Leasehold Reform

Lee Rowley Excerpts

Tuesday 23rd May 2023 Commons Chamber

[The Parliamentary Under-Secretary of State for Levelling Up, Housing and Communities (Lee Rowley)]

A fair housing market that works for everyone is at the heart of this Government’s central mission to level up opportunity, prosperity and pride throughout the United Kingdom.

At the end of her speech, the hon. Member for Wigan (Lisa Nandy) said that “politics is about choices.” She is absolutely right. That is why this Government are committed to ensuring safe, decent and secure homes are available to everybody, regardless of tenure, whether through a better deal for tenants in the social and private rented sectors, or through our unashamed support for home ownership, because of the security and freedom it affords to people to make their homes truly their own and to shape their futures.

This Government believe in the moral aim of people owning their own homes and in allowing them to build up capital for themselves, their families and their future. That security and freedom should allow people to make decisions about their own home, including over changes, repairs and improvements that are made or costs that are paid. In reality, the time-limited nature of residential leasehold and the sharing of control with the landlord means a significant imbalance in power. Someone who may not live in the same building or share the same priorities or motivations, as the hon. Member for Wigan outlined, may make decisions affecting someone’s home and everyday life.

[Catherine West]

What does the Minister say to leaseholders living in a cost of living crisis, with an increase in service charge that is through the roof, yet, for example, they live in a six-storey building with only one lift that is approaching its eighth week out of service? All hon. Members will have heard similar stories. There is no redress, and the Government are not taking responsibility or pushing the owners to do anything. Does the Minister agree that the situation is now out of control?

[Lee Rowley]

I do not know the detail about the particular situation that the hon. Lady outlined, but I would encourage the leaseholders to use all available avenues. There is redress, although I accept it works in some instances and not in others, but I would say to those residents: change is coming.

We have said that too often leaseholders are being charged exploitative and multiplying ground rents, in exchange for no, few or inadequate services; high charges are being levied in order to respond to simple requests; unaffordable costs to buy out the freeholder or extend the leasehold are being applied; upgrades, such as electrical charging points, to blocks are frustrated by rigid leases; or, as the hon. Member for Hornsey and Wood Green (Catherine West) indicated, urgent repairs to buildings are being neglected. That does not meet the definition of home ownership by anyone, in this Chamber or beyond.

[Several hon. Members rose—]

[Lee Rowley]

I will give way in a moment, but will make a bit of progress first. There is broad agreement across the House, and beyond, that the situation needs to change to make home ownership fairer, easier and cheaper. That is why the Government have already taken significant steps to better protect leaseholders from unreasonable costs, and why we are committed to going further and bringing forward further leasehold reforms to strengthen transparency and accountability.

[Mr Betts]

I am pleased that the Government have good intentions, but the Select Committee’s 2019 report had 52 recommendations. The Government accepted many of them completely and said they wanted to move towards accepting others and work out how that could be done. Since 2019, which was before the last general election, what have the Government actually done? Would the Minister confirm that all they have done in practice is to bring in measures to ensure that peppercorn ground rents are charged on new leasehold houses? That is the only thing they have done, out of all the recommendations they agreed to accept four years ago.

[Lee Rowley]

I am grateful to my neighbour, the hon. Member for Sheffield South East (Mr Betts). He pre-empts a part of my speech that I will come to in a moment.

The hon. Member for Wigan indicated that we have debated the subject many times in this Chamber. That is true and there will be lots of opportunities to do that again, because we have committed to make it easier and cheaper for leaseholders to extend their lease or to buy their freehold. We will bring forward legislation to ban new residential long leases on houses. While there are still issues, I am pleased to see that the market has already responded, with only 1.4% of houses in England now being built as leasehold, compared with nearly 15% previously.

[Emma Hardy]

The Minister will have heard my intervention earlier. I accept he is talking about leasehold reform, but will he elaborate on management companies, where people own their properties but are charged a management fee for communal areas? Such fees can be increased every year, there are no rules about the extent they can reach, and there is no oversight or regulation of them. Are there any plans for the Government to look at the regulation of such management companies, as some of them—not all—are exploiting people?

