Leasehold and Commonhold Reform

Mark Tami Excerpts

Thursday 21st December 2017 Westminster Hall

[Sir Peter Bottomley (Worthing West) (Con)]

I beg to move,

That this House has considered leasehold and commonhold reform and leasehold abuses.

May I first say that we are grateful for your chairing the debate, Sir David? We hope that the next time we debate this issue, it will be on the Floor of the House. The all-party parliamentary group on leasehold and commonhold reform, which now has more than 130 members from both Houses, is probably one of the largest and most active all-party parliamentary groups that there is. One reason for that is that leasehold abuse is a desperate problem, which I am grateful to the Minister for recognising through his presence in the Chamber.

We have been able to be so active because of the work of two people in particular, Martin Boyd and Sebastian O’Kelly, from the Leasehold Knowledge Partnership—LKP. They also help run the good cause campaign, Better Retirement Housing, which was once known as Carlex—the Campaign Against Retirement Leasehold Exploitation. The debate will not focus primarily on the elderly, although it could, as their exploitation is a big problem. It will also not focus primarily on park homes, another form of tenure through which people can be exploited by scoundrels, crooks, rogues and those who exploit the law by making those who are badly off even worse off; through some legal stratagems, they can manage to take away the last assets that some people have.

Leasehold is a form of residential tenure that has been abolished in most places around the world and should be ended in this country. When I say this country, I basically mean England, or England and Wales; the situations in Northern Ireland and Scotland are different, and it needs to change here. That was recognised by Martin Boyd and Sebastian O’Kelly when they started asking Parliament about the plans to bring in commonhold ownership, which should have taken away half the opportunities for exploitation. It should have eliminated the problem; it would not be a question of a small fix —it would be solved.

As it happens, since Parliament passed the Commonhold and Leasehold Reform Act 2002, things have gone wrong. We have not had the growth of commonhold, which in Australia might be called strata title. The reason for that is that the responsibility for it was left with the Ministry of Justice, and of all its concerns, the condition of people living in leasehold homes was not one.

In the years since Parliament last gave serious attention to this issue, we have had a succession of Governments from both parties, and a coalition Government, and we have had Housing Ministers who I think have not been properly advised, because their officials did not actually understand the scale of the problem. At one stage, people thought there were about 2.5 million residential leasehold premises in the country. It is quite clear from the work Martin Boyd and Sebastian O’Kelly have done —with the help of Sir Nigel Shadbolt, Sir Tim Berners-Lee and the Open Data Institute, to whom I pay credit—in getting information that is publicly available and putting it together that the actual number of residential leasehold premises is between 5 and 6 million.

I do not want to get myself too involved in some figures in the Department’s announcement at one minute past midnight today. I do not think they have the number of new leasehold houses right, but that is immaterial to the debate. What matters is that what was an anomaly in the north-west—selling houses as leaseholds when they could be sold as freeholds—began to spread. To those who say that the leasehold house was sold at a lower price than the freehold house, LKP’s work shows that that is not correct. It was just a way of exploiting leaseholders, who thought that it was a normal way of taking on a home.

Of course, when the ground rent on a leasehold was a peppercorn, there was no problem at all. When it is £10 a year and doubles every 20 years, from £10, to £20, and to £40, people cannot see the problem. However, when it starts at more than £200 and doubles every 10 years, that is a 7% increase per year.

[Mark Tami (Alyn and Deeside) (Lab)]

I praise the hon. Gentleman for all the work he has done on this; I think we have moved a long way from where we started. He is absolutely right that this is a scam, and it has spread. It is not only about the ground rent issue but all the other onerous requirements. If people want to change the flooring, they have to apply and are charged a ridiculous fee. It has also spread to the management costs of looking after the ground around the premises. It is a scam, and it needs to be treated as such.

[Sir Peter Bottomley]

I think people will accept that. I ought to say that we are not trying to solve all the problems with all forms of housing in one short debate. I will try to limit my remarks and leave space for others to bring up issues, although we do not expect the Minister to answer every point today. The Government’s announcement was welcomed by most people in the field as a step forward that is less than is needed but is dramatically more than anyone had expected.

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[Jim Fitzpatrick (Poplar and Limehouse) (Lab)]

Sir David, it is a pleasure to serve under the chairmanship of a fellow West Ham United supporter; I know that you will show no favour. Your experience is very welcome here.

I am delighted to follow the hon. Member for Worthing West (Sir Peter Bottomley), and I pay tribute to him for his leadership on this issue over many years. I am proud to be his co-chair of the all-party parliamentary group on leasehold reform. I am pleased to see my right hon. Friend the Member for Wentworth and Dearne (John Healey), the shadow Secretary of State for Housing, in his place, demonstrating how seriously the Opposition take this issue. I am very pleased to see the Minister, who is highly regarded and who will take this issue forward. We are cheering from all sides of the House to give him a fair wind.

