Leasehold and Commonhold Reform

Justin Madders Excerpts

Thursday 21st December 2017 Westminster Hall

[Justin Madders (Ellesmere Port and Neston) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Bone. I, too, congratulate the hon. Member for Worthing West (Sir Peter Bottomley) on securing the debate, on the way he has, alongside my hon. Friend the Member for Poplar and Limehouse (Jim Fitzpatrick), campaigned on the many abuses in this sector, and on the way they have both led from the front with their joint chairing of the all-party parliamentary group on leasehold and commonhold reform. I am proud to be the group’s vice-chair. They have been superbly assisted by the Leasehold Knowledge Partnership, about which we have heard today. Collectively, they have all done a great job in bringing this issue to the attention of parliamentarians and members of the public.

I first spoke on this subject in the Chamber almost a year ago, at which point I described the scandal as the

“the payment protection insurance of the house building industry.”—[Official Report, 20 December 2016; Vol. 618, c. 1342.]

However, as more serial failures, incompetence and greed have emerged, I do not believe that such a description does it justice—and it is justice that millions of householders up and down the country now seek.

Where do we start with all this? We know that leasehold has been around for a very long time and has always had problems, particularly in relation to flats and buildings with common parts. However, in recent years it has become a cash cow for developers—household names, whose reputations have rightly been damaged because of their avaricious approach to the very people who now find themselves unable to sell their homes, long after the developer has fled the scene. I am still waiting for someone from the house building industry to come up with a credible explanation as to how doubling ground rents provides any benefits to the leaseholder. I have heard countless tales about what salespeople say in the show home, how the nature of the tenure is not raised until very late in the day when commitments have been made, and how advisers have failed to inform purchasers about what they are being asked to sign up to.

It is also disappointing to see a certain smugness in some quarters regarding those who purchased leasehold houses, with suggestions that they should have known better. That ignores several factors, including the fact that many purchasers seem to have been let down by the advice that they received. One example that recently emerged was a property ombudsman case in June, where a long-term leasehold had been described as “virtually freehold” to purchasers, which is on a par with being a little bit pregnant. Ultimately, the ombudsman found in the purchaser’s favour that there was no such thing as a property being virtually freehold, and directed the sales agent to return £1,100 in legal and survey fees, as well as an additional award of £200. The fact that such a paltry penalty has been applied shows the desperate need to reform the market. Just over £1,000 refunded for a blatant mis-description of the biggest purchase anyone is likely to make is hardly a deterrent to those wanting to make a fast buck.

If so many people say that they feel they were not fully informed about what they were being asked to sign up to, I can only conclude that the problem does not lie with them. A survey of my constituents found that 92% who had used a recommended solicitor said that they felt they were not fully informed about the ground rent terms ahead of purchasing their home, That goes down to 71% for those who had chosen their own solicitor. Almost two thirds of those who responded said they had used a solicitor recommended to them by the developer, a figure that increased to 77% among those who had purchased their property using the Government’s help to buy scheme.

We have heard anecdotally that purchasers have felt pressured to use a solicitor recommended by the developer, and in some cases they felt they were required to use a recommended solicitor. In other cases they were told that only a recommended solicitor who was familiar with the development could meet the short amount of time imposed by the developer to complete the purchase. Again, why developers were insisting on time limits as short as four weeks to complete purchases is something I have never had an adequate explanation for. We wrote to all the main developers and a number of recommended law firms to ask them questions about this practice. They all denied that they required or pressured customers to use recommended solicitors, but some admitted advising purchasers that panel solicitors would be able to deal with conveyancing more quickly because they had experience of the sites and processes.

[Ruth George]

I thank my hon. Friend for all the work he has done on this matter. Some of the practices involve offering incentives to people such as a kitchen upgrade or curtains and carpets being included in the purchase, but such incentives would be forfeited if they did not complete the sale within the prescribed amount of time, thus making people feel they have to go ahead and complete quickly.

[Justin Madders]

My hon. Friend is absolutely right. As we heard earlier, when people purchase their home they are focused on the tangible things, not the intangible concept of leasehold and freehold, which in the long run is the most important thing, which is why we are debating it today.

It is fair to say that some solicitors have more familiarity with practices, but the suggestion that there was no actual requirement to use particular solicitors has been exposed. We asked developers a simple question:

“Do you make offers that are subject to the use of a nominated solicitor?”

Barratt Homes told us:

“Our policy is not to make offers contingent on the use of any particular solicitor.”

However, its old terms and conditions state:

“All Barratt offers are subject to the use of a Barratt nominated Independent Mortgage Advisor and Solicitor.”

Persimmon told us:

“It is not company policy to do so.”

Its old terms and conditions state:

“NewBuy scheme is available subject to status, terms and conditions and using a Persimmon-nominated solicitor and/or financial adviser as necessary.”

Taylor Wimpey simply told us no, but its old terms and conditions state:

“Applicants will need to use a Mortgage Broker and Solicitor from Taylor Wimpey’s panel.”

Despite leaseholders paying for legal advice from solicitors who had a duty to act in their best interests at all times, the recommended solicitor model put the relationship between client and solicitor in danger of being a secondary concern.

Bannister Preston is one of the larger firms representing clients caught up in the leasehold scandal, including many from my constituency. However, at the same time as it was doing this, according to its Twitter feed it would often visit developments and make comments about the homes such as:

“quite unbelievable properties, spec and finish.”