[Lee Rowley]

The hon. Lady makes a strong point and I will come to that in a moment. We have shared concerns about specifics, which we have all experienced as constituency MPs—Coppen Estates in North East Derbyshire, I am looking at you—and about the general principle and the broader point, which I will come to in a moment.

We have already taken action. The hon. Member for Sheffield South East has highlighted that we have ended ground rents for most new residential leases. The Leasehold Reform (Ground Rent) Act 2022 came into force last June and prevents landlords under new residential long leases from requiring a leaseholder to pay a financial ground rent. That will ensure that people buying most new leases will not face problems associated with ground rents. However, we remain concerned about the cost of ground rents and, in 2019, we asked the Competition and Markets Authority to investigate abuses in the leasehold sector. Since then, the CMA has secured commitments benefiting over 20,000 leaseholders, including commitments to remove a doubling of ground rent terms and to revert charges to original rates.

We know that there is more to do to tackle unfair practices, however. We know that many leaseholders find the process for extending their lease or buying their freehold prohibitively expensive or complex or lacking transparency. Equally, we understand that many right-to-manage applications fail on technicalities that may be attributed to an over-detailed procedure, and we are committed to improving this by making the process simpler, quicker, more flexible and more effective. That is why, as the hon. Member for Wigan said, we asked the Law Commission to look at the issue, and we are carefully considering the reports that it has since produced on enfranchisement, valuation and the right to manage.

[Mark Tami]

As I mentioned earlier, when many of these leasehold houses were sold, the purchasers were promised that they could purchase the freehold, only to find that that was not an option, the freehold was sold on immediately and freeholds were packaged up; they are financial products. I have spoken to people who get a letter every couple of months informing them that the freehold has been sold on to somebody else. This is their life, this is their property, but they feel that they do not own it because it is being bought and sold on a regular basis.

[Lee Rowley]

The right hon. Gentleman makes a strong point about the importance of reform. This is one of the reasons that we have committed to reform and I hope that we will be able to provide that in the months ahead in the remainder of this Parliament.

We are committed to tackling problems such as these at the root, so we will abolish issues such as marriage value and we will cap ground rents in enfranchisement calculations so that leaseholders who currently pay onerous ground rents do not also have to pay an onerous premium. To make this process simpler and more transparent, we will introduce an online calculator to help leaseholders to understand what they will pay to extend their lease or to buy it out. These changes should, and will, generate substantial savings for some leaseholders, particularly those with fewer than 80 years left on their lease, and also ensure that landlords are sufficiently compensated in line with their interest. These changes are therefore fair for all concerned.

[Sir Julian Lewis (New Forest East) (Con)]

I am grateful to my hon. Friend the Minister, for whom I have a great deal of time and respect, but it seems to me that he is talking about tinkering at the edges and improving a fundamentally unfair system. I would gently remind him of an exchange I had with the Secretary of State on 20 February this year, when I asked if there was going to be fundamental reform and he replied:

“We hope, in the forthcoming King’s Speech, to introduce legislation to fundamentally reform the system. Leaseholders, not just in this case but in so many other cases, are held to ransom by freeholders. We need to end this feudal form of tenure and ensure individuals have the right to enjoy their own property fully.”—[Official Report, 20 February 2023; Vol. 728, c. 3.]

Do I detect a basic shift away from this position? I earnestly hope not.

[Lee Rowley]

My right hon. Friend highlights the importance of reform in this area and the cross-party nature of the support for it. I would not read anything into my comments other than that we are committing to reform, we have said we will bring it forward and we will bring it forward. It will happen in the remainder of this Parliament.

Part of that reform will involve reforming unreasonable and excessive service charges. Many landlords and managing agents already demonstrate good practice and provide significant and relevant information to leaseholders, but too many are failing to meet that standard and failing to provide sufficient information or sufficient clarity. We recognise that existing statutory requirements do not go far enough to enable leaseholders to identify and challenge unfair costs. We will therefore act to improve this through better communication around these charges, and a clearer route to challenge or seek redress if things go wrong. That will ensure that leaseholders better understand what they are paying for and can more effectively challenge their landlord if fees are unreasonable, and make it harder for landlords to hide unreasonable or unfair charges.

