Leasehold and Freehold Reform Bill

Lord Beamish Excerpts

2nd reading
Monday 11th December 2023 Commons Chamber

[Michael Gove]

I just want to make one or two additional points and then I am happy to give way.

Personally, one of the moments where I realised that the system, which is hard to defend in any case, was fundamentally broken was in the aftermath of the Grenfell tragedy. We knew then that it was important that responsibility be taken for remediating buildings that were unsafe. We knew then that individuals and organisations had to take that responsibility on their own shoulders. We knew then that freeholders, if they were true to the spirit of the original legislation, would say, “Yes, we have a responsibility for this building and for all those within it. We have a responsibility to make sure this building is safe. Therefore, we should have a responsibility to pay for the remediation.”

But did we find freeholders queueing up to do that? Absolutely not. They were there ready to extract income at the highest possible rate whenever they could, through ground rents and service charges, but when they were called upon to discharge their responsibility to the leaseholders within those flats, they were absent. They ran away from their responsibilities. That is why I have limited to no patience now with the well-funded lobby groups that stand up for those freeholders and seek to ensure that they can continue to extract money from leaseholders. It seems to me that, at a critical point, the argument that is sometimes made on behalf of those people disappeared because of their negligence and their moral fault.

[Mr Kevan Jones (North Durham) (Lab)]

The right hon. Gentleman says that traditionally it was flats that were leasehold, but increasingly it was houses, mainly fuelled by the Government’s Help to Buy scheme. In my constituency, Persimmon Homes’s business model was structured around not only selling on the leaseholds, but the tactic of including areas of the estate that traditionally would have been passed over to local authorities as the responsibility of the leaseholders. Would he agree that the Government need to take some responsibility for the tsunami of money they threw at some of those developers, and for turning a blind eye to what they were doing in their business models?

[Michael Gove]

I take the right hon. Gentleman’s point, but he is conflating two things. Help to Buy can be criticised or defended on its own terms, and I believe it was the right intervention to ensure, in particular, that more first-time buyers could get on to the property market. However, he is also right that leasehold, which as he says was originally a tenure designed for flats, was then extended to houses, and in a way that is difficult to defend. It has expanded over recent years. That is why we are legislating now to ensure that we can stop it. There are two separate arguments that can be had there.

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[Angela Rayner (Ashton-under-Lyne) (Lab)]

It is a pleasure to open this debate on behalf of the Opposition. Let me say at the outset that we do not intend to oppose the Bill today. Simply, it is better late than never. May I associate myself with the Secretary of State’s comments at the start of the debate, because many people have contributed and campaigned on this issue over the years that it has been spoken about? Many have long needed this overdue Bill, and they need it to be improved. Leaseholders across the country have been waiting for years—six years, to be exact—to see the Government’s flagship Bill to end leasehold and to break free the millions of people trapped in what the Secretary of State himself describes as a feudal and absurd system of home ownership.

If this is the Secretary of State going in a hurry, I would hate to see his normal pace. It was back in 2017 that his fifth predecessor as Housing Secretary pledged action. He talked a good talk today, and he is theatrical. I love the passion—it is really there—and I love the “squeeze”. We want to see the squeeze, but frankly I have lost count of the number of times Ministers have promised to finally put Britain in line with other developed countries across the world that have all ended this medieval system. To be fair to the Secretary of State, none of them has said it is an assault on leasehold and a squeeze on income, so he is going a little bit further, but after all that time and all those promises and after that theatrical squeeze, we still have a Bill that does not actually abolish leasehold. I suppose that that is no surprise, as it comes alongside a Bill that pledges to ban section 21 no-fault evictions that does not ban no-fault evictions and a Bill to stop the small boats that does not stop the small boats.

It is all well and good for the Secretary of State to say that the Government plan to amend the Bill in the usual way, but is it too much to ask for the Government to include a clause that bans leasehold in a Bill whose stated purpose was to ban leasehold? Why make those promises, only to produce a Bill that does no such thing? In a word, it sounds like chaos. Even the day before it was published, the Department’s press release said that the Bill would ban developers from selling new houses under leasehold. Given the tiny proportion of leaseholds that are houses, rather than flats, it is hardly an ambitious pledge, but the Bill does not even introduce that ban.

[Mr Kevan Jones]

Does my right hon. Friend agree with what I said to the Secretary of State? The Government could have stopped this, if they had not done the Help to Buy scheme, which fuelled this practice among large developers. They could have stopped it in its tracks, if they had stopped the finance to those companies. Does she also agree that expectations have been raised among a lot of the leaseholders who were put into the trap of their houses being leasehold? They thought they were going to get out of that trap, when actually they are not.

[Angela Rayner]

I absolutely agree with my right hon. Friend. The Government have been in government for 13 years. We have had six years of these promises, and he is absolutely right that there is more than one way that the Government could have ensured that leaseholders were not treated in this way. The botched drafting of the Bill means we are still waiting to see a single clause that prohibits a single new leasehold property, whether it is a flat or a house.