Although that description might be true, it was also asked to speak at numerous meetings and training events held for developers, and seems to have enjoyed their hospitality on various occasions. I will not go through all the tweets now, but one from December 2013 sticks in my mind. Staff were invited to a cocktail-making event with the team from Taylor Wimpey and joked about having a hangover. When they woke up the next morning, full of regret for what they had done, wishing they could go back and change it, they had a minor glimpse into what life is now like for many of my constituents stuck with unsellable homes. This might all be innocent, but the perception, at least, is such that the developers need to come before a Select Committee to explain the precise relationship they had with solicitors.

We are pleased that the Government have responded so positively to the consultation on ending unfair leasehold practices. It seems they will address many of the concerns raised, but I hope that when the Minister replies he will address some of my outstanding questions. Many concerns relate to the ongoing situation that leaseholders find themselves in. The proposal for ground rents to be zero in new long leases is welcome, but there appears to be nothing to tackle the existing leases with onerous ground rent clauses in them. Many are now at the tenth anniversary date, when the ground rent doubles, but it appears from the Government’s response that we cannot expect anything to outlaw that particular scam. There also appears to be nothing to deal with the many hidden clauses and charges in leases that come to light only when someone wants to build an extension or even ask a question of their freeholder. Does the Minister agree that charging £108 to ask a freeholder a question is indefensible? What is he going to do to bring relief to those lumbered with such fees?

I hope the Minister will be able to tell us more about the likely timescale for discussions with the Law Commission on making the purchase of freeholds easier, faster and cheaper. He will know from the private Member’s Bill that I presented only last month that that is exactly the system we want to see introduced. I hope he will meet with me and other Members of the all-party group to discuss how we can bring the matter to a swift conclusion. As we have heard from Members today, people desperately want a solution. There is a constant stream of cases, bringing different arguments to the property tribunal about the fees and costs for lease extensions and purchases. Wealthy landlords are refining their arguments in every single case to maximise their income, and they inflict further pain on the leaseholder by making them pay for the privilege of having their case tested in the courts. Action cannot come soon enough to end that racket upon a racket.

Only this week I have had two examples from my own constituency of how the current system is not fit for purpose. The first involves Redrow, which is building a lot of properties in my constituency at the moment, mainly three and four-bedroom detached properties, which, for reasons I have never understood, are sold on a leasehold basis. As the Prime Minister has said, there is no good reason for such houses to be sold on that basis, and it appears that even in this case the developers cannot come up with one either. Possibly in anticipation of today’s announcement, Redrow has said that future stages of the development will be sold on a freehold basis, which is good news, but of course leaves the question of what to do with the existing properties. As we have heard from other Members today, that creates concern about the future saleability of those properties. I understand that Redrow has agreed to sell the freeholds directly to the leaseholders at a cost of 26 times the ground rent. No explanation has been put forward as to why that figure has been arrived at, but it works out at around £6,000 per property, which is money that not everyone can easily lay their hands on. If everyone does purchase the freehold, it will lead to Redrow pocketing a cool half a million pounds for doing absolutely nothing at all, which highlights perfectly the parasitic nature of leasehold.

Another example highlights a scandal that we need to return to in the future: the practice of spurious service charges. I was contacted the other day by a constituent who received a bill from a management company in charge of a block of four flats in Ellesmere Port. There are no significant common parts, so the service charge has usually been around £50 a year. All of a sudden, with three weeks’ notice, the leaseholders have been asked to find £911 by the managing agents, Compton property management. We have a breakdown of charges, although that raises more questions than answers.

One of my constituents tells me that the only common part is a stairwell that is not cleaned and there are no communal electricity charges, but those are being levied on him, along with grounds maintenance and repairs fees, which again appear to relate to services that are not delivered. As a final insult, there is a separate invoice for landlord building insurance, which is described as a service charge and insurance contribution, and it is payable to a company called Compton Insurance Services Ltd. It appears it has not heard of compare the market; more like corner the market.

Some developers, in recognition of the toxic nature of some of the terms attached to their leases, have introduced a scheme whereby the doubling of ground rents can be converted to the retail prices index at the developer’s expense. Taylor Wimpey has led the way in that, but has not been quite as gallant as would at first appear. Not only do other onerous covenants and charges remain in the leases after conversion to RPI, but the leaseholders are required to sign an agreement saying that the arrangement is in full and final settlement of any claims they may have arising from the lease. Why is that insisted on, if nothing has been done wrong in the first place?

Serious questions need to be asked about how the freeholds are passed around from one company to another, sometimes outside this country in tax havens, with secrecy about the ultimate recipients of the substantial income coming from the leases. It cannot be right that in the 21st century the biggest purchase that most people will make in their lives is in the hands of unaccountable, uncontactable modern day lords of the manor who just see people’s homes as an entry on a spreadsheet.

It is clear to me from talking to the many people affected by the scandal that when they bought their houses they thought they were doing just that: buying their home. They never contemplated for a moment the possibility that the true owner of their home would be someone whose identity they might never know, who could sell on their interest in the property to someone else, without their knowledge or consent, and that they would be lumbered with fees and charges that would make the likes of Arthur Daley blush. Let us reform the rotten system without further delay, but let us also get answers. Developers need to explain before a Select Committee how the duping of their customers was allowed to start in the first place, how much profit they have made out of this scam, who conceived of leases that now nobody will sign up to, how many properties were made leasehold needlessly, what role lenders and solicitors had in getting leases passed that nobody would touch with a bargepole now, and who exactly are the beneficiaries of the leases now. Until we know the answers to all these questions, we cannot be sure that another abomination of this nature will not happen again.