Protection for New Home Buyers

Justin Madders Excerpts

Thursday 16th January 2020 Commons Chamber

[Kate Green]

In recent years, I have seen numerous examples in my constituency of shoddy and sometimes downright dangerous workmanship, and a lack of redress for homeowners. The all-party parliamentary group for excellence in the built environment highlighted similar issues in reports in 2016 and 2018. I therefore welcome the announcement in the Queen’s Speech of the Government’s intention to act. I hope that, by sharing some of my constituents’ experiences and concerns, I can urge speedy progress, and help to inform the Minister’s thinking as policy is developed. I also hope that he will carefully consider the issues relating to the regulatory regime, enforcement and the operation of warranties that I will raise tonight.

May I start by placing on record my thanks to Martin Scott and Paul Hargreaves of solicitors Walker Morris, and Geoff Peter of New Build Guru, who have all been generous with their expertise in helping me to prepare for this debate? I also thank my constituents for bringing their concerns to my attention. They have shown great fortitude, and a determination that the problems that they have endured should not be suffered by other homeowners in years to come.

Let me give the House some idea of the defects experienced by my constituents. At a development in Stretford—undertaken by Mr Selcuk Pinarbasi through his family companies Pino Design and Build, and Talbot Gate Developments—homeowners showed me numerous defects that they found when they moved into their new homes, including unfinished and damaged bathrooms and fittings; floors, skirting boards, bannisters, windows and doors out of true; the measurements of a downstairs WC not complying with statutory requirements to enable wheelchair access; breaches of electrical safety regulations; and an incorrectly fitted gas sleeve.

In another development, in Old Trafford, buyers found that there had been failure by the developer to comply with conditions relating to external works including boundary treatments, security, lighting, landscaping and waste disposal. That developer, Mr Jason Alexander, was also behind the development of Aura Court, an apartment block on the border of my constituency and Manchester city centre that has been the subject of a “Granada Reports” programme highlighting the dangerous and incomplete state of the block, such that Greater Manchester Fire and Rescue has put a number of enforcement notices in place. Issues there include damaged fire doors; cladding not installed on external walls and walkways; decking not installed on walkways; unauthorised window installation, affecting fire safety standards; waterlogging on escape routes; and dangerous staircase treads. Even so, the block remains occupied, despite its shoddy state.

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

This is a really important debate. I think lots of Members will have examples of such issues in their constituency. My constituents have also experienced a real difficulty getting the guarantees behind these developments actually enforced. Premier Guarantee, which is apparently endorsed by all household lenders, has been in dispute with some of my constituents for three years over a series of defects in the property—defects that are accepted by Premier. Premier is now suggesting that the case needs to go to independent arbitration—at my constituents’ expense—to resolve the issues, even though it accepts that the defects exist. Does that not show a fundamental need for the reform of the system?

[Kate Green]

I absolutely agree with my hon. Friend, who does excellent work through the all-party parliamentary group on leasehold and commonhold reform. I will be saying a little more about the deficiencies of the warranty arrangements, including those provided by Premier, in a few moments.

--- Later in debate ---

[Kate Green]

I most certainly would support that suggestion.

There are a number of other actions that the Government could take to address the slippery state of affairs that exists around warranties. Will the Minister consider, for example, standardisation of warranty policies, with the use of clear and unambiguous language, and an end to unreasonable exclusions? Would the Government consider amending the Housing Grants, Construction and Regeneration Act 1996 so that warranty policies are brought within the meaning of “construction contracts” under section 104 of the Act? That would mean that disputes could at least be settled by the relatively quicker and less expensive route of arbitration, rather than people needing to pursue a court claim.

The Minister will know that the problems I have described are compounded for those who own leasehold property. Management companies should be under a positive duty to act in leaseholders’ best interests, but often they are powerless to claim on the leaseholder’s behalf under the defects cover that is taken out by and for the benefit of the developer and his design team, usually for a 10-year period, to cover total or partial collapse or some other latent structural defect. The position of leaseholders could be strengthened through new legislation to make it compulsory for management companies, and leaseholders, to benefit from decennial insurance, specifically requiring such insurance to be taken out, specifying minimum levels of cover and the term of the insurance, and giving leaseholders and management companies third-party rights to claim directly under these policies.