It was on 30 January this year that the Secretary of State promised my predecessor, my hon. Friend the Member for Wigan (Lisa Nandy),

“we will maintain our commitment to abolish the feudal system of leasehold. We absolutely will. We will bring forward legislation shortly.”—[Official Report, 30 January 2023; Vol. 727, c. 49.]

In February, he said he aimed in the forthcoming King’s Speech

“to introduce legislation to fundamentally reform the system…to end this feudal form of tenure”.—[Official Report, 20 February 2023; Vol. 728, c. 3.]

In May, the then Housing Minister told this House that

“my Department are working flat out”—[Official Report, 23 May 2023; Vol. 733, c. 214.]

on the legislation. If it has taken them this long with not a word to show for it, can they guarantee that they will put their amendments to the House by 30 January next year—a full 12 months after the Secretary of State’s promise at the Dispatch Box?

We have heard the Secretary of State say that it is perfectly normal to bring forward vast swathes of amendments in Committee—believe me, the Committee will be doing some considerable heavy lifting. Having shadowed him through the final stages of the Levelling-up and Regeneration Bill, I would say that perhaps he does think that making endless last-minute amendments to his own Bills is a normal way of legislating, but the anonymous sources close to the Secretary of State may have let the cat out of the bag about the real reason the Bill is so empty when they briefed the press last month. We know from them what he cannot admit today: the Prime Minister was blocking this Bill from the King’s Speech in the face of lobbying from vested interests opposing the reform. In the chaos of this Government, it was added only at the very last minute. We may have heard many warm words, and the Secretary of State was very theatrical about his ambition for reform, but he is stuck in the daily Tory doom loop in which vested interests always come before the national interest.

The truth is that the time wasting and backtracking all go back to the Prime Minister’s desperate attempt to extend the lease on No. 10 Downing Street. The fact is that even if the Government belatedly fix their leasehold house loophole, flat owners will be left out of the picture, yet 70% of all leasehold properties are flats and there are over 600,000 more owner-occupied leasehold flats than houses in England. Having listened to the Secretary of State, those owners will still be wondering just when the Government will fulfil their pledge to them. As I am sure everyone in the House will agree, property law is, by nature, extremely complex, but we cannot and must not lose sight of the daily impact that these laws have on the lives of millions across our country, including over 5 million owners of leasehold properties in England and Wales. I am sure that most of us in the House know what that means in human terms for our constituents.

For most freehold homeowners, ownership means security and control, yet for far too many leaseholders, the reality of home ownership falls woefully short of the dream they were promised. Too many leaseholders face constant struggles with punitive and ever rising ground rents—rent for a home that they actually own, in exchange for which the freeholder needs to do nothing at all. Leaseholders are locked into expensive agreements and face unjustified administration fees and extortionate charges. Conditions are imposed with little or no consultation. For leaseholders also affected by the building safety crisis, the situation is even worse.

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[Mr Clive Betts (Sheffield South East) (Lab)]

Generally, I welcome what is in the Bill, as does the Select Committee, based on our 2019 inquiry. It is what is not in the Bill that is disappointing—that is the difference. Let me go back to our report, which built on the work of the APPG—I congratulate the Father of the House, the hon. Member for Worthing West (Sir Peter Bottomley), and my hon. Friend the Member for Ellesmere Port and Neston (Justin Madders), who is now a shadow Minister, on their work. That report led to the work of the Competition and Markets Authority on mis-selling and the Law Commission report.

I want to go through some of the Select Committee’s recommendations and what the Government have followed through on, which we welcome. I also want to look at the matters omitted from the legislation, which could easily be added in Committee if the Government want to. Leasehold flats are more complicated, and they will probably not be added to the Bill in Committee. The Select Committee accepts the complications, particularly where properties are part commercial, part residential. However, our report was four years ago, which is a long time for the Secretary of State to work up a scheme to deal with leasehold flats, but we are not there. In the meantime, I hope that he will commit to the Committee’s recommendation for a programme of education and information for leaseholders, to ensure a better understanding of what commonhold is all about. There is a lack of understanding and information, and if we are to move to commonhold for new properties and encourage leaseholders in existing properties to convert, that programme is needed.

The legislation deals primarily with leasehold houses. We welcome the commitment to no new leasehold houses—or we will when the clauses are added to the Bill. We understand that that is for Committee. We welcome the commitment to removing onerous ground rents. The Select Committee looked in detail at the argument about the European convention on human rights.

[Mr Kevan Jones]

Does my hon. Friend agree that the Bill does not address issues associated with the growth in leasehold houses over the last few years? Earlier, I mentioned Persimmon, which has left a lot of residents with leases that include not only their own properties but common areas. Traditionally, when my hon. Friend and I were in local government, those would have been taken over by a local authority.

