Leasehold and Commonhold Reform

Debate between Jim Fitzpatrick and Peter Bottomley

Wednesday 2nd October 2019 Westminster Hall

[Sir Peter Bottomley (Worthing West) (Con)]

I beg to move,

That this House has considered progress on leasehold and commonhold reform.

This debate is an opportunity for the Government to explain what progress has been made on this issue, describe what is in their mind at the moment, and give us some hope that there will be even more improvements in future.

Before I start in detail, I want to thank colleagues who have worked really hard on the issue. I welcome the fact that the Labour party has developed proposals of its own, and I know that the Liberal Democrats have done the same. In particular, I thank and praise the hon. Member for Poplar and Limehouse (Jim Fitzpatrick), who I think has done more on this issue than any other Member of Parliament. I also thank the hon. Member for Ellesmere Port and Neston (Justin Madders), who has joined in and helped to make the scandal of leasehold homes in the north-west so relevant.

I also pay tribute to the right hon. Member for Kingston and Surbiton (Sir Edward Davey), who was deeply involved in the early stages of the campaign by the Leasehold Knowledge Partnership. That charity’s campaign, both for the ordinary leaseholders of flats and houses and in the retirement field, has done so much to make it possible for the work of MPs to be well directed and well supported. With Louise O’Riordan, it acts as the secretariat for the all-party parliamentary group on leasehold and commonhold reform, and I think we can all say that we have made progress together.

I say to those in the Government field and in the Government’s Leasehold Advisory Service, or LEASE, that we often agree that problems exist. We agree more often now than we did five years ago, when a succession of temporary Housing Ministers could not see that there is a problem, which partly was because the Department did not have many officials working on the issue of leaseholds and commonholds. The attempt by Parliament and the Government to bring in commonhold failed because the responsibility for it was split with the Ministry of Justice, which had no resources whatsoever. As a result, nothing happened. When we put forward the case for uniting commonhold with leasehold, I understand that the predecessor Department to the Ministry of Housing, Communities and Local Government said that it would take responsibility if it received the resources, but there were no resources.

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

I and other Labour Members are grateful to the hon. Gentleman for his generous comments, and I congratulate him on securing the debate. He does not have any support from other Government Members at the moment, whereas Labour Members are mob-handed in Westminster Hall today. However, I can assure him that we are here as his fan club and support structure, because it is the prominent role that he has played—leading the all-party parliamentary group, as co-chair—that has ensured that we have been able to press the Government on the issue. To the Government’s credit, they have made a number of commitments on leasehold during the past five years, and we are very keen to hear the Minister’s response to this debate.

[Sir Peter Bottomley]

That is the sort of remark I can survive, and I am grateful for it.

I will say, as I try to in each of the debates on the issue, that I am a leaseholder of a small flat in my constituency, and with the other five leaseholders we bought the freehold. We had a good freeholder, good managing agents and we have had no problem whatsoever, and we know how the system can work. In effect, we are commonhold now, but we were originally freehold. Ground rents were low and we did not have the problem of ground rents doubling every 10 years.

We also did not have the kind of crooks, such as Martin Paine, who came in and gave informal leases, which really made a mess of people’s lives. We did not suffer from the Tchenguiz interests, which were responsible—both in the retirement field and in other fields—for some of the worst excesses. Frankly, the public authorities, such as the fraud people, the economic crimes people, the police and the Competition and Markets Authority people failed, and the Tchenguiz-controlled business got away scot free, when the people in that business should have been sent to jail and fined millions of pounds. The millions of pounds would have made up for the losses of the ordinary leaseholders who were failed by them.

I also pay tribute to Martin Boyd and Sebastian O’Kelly, chief executive and trustee of the Leasehold Knowledge Partnership, who have done so much, and they have now joined members of the National Leasehold Campaign and Bob Bessell, the former director of social services in Warwickshire, who in his retirement built 1,600 retirement homes without a single ground rent.

I thank my right hon. Friend the Minister for coming down on a fast train from Manchester, where she has given distinguished service over the past two days. I ask her to review whether it is sensible, necessary or right to allow ground rents in retirement properties. I look on the Churchill Group as the son of McCarthy and Stone, which was, with Peveril, at the foundation of some of the problems that hit previous generations. To any Treasury civil servant who reads the report of this debate, I would say that if we get leasehold and commonhold right, the value of homes will go up, not down, and the income to the Treasury will go up.

