Leasehold Reform (Ground Rent) Bill [Lords]

Justin Madders Excerpts

2nd reading
Monday 29th November 2021 Commons Chamber

[Lucy Powell]

Absolutely; my right hon. Friend makes a very good point as well. Many people, especially first-time buyers, do not understand the difference between leasehold, freehold and so on, and many of these issues come to light only as problems arise later or when they try to sell the property.

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

On legal advice, it is worth pointing out that not only were some people told that they had to use particular solicitors, in breach of Law Society guidelines, but some were also told that they had to complete within a certain period of time, so even if they had used a different solicitor, it just would not have been practical for them to analyse or understand the documents correctly. That suggests to me that there needs to be a complete overhaul and inquiry into how the scandal was allowed to develop in the first place.

[Lucy Powell]

My hon. Friend makes an excellent point, and there is a very strong basis for a wider mis-selling scandal inquiry. Many properties are affected: in terms of houses, for which the practice has been particularly egregious, more than 500,000 leasehold houses have been built over the past 10 years. The vast majority of them are in the north-west of England and north Wales, which is why so many colleagues from those areas are here this evening.

The rights to collect the ground rents are bought and sold on the financial markets as steady income streams to investors, while leaseholders get nothing back for—in some cases—thousands of pounds a year. There is hardly a clearer illustration of the damaging pervasive tendency to treat housing as an investment opportunity—as a product to trade on the market—rather than as homes where people live and build their lives around. That should be the basis of housing in this country. We have lost somewhere what housing is: homes, places where we live, where lives are built, where we become successful —or not—and where we bring up a family. Housing is not a commodity to be traded on the financial market. We have seen more starkly than ever over the past two years that housing is also a public health issue, an educational issue, and a work, security and happiness issue, and we should begin to treat it as such.

Although we welcome this Bill, it is a very narrow first step; there are many glaring omissions—measures which could have been included even in such a narrow Bill. First, there is nothing to prevent freeholders from simply transferring their income stream from ground rents to service charges or administration or other charges, as has been highlighted. As shown by the ground rent scandal itself, there is no limit to the ingenuity that some freeholders will draw on to capitalise off the back of leaseholders. Service charges and administration charges are opaque at best, and far too hard to challenge. Will the Minister address that issue later on?

--- Later in debate ---

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

Let me first put it on record that, alongside the hon. Members for Worthing West (Sir Peter Bottomley) and for St Albans (Daisy Cooper), l am a co-chair of the all-party parliamentary group on leasehold and commonhold reform. The group is assisted by the Leasehold Knowledge Partnership, which has been campaigning for many years for the kind of reform that we are debating today.

We might have expected the Bill to be a cause for celebration, and indeed any legislation that puts another nail in the coffin of leasehold is to be welcomed, but we are left with a feeling that it is a rather modest measure. Given that it took four years for us to reach this point, it seems that we are making glacial progress. Perhaps four years is not much in comparison with 1,000 years of leasehold, but for those who are still trapped in unsellable or seriously devalued homes because of the leases they signed, progress is not being made quickly enough.

I am not generally a fan of market-based solutions—the market is responsible for most of the egregious injustices that we have seen in leasehold—but, to a significant extent, the market has already moved away from imposing ground rents for most houses, not because those who concocted the leasehold scandal have had a prick of conscience but because a spotlight has been shone on the devastating consequences of their sharp practice. In that respect, I pay tribute to the fantastic work of the National Leasehold Campaign, which has done more than just about anyone to bring the unfairness of leasehold to the public’s attention. It is an irony that those campaigners do not stand to benefit from the Bill because, as has been pointed out already, it does nothing to tackle the existing problems. That said, however, their influence has already benefited my constituents and many others.