As co-chair of the all-party group, I wish to place on record my thanks to Katherine O’Riordan for her hard work for the group and for her professionalism, and to Martin Boyd and Sebastian O’Kelly of the Leasehold Knowledge Partnership, who act as our secretariat and have given us sterling support over the years, working with organisations such as the National Leasehold Campaign, which has been pushing on this issue for a long time.

I want to start by welcoming the Government’s efforts, including today’s announcement. Together with the housing White Paper, the consultation in September that led to today’s announcement, the call for evidence that the Government issued, the extra staff for the leasehold section of DCLG, more money for LEASE—despite our criticisms of the way it has operated previously—and today’s announcement all signal that the Government know there are problems. This will be the third time in recent decades that a Government will try to fix the abuses of leasehold tenure. The last two failed in 1993 and 2002. Hopefully this one will not.

However, today’s announcement must only be a start. Commonhold should be the real objective of our campaign. Although many people are clearly content with their leasehold properties, there are abuses for tens of thousands, if not hundreds of thousands, of leaseholders across England and Wales, and there are poor redress arrangements available.

[Mark Tami]

I praise my hon. Friend for all the work he has done. I very much welcome what the Government have announced, but a great number of people who already have leaseholds are affected, and it will obviously be very difficult for them to sell those properties. I know it is not easy, but we really need to get redress for those people as quickly as possible.

[Jim Fitzpatrick]

My hon. Friend puts his finger on the key point. We will be looking to the Minister for reassurance on the 5 million leaseholders who will not be covered by future regulation and legislation and many of whom are disadvantaged and are looking to the Government to address those concerns. I will come back to that later in my contribution.

According to House of Commons Library figures, my constituency has the second highest number of leasehold properties in the country. In 2016, it had the highest proportion of leasehold sales, at 97%. Only a couple of years ago, DCLG figures calculated that there were 2.3 million leasehold properties in England and Wales. Under pressure from the LKP and others, the Department adjusted that figure to 4.1 million, which is quoted often, even by the Library, as being as a more accurate figure.

However, as the hon. Member for Worthing West mentioned, the LKP now estimates that there are 6.2 million homes provided with leasehold services. That means millions of homes and homeowners are vulnerable to inflated service charges, exorbitant insurance costs, a lack of tender transparency and poor standards of work—original or repairs—as well as refusal to recognise properly constituted resident or tenant associations, mismanagement of funds and other fundamental problems. I hope that the Minister will elaborate on how today’s announcement will help to address many of those concerns.

I want briefly to focus on the post-Grenfell fire safety costs being inflicted on many leaseholders. On Monday, I asked the Secretary of State for Communities and Local Government when he made his statement on Grenfell Tower and building safety whether he could tell us how many applications for the costs of cladding replacement and fire precautions, including fire marshals, have been registered with the first-tier tribunal by landlords and freeholders. In relation to meeting the costs of building safety, he said:

“I have made it clear that I expect private sector landlords to take the lead that has been shown by housing associations and local authorities.”—[Official Report, 18 December 2017; Vol. 633, c. 784.]

That is, that leaseholders will not be charged for the costs. David Orr, the chief executive of the National Housing Association, said in correspondence today:

“As freeholders of leasehold properties, our members”—

housing associations—

“have legal responsibilities as part of their leases and are therefore legally entitled to recoup the reasonable costs through service-charges”.

That is hardly a ringing endorsement of what the Secretary of State said.

Equally, information from the first-tier tribunal shows that 17 applications have been made to it. I would be grateful if the Minister confirmed whether those were to dispense with the full section 20 consultation process or to gain prior approval, under section 27A, of the amount the landlord proposes to spend on cladding and pass on to leaseholders. Ministers have been positive in asserting that costs for removal and replacement, and so on, should be borne by the owners, freeholders and agents, but the experience on the ground may be different.

In my constituency, for the New Festival Quarter development, HomeGround, Bellway, Pinnacle, Adriatic Land 6 and Family Mosaic have informed me—after many calls and emails—that they have secured confirmation that the works costs will be met, but the cost of fire marshals, originally set at £32,000 a week plus VAT, will be met by leaseholders. That figure, after much examination and pressure, is now down to just under £20,000 a week plus VAT, but will run from October to at least February 2018, and I suspect probably longer. My question to the Minister is this: does he think it is fair that residents should pick up the tab? It is obvious from previous statements that he does not, so what further steps can they take to protect themselves? To be fair, the housing association Family Mosaic is opposed to leaseholders footing the bill, but managing agents Pinnacle are not so inclined—certainly not so far.