[Mr Betts]

There are real issues with that, which I was going to address later, but I will do so now. It is important to strengthen the right to manage, both for leaseholders and for freeholders in these estates who own the freehold of their house but not of the communal areas. I said earlier that in all property purchases where common areas remain in private ownership, there should be, at the point of purchase, a clear understanding of the agreement between the local authority and the developer about who is responsible for those common areas. In many circumstances it is simply opaque. Often, purchasers do not know who is responsible and are sent on a wild goose chase to find out once they have bought their property.

Returning to onerous ground rents, the Select Committee took counsel’s opinion, which was quite interesting, and made recommendations in paragraphs 114 to 116 of our report. There were two clear arguments why removing onerous ground rents from leases retrospectively was completely compatible with the European convention on human rights. The first, which most of us may not have thought about, is that controlling or changing rent is not confiscation of property but control of its use, so it does not conflict with the article on removing people’s property rights. Secondly, the convention includes a justification where the proposal has a wider beneficial impact on society, which can be offset against any impact on the property owner. Counsel’s opinion was that it was therefore perfectly justifiable under the European convention to remove onerous ground rents on existing properties.

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[Rachel Maclean]

I thank the hon. Member for the history lesson but, regardless, we are determined to fix this now.

[Mr Kevan Jones]

Will the hon. Lady give way?

[Rachel Maclean]

No, because I need to make progress. Perhaps I will allow the right hon. Gentleman to intervene a little later.

The key factor here is choice. At present, leaseholders do not have a choice, or they have a fake choice. The Bill will give them a genuine choice when it comes to how they manage and own their homes. However, while I warmly welcome these measures, we can and must go further. May I draw the attention of the Secretary of State and the Minister to a few of my suggestions?

The measures in the Bill will clearly be of enormous benefit to individual leaseholders, making it easier and cheaper for them to buy freeholds or extend leases, but of course this is a very complicated area, and I know it will be difficult for many leaseholders to understand exactly how much they will benefit financially. My first suggestion, therefore, is the provision of an easy-to-use digital calculator enabling people to see what the Bill means for them.

Then there is the issue of commonhold fixes. I know that the focus here is on ensuring that leaseholders cannot be exploited and can take control of their homes, but there is a clear Conservative and free-market rationale for accepting the Law Commission’s recommendations on reforming commonhold so that more developers choose it, rather than leasehold, for new blocks of flats—not because they are forced to do so, but because it is the best option for their business model. Can the Government look at that again? All the work has already been done.

I strongly welcome the Government’s consultation on capping ground rents. As I said in an intervention earlier, the Secretary of State must look at who is making the representations, and bear in mind the old adage, “They would say that, wouldn’t they?” when people oppose such caps. We know that ground rents are sheer exploitation. Let us call a spade a spade: this is money for nothing. Can the Minister assure me that there will be time to get a cap into the Bill once the consultation has closed?

We have all heard of too many sad cases involving a hard core of truly exploitative and dodgy freeholders—the bad apples—ripping off and exploiting leaseholders. We know that there are some freeholders who treat people properly, but the others know that going to court will be too much hassle for most people, and indeed that the odd tribunal defeat is just part of the cost of doing business. We must do something to ensure that there is a real cost to those unscrupulous companies and their directors.

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[Gareth Johnson]

The Father of the House makes a very good point. I would like to see co-operation between companies, rather than amalgamation. In my constituency, we often see two management companies sending two people to mow the grass on the same estate. Residents look out of their window and see the grass on one side of the estate being mowed by one company and the grass on the other side of the estate being mowed by a different company. Of course, they have to pay twice for that pleasure. If the companies co-operated, that situation would not arise.

Some 20% of the people attending my surgeries are there to complain about management companies. Even a constituent of the hon. Member for Greenwich and Woolwich (Matthew Pennycook) came to my surgery—with two of my constituents, I hasten to add—to raise issues about management companies. She was very complimentary of the hon. Gentleman, by the way, but I put her straight. However, she was not very complimentary about the management company that she was suffering from. This problem happens in Greenwich, in Dartford and across the country, and we need this Bill to get to grips with it.

[Mr Kevan Jones]

Is the hon. Gentleman aware that management fees slowly go up in some retirement villages and retirement complexes? Older people do not challenge them, and it ends up making their flats either unsellable or worth less than they paid.

[Gareth Johnson]

The right hon. Gentleman makes an excellent point, and it highlights how management fees undermine the whole housing sector. We will end up in a situation where people do not want to buy nice homes because of the management companies that operate on these estates.

It undermines freehold, because people living on these estates have to go to the management company to get an information pack in order to sell their home. Of course, the information pack does not come free. On most estates in my constituency, people have to pay the management company £350 effectively to ask for permission to sell their house.

A lady contacted me and, apart from the cost, some of the information in her information pack was wrong. When she contacted the management company to ask some questions about the information it had provided, she was told that each question would be charged at £60 plus VAT, but this was the management company’s fault, not hers. That is just one example—I could give thousands—of just how horrifically some management companies behave. The Bill needs to deal with these organisations.