[Anthony Mangnall (Totnes) (Con)]

I hope that my hon. Friend will forgive me for asking this question in this debate, but I wonder whether he might include in the legislation reforms relating to park homes. Many of the issues that he has mentioned are also faced by park homes across the country, including unfair prices and utility prices at very high levels, all of which are totally unacceptable. It is like the wild west for those people.

[Lee Rowley]

My hon. Friend makes an important point. I have hundreds of park homes in my constituency, and I know how important it has been for residents to see progress on those issues over the past decade. I was pleased, as I know my hon. Friend will have been, to see the changes brought forward in the Bill introduced by my hon. Friend the Member for Christchurch (Sir Christopher Chope) to reform pitch fees from RPI to CPI. That has been welcomed across the park homes sector and I know that the Government will continue to look at what reforms are possible for the sector.

Returning to the specific questions that have been put forward, we are committed to ensuring that when leaseholders challenge their landlord, they are not subject to unjustified legal costs and that they can claim their own legal costs from their landlord. Currently, if permitted by the lease, leaseholders may be liable to pay the legal costs of their landlord regardless of the outcome of the dispute, even if they win their case. The circumstances in which a leaseholder can claim their own legal costs from the landlord are limited. This can lead to leaseholders facing bills that are higher than the charges being challenged in the first place, which can deter leaseholders from taking their concerns to a tribunal. We will act on this and ensure that leaseholders are genuinely free to seek justice and to benefit when their case is proved.

Crucially, we also want to see more leaseholders benefiting from freehold ownership, as set out in the levelling up White Paper, and we recognise that reinvigorating commonhold has a significant part to play in this as a genuine alternative to leaseholds for flats. Some of the failings of the existing leasehold system have been all too evident in the past when seeking to ensure that those responsible for constructing dangerous buildings should be the first to pay for putting them right.

The Building Safety Act 2022, in addition to the existing enforcement powers available through the Regulatory Reform (Fire Safety) Order 2005 and the Housing Act 2004, empowers leaseholders and regulators to compel building owners and landlords to fix—and to pay to fix—their unsafe buildings through remediation orders and remediation contribution orders. The effect of the Building Safety Act is intended to be that building owners and landlords who build defective buildings, or who are associated with those responsible, pay for the remedying of all historical safety defects, both cladding and non-cladding. Landlords who are not associated with developers but can afford to pay are also unable to pass such costs on to qualifying leaseholders.

Similarly, on insurance costs, the Financial Conduct Authority’s latest report into broker insurance revealed that, on average, the premiums paid by leaseholders living in buildings with combustible cladding had tripled. That is unacceptable. Commissions on insurance policies also drive up prices, and in 70% of cases commissions are shared with property managing agents and freeholders by insurance brokers. This is an unfair burden that leaseholders should be relieved of, which is why we have committed to replacing commission pass-throughs from insurance brokers to managing agents, landlords or freeholders with more transparent fees and fair insurance handling costs. We have been clear that this unreasonable practice must end as a matter of urgency, and I regularly meet the relevant trade associations to make progress on this matter.

We have also made progress with a number of banks in recent months on ensuring that the market in leasehold properties affected by cladding starts to become more voluminous, by separating the building safety issues from people’s ability to live their lives.

Whether we are talking about safety or the security and freedom that people rightly expect when they buy a home, this Government are on the side of leaseholders. We are protecting and empowering them to challenge unreasonable charges, making it easier and cheaper for them to extend their lease or buy their freehold, and boosting commonhold as a flexible alternative to take the housing market into the 21st century. Millions will benefit from these reforms, not just in the thousands of pounds saved but in knowing that the homes they have worked so hard to secure are truly their own.

[Several hon. Members rose—]