Can the Minister tell us how many other blocks are affected across the country? Page 74 of Dame Judith Hackitt’s interim report, published this week, says:

“In a significant proportion of buildings visited, fire and rescue services had to issue notices”.

As I understand it, these notices are known as NODs—notices of deficiencies, not alterations, enforcement or prohibition notices. Can the Minister tell us—or perhaps write to us afterwards—how many NODs there have been, and how many developments have confirmed no costs to leaseholders?

Returning to the Government announcement today, the Minister will know that Lord Justice Bean, chair of the Law Commission, issued a statement last week, saying:

“We are delighted to be able to confirm that Commissioners agreed that a project on residential leasehold and commonhold should form part of the 13th Programme and this has been approved by the Lord Chancellor.”

He goes on:

“Our project will commence with a review of leasehold enfranchisement, commonhold and managing agent regulation.”

He concludes:

“On the basis of receiving funding from the sponsoring Government Department, we expect to start work immediately.”

The question for the Government is: have they confirmed that they have the funds to carry out that fundamental job?

In conclusion, leasehold is not only well past its “sell by” date or its “best before” date; it is clearly at its “time to do something now” date. The media have woken up to the abuses. We have had more coverage of leasehold abuse in the past three to six months than we have had for the past decade. House buyers and mortgage lenders have woken up, by not buying where possible and declining to lend on many properties. The Government have reached a point where they need to be seen to be doing something, and they are. However, it is only a start. There are more than 5 million home owners now exposed and vulnerable, with more joining them in almost every new development. Urgent and fundamental reform is required. The Minister is just the chap to deliver. He has allies across the House; many he can see here today and others mentioned by the hon. Member for Worthing West. The fact that we have 130-plus members of the all-party group for leasehold and commonhold reform across both Houses demonstrates that this is a huge issue for millions of people across the country. They are looking to the Government to deliver for them. I look forward to the Minister’s response and other contributions in this debate.

[Mr William Wragg (Hazel Grove) (Con)]

It is a pleasure to serve under your chairmanship, Sir David, on this, our last day of term. I congratulate my hon. Friend the Member for Worthing West (Sir Peter Bottomley) and the hon. Member for Poplar and Limehouse (Jim Fitzpatrick) on securing this debate. As I am sure my hon. Friend the Member for Witney (Robert Courts) will agree, it was a worthy application when it came before the Backbench Business Committee, of which I am a member.

We all agree that there is a need to promote fairness and transparency for the growing number of leaseholders. Historically, leasehold arrangements have been used primarily to manage properties that share a single space and have shared facilities. Where leasehold is used in properties such as flats, it often makes sense, so that there is a collective responsibility for the upkeep of roofs, lifts and entrance areas, and so on. However, as we all know, an increasing number of new build homes are now being sold on leasehold terms when there appears to be no obvious reason why the freehold is not also sold at the point of sale, other than to create an additional revenue stream for developers.

The number of leaseholds, as we have heard, is growing rapidly. While leaseholds may be presented as a cheaper option than buying the freehold, it is not always clear to the leaseholder what additional medium and long-term costs they may face. There are terms of some leases that are becoming increasingly onerous to those purchasing the leasehold for a flat or a house, and they can often expose home buyers to unreasonable and long-term financial abuse.

[Mark Tami]

I have also been made aware that when a number of people bought these properties, they were encouraged by the house builders to use a certain firm of lawyers that, shall we say, may not have fully pointed out some of the potential problems when purchasing a leasehold property.

[Mr Wragg]

Indeed, the lack of transparency and information for those purchasing the leasehold is a problematic area. The hon. Gentleman is right to highlight that.

The issues that people face include: paying for ongoing and increasing ground rent, often at unjustifiable and unaffordable levels; paying arbitrary fees to the freeholder for permission to make even the most minor of alterations to a property; and the financial impact of extending the lease or buying the freehold from the developer after moving in.

Leaseholders in England will normally pay an annual ground rent to their freeholder or landlord for renting the land that the leasehold property is on. However, developers are increasingly selling leasehold properties with short ground rent review periods, often every 10 years, which allow for above-inflation rises. Indeed, there have been reports, as was mentioned earlier, that some of those rises have been doubling every decade, well above inflation. Worryingly, these terms are not always made explicit to potential home owners at the time of purchase, leaving buyers open to finding themselves in vulnerable and unforeseen positions years down the line. Even when full diligence was conducted at the time, the freehold can still be sold on later to a third party, even after residents have moved in, by legally out-manoeuvring leaseholders’ right to refuse.

--- Later in debate ---

[Liz McInnes (Heywood and Middleton) (Lab)]

It is a pleasure to serve under your chairmanship, Sir David.

