Leasehold Reform

Maria Eagle Excerpts

Thursday 11th July 2019 Commons Chamber

[Maria Eagle (Garston and Halewood) (Lab)]

I congratulate my hon. Friend the Member for Sheffield South East (Mr Betts) and his Committee on the excellent work that they have done on this issue.

Homeowners who have bought newly built houses in my constituency—and there are many hundreds of them—thought that they were buying their own homes. Technically and legally, they were buying a lease, a type of tenancy, often a long one of up to 999 years, which has left them with a landlord, the freeholder. Many property development companies and finance companies are treating the freehold reversionary interest on houses on these estates as a financial asset to be exploited to the full, with no regard whatever for the leaseholders and the families they are exploiting mercilessly. They see families in my constituency as nothing more or less than a long-term financial asset to be squeezed to the maximum for cash.

There is no reason at all to sell a leasehold house. There is only any point in selling a house as leasehold to make it into a financial asset to squeeze into the far future. Yet in the north-west, 69% of newly built houses in 2016 were sold as leasehold properties. There are already more than 1 million leasehold houses in England and Wales, so what is happening now to my constituents and other home buyers in the north-west is happening elsewhere—perhaps at a lower level, but it is happening.

There are four main areas of concern. People were mis-sold these properties—were not given the full information about what they were getting into. I have heard of many examples of conveyancers having potential conflicts of interest. I have constituents who paid deposits to secure plots in developments before they were even informed that they were in fact purchasing a lease. I have numerous examples of constituents using the conveyancers suggested by developers to guarantee the speed required to access Help to Buy, who were not even advised of how onerous some of the terms of their lease would be.

Escalating ground rents are a real problem for affordability, security of the lease and resale value. There is no reason for ground rent to go up in the way that it does—after all, the freeholder does not provide anything for these payments; it goes up because it can. It is feudalism of the worst kind. Purchasing the freehold is made very expensive and the price often seems arbitrarily high. I have had constituents whose freehold has been sold on without being offered to them. I have people on the same estate being quoted anything between £5,000 and £17,000 to purchase the freehold on identical properties. Leaseholders are being quoted 26 times the ground rent, plus freeholders’ extortionate legal costs, when the formula in enfranchising legislation uses 10 years’ ground rent as the norm.

Some of the restrictive covenants may be unfair contract terms in a legal sense, but no one has thousands of pounds to take the matter to the courts to check. I have heard examples of extortionate fees—£1,600 being demanded for granting permission to have a driveway installed. No wonder people call these properties “fleeceholds”. It is a sorry tale.

There is an additional common problem for lease- holders; they cannot sell their properties. I have been asking myself why escalating ground rent leads to mortgage companies not wanting to lend. I have constituents whose sales have fallen through, but why? Perhaps the answer lies in the landlord-tenant relationship that is the essence of the freeholder-leaseholder relationship. I saw a piece on the website of a legal firm, Mishcon de Reya, that addressed that issue. It said that long leases can sometimes count as assured shorthold tenancies. According to the piece, that cannot be the case where the ground rent is a peppercorn, but where the ground rent is over £250, or £1,000 in London, the lease is covered by the Housing Act 1988 and counts as an assured shorthold tenancy.

I find this shocking: where ground rents escalate, the leases are likely in time to come to fall into that category of assured shorthold tenancy, and such tenancies are designed to be the least well protected. Assured shorthold tenancies can be relatively easily terminated, and therefore the lease forfeit by the landlord or freeholder. In most leases there are provisions, which are quite draconian, for that to happen. Because assured shorthold tenancies allow relatively easy termination, the 1988 Act gave courts the right to grant relief, cancelling the forfeiture if the rent was paid. However, the power to grant relief does not apply to assured shorthold tenancies if at least three months’ rent is more than three months overdue. In such circumstances, forfeiture must be ordered by the court. That raises a terrible prospect of homeowners losing their homes simply because they did not realise this had happened.

The Government must do something about this, and they must do it now.

--- Later in debate ---

[The Parliamentary Under-Secretary of State for Housing, Communities and Local Government (Mrs Heather Wheeler)]

First, I wish to thank all the hon. Members for their detailed contributions on an issue that affects so much of England; nobody can fail to be moved by the stories we have heard today. Obviously, I wish to thank the hon. Member for Sheffield South East (Mr Betts) for raising this issue and for his work as Chair of the Select Committee on the recent inquiry and the 18 contributors today.

There are more than 4 million leasehold properties in the UK, and leasehold tenure allows people to complete the journey towards ownership. As many Members will know, the Committee’s report contained a number of recommendations concerning both existing and future leaseholders. The Government have welcomed, considered and responded to the recommendations, and we will now press ahead with our programme of reform.

When we first announced our plans to reform the leasehold sector in December 2017, we said that we wanted to get the detail right. That is why we consulted last year on the implementation of our proposals, including the leasehold house ban and ground rent reduction. We received nearly 1,300 responses, many of which were from leaseholders hungry for change. The responses have also allowed us to fine-tune our proposals, which will remove many of the current injustices from the future leasehold market.

We will go ahead with our original plan to reduce ground rents on future leases to a peppercorn, as opposed to £10. Through the Committee’s inquiry and our own consultation process, it has become clear that a peppercorn is clearly understood and is best for the consumer—this is a peppercorn of zero. In practice, this will mean that leaseholders will no longer be charged a financial sum for which they receive no material benefit. It will also remove the current financial incentive for developers to build leasehold properties, as ground rent income will no longer present a lucrative profit stream.

[Maria Eagle]

rose—

[Mrs Wheeler]

I will not give way, as I have a lot to get through and I believe I have some answers for people.

On the leasehold house ban, I am pleased with the profound impact our original announcement and the work of campaigners have had on the market. When we made the announcement in 2017, 11% of new build houses in England were sold as leasehold, whereas today the figure stands at 2%—I repeat that it has reduced to that level. Despite that progress, we will still legislate to ensure that in the future—save for in the most exceptional circumstances—all new houses will be sold on a freehold basis. Developers will no longer be able to use leases on houses for their own financial gain, a practice that had become the norm in some regions of the country and, as we appreciate, particularly in the north-west. These reforms will remove the incentives for developers and freeholders to use leasehold to make unjustified profits at the expense of leaseholders, and we will be pressing ahead as soon as parliamentary time allows.

On the matter of where ground rents are so high that it—