The Government could also strengthen the Defective Premises Act 1972. This legislation extends protection for a period of six years—a period that is obviously out of line not only with decennial insurance cover but with actions in tort, where claims are allowed for a three-year period from the date of knowledge, subject to an overall maximum of 15 years under the Latent Damage Act 1986. The limitations period in the Defective Premises Act could be extended to be consistent with tort actions to give owners more protection. This is particularly important following the case of Murphy v. Brentwood District Council, which means that the residential property owner cannot claim for economic loss in tort.

There is a further adjustment to the Defective Premises Act that I invite the Minister to consider. Section 1(1) sets a test that work should be done

“in a workmanlike or, as the case may be, professional manner, with proper materials…so that as regards that work the dwelling will be fit for habitation when completed.”

That is a high bar when measured against the relevant test in consumer legislation, which refers to goods needing to

“meet the standard that a reasonable person would consider satisfactory”

under the Consumer Rights Act 2015.

[Justin Madders]

Will my hon. Friend give way?

[Kate Green]

I will not, if my hon. Friend will forgive me, because I think we are going to be tight on time for the Minister to respond, and I am covering—we are all covering—a lot of territory.

Is it right, Madam Deputy Speaker, that the law should offer more protection when you buy a toaster than when you buy a house? Why is not the standard similar in relation to the purchase of residential property?

I would like to mention two issues that are outside the direct remit of the Minister’s Department but that none the less impact on the overall picture of protection for homeowners. The Legal Aid, Sentencing and Punishment of Offenders Act 2012 means that, even if a householder does successfully pursue a defects claim in court, they may struggle to recover costs from their unsuccessful opponent. Although conditional fee arrangements are still possible, success fees and after-the-event insurance costs cannot be recovered from the losing party. This is a big issue for defects actions, since these costs can leave successful litigants so out of pocket that they still cannot afford to carry out the work to remedy the defects that were the subject of the case in the first place. Will the Minister press his counterparts in the Ministry of Justice to exclude defects actions for residential property from the prohibition on recovery of success fees and after-the-event insurance costs so that a successful owner can use the damages awarded to carry out repairs?

The operation of company law also seems to assist rather than hinder unscrupulous developers, who can set up a new company for each development, then place the company in liquidation, leaving defects unaddressed and sometimes avoiding tax and money-laundering rules in the process too. One constituent has found neither Companies House nor the Insolvency Service very willing to act to prevent this from happening, even when the same developer has blatantly and repeatedly breached registration and company law requirements. How will the Ministry work with Her Majesty’s Revenue and Customs and the Department for Business, Energy and Industrial Strategy to ensure that company law operates robustly against such practices by developers?

While I am aware of attempts by the industry to address homebuyers’ concerns through the five-star system, of proposals for a new homes ombudsman, of the Royal Institution of Chartered Surveyors’ intention to draft new guidance for its members and regulated firms on the inspection of new residential building works and snagging, and of UK Finance’s role in relation to mortgage lenders and improving building standards, these protections will still be insufficient.

The more I have looked into this matter, the more shocked I have been by the extent of the problem, the utter unscrupulousness of some developers and the absence of meaningful protection for homebuyers, many of whom are making the most significant purchase of their lives. I am sure the Minister will recognise from this brief description of the problems experienced by my constituents and those of my hon. Friends that the case for holistic, far-reaching, regulatory and legislative reform is both urgent and compelling and that any measures introduced must have real teeth. The Government’s stated intention to act to strengthen buildings standards and safety is a real opportunity, and I look forward to the Minister’s response.

--- Later in debate ---

[Luke Hall]

I am grateful to the hon. Lady for putting that point on the record. I hope that is one of the things we can discuss further in the weeks ahead.

We know that a stronger regulatory system is necessary, but it will not be enough to deliver the required cultural change, so we need industry to show the same leadership it has shown in successfully making building sites much safer for workers over recent years. They must also prioritise residents’ safety in the construction of high-quality buildings.

The Government welcome the action we have already seen from industry, especially the early adopters group, which has spearheaded the building safety charter. The charter demonstrates the commitment to putting building safety first, ahead of all other priorities. All those across the industry that are involved in the life cycle of a building should follow suit. The industry-led competence steering group has developed proposals for raising the competence of those working on buildings in scope of the new regime. We support the group’s proposals for an overarching system for competence oversight and have included them in our consultation as part of our package of measures to improve building safety. To drive progress further, the industry safety steering group, chaired by Dame Judith Hackitt, is holding industry to account for making practical and cultural change happen.