It is also a pleasure to follow the hon. Member for Hazel Grove (Mr Wragg). Like him, I welcome today’s timely announcement, but there is still a huge amount of work to be done in helping those who are caught in the leasehold trap like many of my constituents.

I first became aware of this issue around Christmas last year, when I was contacted by my constituent, Linda Barnes. She told me that her house, which she had bought new from Taylor Wimpey in 2011 for £147,000, had a ground rent that doubles every 10 years and that had been sold on by Taylor Wimpey to E & J Estates. She had been quoted a price of £35,000 to buy the lease before it doubled.

Very soon after that, I heard from another constituent, Jonathan, who had bought a house from Countryside Properties in 2010 using the Government’s HomeBuy Direct initiative, which was later renamed Help to Buy. Jonathan said that he had been made aware that the development was to be leasehold and that an annual ground rent of £200 was payable to the owner of the land, Countryside Properties. Six months after he moved in, Jonathan received a letter informing him that the freehold had been sold on to a company called Tuscola Ltd, based in the British Virgin Islands. He was quoted over £6,000 to buy the freehold. He also discovered a doubling clause in his lease that meant that by 2055 the ground rent would be £1,600 per year. This is causing him a great deal of concern, because by the time he reaches retirement age his ground rent will be unaffordable and will make his home unsellable. As Jonathan said:

“Considering the significant cost of new homes one would have thought that the last thing one should worry about is the land the house sits on and that it can seemingly be sold on from underneath you.”

[Mark Tami]

Although the property companies may not have done anything illegal, what they have done is morally wrong. They knew full well what those products were. They were making an extra buck on a financial product and they did not give a damn about what happened to the people they sold those properties to.

[Liz McInnes]

I totally agree with my hon. Friend and will expand on that point later in my speech.

I have been contacted by many of Linda and Jonathan’s neighbours, and they all tell the same story: that they were encouraged to use the developer’s choice of solicitor when they bought their homes, that they were not informed of the doubling clause and that the prices they are being quoted to buy the freehold are simply unaffordable. Many residents are rightly angry that the developers sold off the freehold to a property investment company without first consulting the homeowners and offering them the first chance of purchase. Many pointed out that the lease on their home is for 250 years, and if the ground rent doubles every 15 years, it will be £13 million by the end of the lease. If the Government do just one thing, they must ban this exponential growth in ground rent.

I am sure that some hon. Members will be familiar with the concept of grains of rice on a chessboard, with the number of grains doubling on each successive square. By the time the 64th and last square is reached, the of grains of rice are a staggering 20-digit number: more than 18 quintillion, or 2 to the power of 64 minus 1. Clearly, any further attempts by developers to use this deceptive piece of mathematical trickery must be made illegal.

One couple wrote to me to complain that when they bought their property from the developers they actually posed for photographs and recommended the company to other prospective buyers, and that was posted on the developer’s website. The couple now say:

“We would very much welcome being able now to express our very different views and to tell the truth about you as developers on your website. We doubt very much you will give us that opportunity. You have turned what should be our happy home into a very expensive prison.”

Research from the House of Commons Library highlights the fact that leaseholders may be required to seek the freeholder’s consent before carrying out alterations, as many hon. Members have already said. I think that the publicity surrounding this leasehold scandal may have actually emboldened some unscrupulous landlords to make unreasonable demands on homeowners, and I have an example of that from my constituency.

Recently, I and my staff have been dealing with issues raised by residents who have received letters from a company named the Dean and Whipp Ltd Group, asking for money for retrospective ground rents and for payments for alterations such as dormer windows and extensions. These homeowners bought their properties after those alterations had been made. In one case, the homeowner actually discovered that the previous owner had in fact paid the landlord for the alterations to the home when they were carried out in 1978. The current landlord, Dean and Whipp, which had either bought or inherited the freehold, had obviously not checked whether payment had been received in respect of the alterations, and had just sent out the letters demanding payment regardless. That is something that looked to me very much like a fishing expedition.

The behaviour of this company, Dean and Whipp of Dukinfield, Cheshire, is outrageous. It has told me that it will deal only with either me or a solicitor but not both, seemingly missing the point that I can act on behalf of any of my constituents regardless of whether they are using a solicitor. I have written to the Housing Minister about this case, and so far I have not received a reply. As the Housing Minister is here, I would be grateful if, in his concluding remarks, he would say what action he will take to prevent those landlords from acting in such an arbitrary manner. Their actions are causing a great deal of distress to my constituents, many of whom are elderly and worried by the prospect of having to pay such large bills.

I hope that in addition to addressing the issues raised in this debate, the Minister will be able to give my constituents some reassurance that action will be taken against the sharp practice of companies such as Dean and Whipp, so that my constituents might enjoy a peaceful, relaxed and happy Christmas in their own homes.