, and who do not know who their ultimate landlord is or how to contact them. A change in the freeholder’s management company often leads to price hikes. People have been billed four times a year instead of twice, charged £9 for every letter, and charged an administration fee when they have rung up to ask for information or an analysis of the cost of purchasing the freehold.

[Jim Fitzpatrick]

Developers have rightly got a hammering this afternoon, but notwithstanding that, does my right hon. Friend accept that there are abuses in the social sector too? Some councils and housing associations used service charges and refurbishment charges as a blank cheque. The Government had to bring in a cap because that was getting out of control. It is not just the private sector that needs to be reformed; the social sector does too.

[John Healey]

That certainly applies in some cases and it is a good point, but it remains the case that the worst examples that have been cited in the debate resulted from big developers’ greed. For some developers, leasehold has become a golden cash cow. For many freeholders, it has become a licence to print money. We have found that freeholders have often moved offshore, beyond the reach of any tax system that the UK can bring to bear.

The sale of homes on a leasehold basis may well have started in the north-west, as the hon. Member for Worthing West indicated, but it is clear that the practice has spread widely across the country. Members from the north-west are strongly represented in the Chamber, but we have also heard from Members from the south-east, the south-west, Yorkshire, London, the north-east, the east midlands and even north Wales. [Interruption.] North Wales rather than the north-west, despite the proximity of the national boundary.

As I said, the Secretary of State’s statement is welcome as far as it goes, but I would like to tempt the Minister to go a little further. The Secretary of State published a summary of consultation responses alongside his press release and written statement, but we have not yet had the Government’s policy response to the consultation. When can we expect that? He plans to introduce

“legislation to prohibit the development of new build leasehold houses”.

When will we get that? He plans to restrict the

“ground rents in newly established leases of houses and flats to a peppercorn”

level. How will he do that, and when? He talks about

“addressing loopholes in the law to improve transparency and fairness”.

What loopholes, and when?

The Secretary of State is also asking big developers to stop using Help to Buy to purchase leasehold homes and encouraging them

“to take early steps to limit ground rents”

and to provide a redress scheme for people who are badly affected. What commitment has he got from the big developers to taking those steps, and when will other big developers follow the lead that Taylor Wimpey took on many of these fronts in the summer? As my hon. Friend the Member for Poplar and Limehouse said, the key point is that 5 million current leaseholders will not be covered by future legislation, so what specifically does the Minister plan to do to help those who are trapped in legal leasehold terms, which range from unfair to a total rip-off?

It is a rotten system, as my hon. Friend the Member for Ellesmere Port and Neston said. The written ministerial statement says that the Government will be working with the Law Commission on existing leaseholders. Although I welcome last week’s announcement by the Law Commission that the unfair terms of residential leasehold will be one of its areas of review, it is one among 14, in what is the 13th programme of law reform. To quote what the commission said in announcing it:

“This is a substantial body of law reform work on which the Commission hopes to start work over the next three years…As such, inclusion in the 13th Programme is not a guarantee that the Commission will be able to take forward work immediately across all areas.”

Will the Government help to fund the work that the Law Commission needs to do? Will they, with the Law Commission, be early in setting a firm timetable for the work to be completed? My fear is that we will not see legislation via this route this side of a general election.

I cannot let the debate pass without making some observations on the remarks of my hon. Friends the Members for Poplar and Limehouse, for Brentford and Isleworth (Ruth Cadbury), for Battersea (Marsha De Cordova) and for Greenwich and Woolwich (Matthew Pennycook) about concerns in this area post the terrible tragedy of Grenfell Tower. The consequences of Grenfell for residents and owners in other high-rise residential tower blocks are becoming clearer, and the wider weaknesses in the leasehold system are thrown into sharp and urgent relief by the challenges that come from Grenfell: the immediate fire safety measures that need to be put in place, the substantial remedial work required in many cases, and the question of who really is responsible and who really should be paying for that.

There is also the question of whether some freeholders will abuse or misuse the first-tier tribunal system to try to proof themselves against any challenge for passing on these very heavy costs to leaseholders. There is a concern among some social landlords that such practices will be followed and certainly a concern about privately-owned residential blocks.

The Grenfell Tower fire was a national disaster. People expect national leadership and a national response from Government. It exposed—we had only really had warnings from coroners’ reports on earlier fatal fires—the complete collapse of the national system of building control and regulation. Therefore, the national Government must take some responsibility by putting in place measures immediately to ensure that it does not happen again.

If the Government were willing, for instance, to reconsider their point-blank refusal to help fund some of the costs that social landlords face in completing essential remedial fire safety work, they could make it a condition of any funding help they give that leaseholders are protected from bearing any of that cost. They could consider, for instance, a Government-backed loans scheme for private landlords who genuinely struggle to cover the costs themselves. The Government could also consider a similar condition that might help to address the concerns the Minister has heard from some of my hon. Friends about the position of leaseholders in private high-rise blocks. In any case, I ask the Minister to reflect carefully on the points that have emerged in the debate, linked to the work required after Grenfell Tower, and early in the new year to make a clear statement on what the Government will do to try to deal with the concerns for leaseholders with both private landlords and social landlords.

I end where the hon. Member for Worthing West ended. He rightly said that, together, the Government, Parliament and outside experts can at this point make some really important changes for the good, for the future. He made a particular proposal to the Minister, which I think has backing from everyone in the Chamber. Will the Minister undertake to consider having a debate on these concerns in Government time in the Chamber in the new year? As the hon. Gentleman said, that would be a very useful next step, especially if it were not left until the last day of the parliamentary term, just before Easter.