Leasehold and Commonhold Reform

Debate between Jim Fitzpatrick and Peter Bottomley

Tuesday 20th December 2016 Commons Chamber

[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.

Marine Navigation (No. 2) Bill

Debate between Jim Fitzpatrick and Peter Bottomley

Friday 30th November 2012 Commons Chamber

[Sir Peter Bottomley]

I congratulate my hon. Friend the Member for South East Cornwall (Sheryll Murray) on promoting the Bill and recognise that there is growing interest in it. The Government have managed to accommodate the substantial points made on pilotage. I congratulate the shadow Minister, to whom the Bill is familiar, and my hon. Friend the Minister on that achievement.

I have a number of proposals, one of which is that the simplest thing to do with clause 5 is remove it, which amendment 8 would do. I ought to explain to the House that I spoke briefly in Committee—I cleared my throat—for 15 minutes. We now have 75 minutes for the Bill to make progress. Were we to have, say, two Divisions, we would have about 45 minutes. Hon. Members need to recognise that there are time limitations.

Much in the Bill is of advantage, but clause 5, which amends the Harbours Act 1964, provides that each national authority can designate harbour authorities, which means we can anticipate a larger number of harbour authorities, which can give general harbour directions to ships within or entering or leaving their harbours. That currently requires a byelaw, which requires the approval of the Department. If a Minister is not prepared to approve the byelaw, it does not happen. I believe I am right that the Minister would be advised on whether the byelaw proposed is right and rational, and on whether the authority has been rational in terms of the results of the consultation—the requirement for a consultation will remain if a harbour is designated.

It has been said that, if the Government’s proposals go through, an interested group or person can object to the decision through judicial review, but that is too big a weapon for too many people. In any case, judicial review decides whether the way in which the harbour authority went about its decision was rational. If it goes about the decision unfairly, it can be stopped, but if it does it wrongly, it cannot. The decision would then be made. In the years that my wife and I were Ministers, we never had a judicial review application against us upheld. That means not that all our decisions were right, but that how we reached them was right. That illustrates the distinction.

Proposed new section 40A of the 1964 Act deals with the designation of harbour authorities. Proposed section 40B, which governs the procedure applicable to harbour direction, states that a harbour authority is required to consult users and publicise a harbour direction before and after it is given.

Proposed new section 40C, on enforcement, creates an offence. The Royal Yachting Association, of which I have been a member for some time, has raised issues with this measure. Those with longer memories will recall that, in 2008 and later, when a Bill of this nature was in the House of Lords, there was no equivalent of clause 5, because there were problems with such a proposal.

I should tell my hon. Friend the Member for South East Cornwall and the Minister that there will be significant interest in the measure in the House of Lords, to which one anticipates the Bill going after today. I predict that the Bill will be amended if the provisions are not satisfactory—I am not threatening, but anticipating. Private Member’s Bill procedures mean that a Bill amended in the House of Lords will not be at the top of the list of priorities when it returns to the Commons, so getting the Bill right between now and when the House of Lords considers it matters.

[Jim Fitzpatrick]

Just to reinforce the hon. Gentleman’s point, I do not anticipate that the question of pilotage is over and done with either. I am sure that noble Lords in the other place will want to go through exactly the same discussion that we have had in recent months, just in the way that he is describing for clause 5.

[Sir Peter Bottomley]

I could go on at great length, but I will spare the House. Trying to create good will while being very clear and determined is probably the most useful way forward. I will certainly listen with interest to what my hon. Friend the Member for South East Cornwall has to say, and, if I may say so, to my hon. Friend the Minister when he responds to the amendments.

It has been suggested that the process that was started—I would say started a bit late—between the port authorities, with the help of the Department and the yachting interests, could lead to a code of practice. Only one draft code of practice has been put forward, by the Royal Yachting Association. I understand that in the middle of December there is to be a meeting between the various bodies. It will be interesting to hear—now if the Minister can, but certainly by then—whether the draft code of practice and the methods put forward for consideration for agreement are likely to be agreed in substance or completely.

The next question is what the Minister will say about designating harbour authorities—I do not anticipate that he will be able to speak for the other national authorities other than those for England, but he could indicate whether others may do the same—and whether he will bear in mind the commitment to adhere to an agreed code of practice, and that that commitment, which will not be onerous, and no one is trying to suggest something that would cause more bureaucracy, will be a factor when considering designation. That is one of the crucial issues on which the Minister can address the House. [Interruption.] Is he addressing the House now?