Leasehold and Commonhold Reform

John Healey Excerpts

Thursday 21st December 2017 Westminster Hall

[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.

--- Later in debate ---

[Alok Sharma]

I will come on to talk about the work that the Government will be doing with the Law Commission.

We have also heard of consumers with very onerous ground rent terms who are effectively trapped in their own homes, unable to find a buyer. Some of those people have not been able to get redress and do not know where to turn for support. It is clear that the leasehold system as it stands is not working in many consumers’ best interests. Even most developers accept that use of leasehold for new build houses, unless in exceptional circumstances, is entirely unjustified. This has got to stop. That is what we all want.

The Secretary of State’s statement noted that, alongside publishing a response to the consultation, the Government have set out a package of measures to crack down on unfair practices, which includes introducing legislation to prohibit the development of new build leasehold houses, other than in exceptional circumstances. The Government intend to ensure that future legislation to ban the sale of leasehold houses applies to land that is not subject to an existing lease from today’s date. We will continue to work with the sector and other partners to consider the case for exemptions to the policy and its retrospective application, in particular to mitigate any undue unfairness.

We are restricting ground rents in new leases of houses and flats to a peppercorn, and we are addressing loopholes in the law—for example, to ensure that freeholders have a right to challenge unfair service charges. We are also working with the Law Commission to support existing leaseholders, including by making the purchase of a freehold or extension of a lease easier, faster, fairer and cheaper and, of course, by reinvigorating commonhold.

The right hon. Member for Wentworth and Dearne and the hon. Member for Brentford and Isleworth (Ruth Cadbury) raised the issue of the Law Commission. I can confirm that the Government will be funding the work. We will be funding five lawyers and five research assistants, a proportion of the managers’ and the commissioners’ time and some peer review and external consultancy. That work will start in January.

[John Healey]

I am grateful to the Minister for giving us that answer. I think everyone will be encouraged and will welcome that. He indicates that work will begin in January 2018. Can he indicate when that work is scheduled to be completed?

[Alok Sharma]

If the right hon. Gentleman bears with me, I will come on to that.

As I said, we will be working with the Law Commission. A number of Members raised the issue of freeholds being sold on to investment companies. Our view is very clear: where houses are sold on unfair terms, we have asked developers to be proactive and arrange for the leasehold contract to be put on a fair footing. The right hon. Member for Knowsley (Mr Howarth), who is not in his place, asked whether there should be a requirement for developers not to sell on the freehold at this point. I am sure that developers will be listening intently to the tone of this debate and understanding precisely how Parliament feels about this matter.

We will, of course, want to ensure that there is appropriate support for existing leaseholders with onerous ground rents, and we will work with the ombudsman and trading standards to provide comprehensive information on the various routes to redress. However, that is not enough. We also want to see developers and investors going further with their compensation schemes. I want to see that support extended to all those with onerous ground rents, including second-hand buyers.

A number of Members, including the hon. Member for North Tyneside (Mary Glindon), mentioned Help to Buy. Given the Government’s position on leasehold, we do not think it is appropriate for the Help to Buy equity loan scheme to support the sale of leasehold houses. We cannot impose a new requirement on developers under existing contracts, but we expect them to work with us to take forward that change ahead of legislation. The Secretary of State has today written to all developers to ask them to stop using Help to Buy equity loans for the purchase of leasehold houses, to encourage them to take early steps to limit ground rents and to ask those that have customers with onerous ground rents to provide the necessary redress as soon as possible. Both the Secretary of State and I will be keeping a very close eye on progress in that area.

I am very grateful to the hon. Member for Ellesmere Port and Neston for proposing a Bill on leasehold reform, and for the considerable efforts that he and other colleagues have made to put it on the agenda. This is a highly complex area, covering multiple Acts of Parliament, which is why we will be working closely with the Law Commission as part of its 13th programme of law reform, announced last week. We want to ensure that we prioritise making the process of buying a freehold easier, and to support existing leasehold house owners, and we will seek to bring forward solutions by the summer recess of 2018.