A new Redrow estate not far from where I live originally had properties being sold on a leasehold basis. After some pretty determined campaigning from the National Leasehold Campaign, Redrow decided to stop the sale of homes in the second phase as leasehold, but unfortunately not before several hundred people had already bought their homes as leasehold. To be fair to Redrow, I should add that it did then offer them the opportunity to purchase the freehold after two years, although it was a little unfortunate, to say the least, when it subsequently lowered the purchase price for the freehold again, creating another unfairness. While I give Redrow credit for stepping back and weaning itself off the leasehold drug, that should not obscure the fact that all this could have been avoided had it not sold the properties as leasehold in the first place. That takes me back to the basic concern that remains with the Bill, which is that it enshrines in law a two-tier system of home ownership when really we should be ending it altogether.

Very few new houses are now being sold as leasehold, but around 1.5 million houses will remain leasehold after this Bill becomes law. Is there a risk that choking off income streams from those who see other people’s homes as an investment will cause them to turn their attention to redoubling their efforts to squeeze as much as they can out of the existing properties? A number of Members have already mentioned that, and I will return to it later.

Turning to the details of the Bill, I know that a lot of consideration has been given to how we define a ground rent. That debate is instructive, because how can a payment for which nothing is received in return be considered a proper legal payment? The short answer is that it cannot, and I believe that that is another reason to abolish leasehold altogether. The reality is that ground rent is a legal fiction and a method of maintaining control and securing an income for which the recipient is required to do precisely nothing.

It is therefore disappointing that lease extensions for houses are exempt from the Bill, because there is significant concern that freeholders will put in massive multipliers when offering informal lease extensions, just to make the premium look lower and more attractive. They would then make their money back through allowing the ground rents to continue. Let us not forget that both parties do not have equal bargaining power. This all just adds weight to the argument that what we have here is a minor change that will help people in the future, when what we really need to do is to deal with the injustices of the present, and the best way to do that is of course to abolish leasehold altogether.

As I said earlier, we also need to keep an eye on whether those who have been involved in the systematic deception and mis-selling change their sights to deal with the new environment that the Bill represents. They have not gone away, those offshore accounts, those trust funds and those private equity investors who see people’s homes as an opportunity to cream off the cash long after the people living in them think that they have bought them. In particular, we have to keep a close eye on estate management companies, because that is one area in which charges could easily be inflated to more than cover the loss of a ground rent.

[Matt Rodda]

My hon. Friend is making an important speech and he has hit on a number of central issues, particularly when dealing with his own legal experience of these dysfunctional markets where on the one hand we have developers with enormous financial power and legal resources and on the other we have humble first-time buyers. Does he agree that there needs to be a rebalancing, with far greater protection for first-time buyers and ordinary householders, and with a much greater attempt by the Government to hold these large developers to account?

[Justin Madders]

My hon. Friend makes an interesting point. There is clearly an imbalance. We have already talked about how some enthusiastic first-time buyers who just want to get into their new homes put their trust in the people who have been assigned to deliver the legal niceties such as putting a value on the property and doing the conveyancing. They put their trust in those people, and sometimes that trust is betrayed through the egregious injustices that we have talked about.

[Mark Tami]

My hon. Friend has mentioned management fees, which I see as the next scandal coming down the road. People who bought their properties and were being charged perhaps £100 or £200 a year will have thought that that was okay, but that might now have gone up to £500 or £600 and there are often additional charges because, for example, fences or certain parts of the ground are not covered. People have told me that they feel they are paying their council tax twice. That is how they see it, and it is totally unfair.

[Justin Madders]

I thank my right hon. Friend and neighbour for his intervention, which leads me beautifully into the next section of my speech, in which I shall talk about exactly that.

I will never accept that it is right for developers to choose not to pay a sum to councils to adopt the communal areas, and that they instead save themselves money by passing on that cost to the homeowners and then make even more money from the homeowners by charging them for things that ought to be coming out of their council tax. Like my right hon. Friend, I worry that this trend will be accelerated because the ground rent gravy train is coming to an end, and that we will hear more and more stories of homeowners having no choice but to pay inflated annual service charges that, given the choice, they would prefer to pay through their council tax.

[Kevin Hollinrake]

The hon. Gentleman is making a good point about what is referred to as “fleecehold.” Does he agree it is entirely within the gift of the local authority to require the development to be made to adoptable standards in terms of roads and drainage, for example? It can then be adopted by the local authority, so people do not have to pay twice for such services.