The hon. Lady raised the issue of leasehold. The debate has a particular bearing on leaseholders, and I am grateful to the hon. Member for Ellesmere Port and Neston (Justin Madders) in that respect as well. We know that leaseholders can too often face unfair practices, poor management of properties and difficulties in taking action to address problems. We are clear that there is no place in a modern housing market for unfair leasehold practices, and we are undertaking a comprehensive programme to reform the leasehold system to ensure homebuyers are treated fairly and protected from abuse and poor service.

We are moving forward with legislation to reform the leasehold sector. This includes the ban on new leasehold homes, restricting future leases to ground rent of zero financial value and closing legal loopholes to prevent further unfair evictions. We are committed to helping current and future leaseholders. We welcome the recent report of the Law Commission on enfranchisement valuation. This included options on how to make the cost of buying a freehold or extending a lease cheaper, and we are now considering those in detail. We look forward to further reports from the Law Commission on the broader enfranchisement process, reinvigorating commonhold, and improving the right to manage later this spring.

We are deeply aware of the issues surrounding onerous ground rent and other unfair terms which some leaseholders are facing. We encouraged the Competition and Markets Authority to investigate the extent of any mis-selling of leasehold properties, and we look forward to receiving its findings.

[Justin Madders]

Will the Minister give way?

[Luke Hall]

I will not if that is okay, because of time.

The independent working group reported last year, and we are considering its recommendations. We will announce our next steps in due course. It can be expensive to take legal action against a landlord when that is necessary, and we are deeply concerned that leaseholders sometimes have to pay their landlord’s legal costs, even if they win the case. That can lead to leaseholders facing bills that are higher than the charges they were seeking to challenge in the first place, and it can also deter leaseholders from taking their concerns to a tribunal at all. The Government believe that leaseholders should not be subject to unjustified legal costs, and we will close the legal loopholes that allow that to happen. Again, I am grateful for the hon. Lady’s contribution on that matter, and perhaps we can take the issue forward in the weeks ahead.

Our plans to reform the housing sector will be a collaborative effort with colleagues across Government. We are also closing a gap in redress for leaseholders by extending mandatory membership of a redress scheme to freeholders who do not use a managing agent. Managing agents are already required to belong to a redress scheme, but there is no such requirement for freeholders who do not use an agent. This change will give more leaseholders access to redress in the future.

There is much reform still to come, but we have taken action already. We have worked with industry to secure commitments to help existing leaseholders through our industry pledge. The leasehold sector is clearly ripe for reform, and I assure the House that the Government are fully committed to ensuring that such reform can happen.

Let me turn to the new homes ombudsman. Problems in the current redress system threaten the quality of the experience and product for new homebuyers. The Government are dedicated to ensuring that homebuyers are treated fairly when things go wrong, and for developers to up their game and get things right from the beginning. The hon. Lady raised important points about warranties, including warranty exclusions, the provision of clear information to consumers, and the resolution services of warranty providers. It is the responsibility of the Financial Conduct Authority to regulate new build warranties and protect consumers. If a consumer is unhappy with the warranty provider’s action, they can contact the Financial Ombudsman Service for free. I agree that consumers must be provided with clearer information on warranty cover, and we are considering how that is best achieved.

The hon. Lady made a valid point about potential conflicts of interest where approved inspectors have dual roles. Dame Judith Hackitt recommended that where they are involved in regulatory oversight, an approved inspector must be completely independent of the duty holder. The Government accept that recommendation and are working with the Joint Regulators Group, representatives of approved inspectors, and local authorities, to identify ways of minimising conflicts of interest and ensure sufficient regulatory capability and capacity under the new system. The industry has acknowledged many of those problems and is working to improve consumer confidence and trust.

In conclusion—time is short—the Government are committed to ensuring that the housing market works for everyone. That means building more of the right homes in the right places, and ensuring that when consumers purchase a new home, they have the protection they deserve and need. I assure hon. Members that as we work towards our ambition of building 300,000 new homes a year, residents in all tenures are safe. They must be treated fairly and be able to live in sustainable, high-quality homes.

Once again I am hugely grateful to the hon. Lady for her contribution, and we will make sure it is taken into account. I hope that we can organise those meetings in the week ahead and see what we can incorporate. I look forward to the Government driving forward that vital reform.

Question put and agreed to.