[Justin Madders]

That is a fair point in theory, but I find it does not happen in practice. I have estates in my constituency that were built a dozen years ago and still have not been adopted because the developers have not put them up to the required standard. The to and fro never ends, because the developers have left town and they have no interest or incentive to bring those areas up to the adoptable standard.

[Christian Matheson]

I am grateful for the advice my hon. Friend has given to me and my constituents on this matter, as he is a neighbouring MP with particular expertise. He will be aware of one estate in my constituency that has been parcelled up and given to different developers, and it has been developed at different times. Not only do we have a problem with the local authority, but he will recall that we have a problem with different developers playing themselves off against each other in order not to bring the estate up to standard, as the hon. Member for Thirsk and Malton (Kevin Hollinrake) suggests.

[Justin Madders]

My hon. Friend and constituency neighbour makes the point well. It all points to the lack of capacity in local authorities to tackle these issues. I do not want to make a party political point, but we have had a decade of austerity and we are now seeing the consequences in how local authorities police these things.

I would like to see a crackdown on unfair fees and contract terms by having an enforceable list of what are considered to be reasonable charges. We should require transparency on those charges and give leaseholders the right to challenge rip-off fees and poor performance. We should also try to ensure that residents are given greater powers to take over the management of their homes, if that is where we are going.

As my hon. Friend the Member for City of Chester (Christian Matheson) said, I do not want to be standing here in a few years’ time talking about another PPI for the house-building industry because the Government have once again failed to act on the warning signs that are there for us all to see.

This Bill must be promptly followed with the promised wider leasehold reforms, particularly the promised reforms for which we have been crying out that will enable leaseholders to buy their freehold quicker, easier and cheaper. I have had a private Member’s Bill ready to go for three years that would allow us to do just that. It could have already become law if there had been the will to take on the freeholder interests that would lose out as a result.

I have now got the message that my Bill will not find favour with the Government. I am aware the Bill would not have meant an end to leasehold, but it would at least have given the victims of this industrial-scale con an opportunity to take back control of their property at an affordable price. I thought this Government were all about taking back control. Do they not realise that leaseholders do not have control?

What is stopping firmer action being taken against freeholders? I know there are legal opinions floating about on freeholders’ human rights, but what about my constituents’ human rights? Do they not have the right to live in their own home without someone else trying to make it into a cash cow? Do they not have the right to expect that the biggest purchase they ever make will be done fairly and will be properly regulated? Do they not have the right to have a Government who are serious about stopping the industrial-scale foul play we have talked about tonight?

It is disappointing that, although on the one hand the Government accept that unfair practices in the leasehold market can turn people’s home-ownership dreams “into a nightmare,” we are still waiting for action for the many leaseholders who have been trapped in this web that they did not sign up to. We have made it clear that there are a number of reasons why they have found themselves in this position, not all of which are resolved by the Bill.

We know that one in three houses sold in the north-west in the past 10 years is leasehold, and those people will not benefit from the Bill. My constituents and my hon. Friend’s constituents have been disproportionately affected by the leasehold scandal, and they are still waiting for something that will help. If we are to talk about levelling up in this place, we should be looking at something like that as it will deliver true justice, fairness and levelling up.

We need some clear timescales from the Minister for when existing leaseholders can expect to see action on their concerns. What commitments can they expect? I think we all agree that what has happened is unfair and a significant injustice, but when are we going to see action to put things right for existing leaseholders? The right hon. Member for Bromsgrove (Sajid Javid), when he was Communities Secretary, promised an outright ban on leasehold for all houses four years ago. That is four years of people being trapped in homes that they cannot sell because of onerous ground rents, and four years of stress and uncertainty about whether they should try to buy their freeholds now or wait until the law is reformed. I get asked regularly, “What should I do? Should I wait until the law changes?” It is very difficult to give an answer on that because we still have no clarity on when that law will be changed. So let us end four years of jam tomorrow. Let us deliver solutions for leaseholders today. Let us stand up to the vested interests and please, finally, abolish leasehold.