Leasehold and Commonhold Reform
Debate between Peter Bottomley and James Berry
Sir Peter Bottomley
I am grateful to the right hon. Gentleman for that.
We are talking about a number of issues that do not always come together. The first is that commonhold was recommended by the Law Commission 20 or 30 years ago, and Parliament and government thought they have made legal provision for it to come in, but it does not work. We understand that by 2009, within seven years of the Commonhold and Leasehold Reform Act 2002, officials in the Ministry of Justice and perhaps Ministers, too, knew it was not working. Some who are not very knowledgeable say that it cannot work. Others who have been outside the country know that no other country—no other significant country, as far as I know—has kept the system that we developed 100 or 200 years ago.
Besides the flat in Worthing, I have a home around the corner from here. It was built in about the 1720s and it had a 99-year lease, on the basis that in that time it would either fall down or burn down; people were not expecting houses to go on lasting forever. I pay tribute to George Thomas, now Lord Tonypandy, who, in his firebrand days, campaigned to get leasehold reform and rent Acts in place so that the people in south Wales could be saved from bad landlords and freeholders.
I have in my hand the record of the debate on 8 March 1991, when Dudley Fishburn, then the MP for Kensington, paid tribute to his predecessor, Brandon Rhys Williams, who was one of the early people to start campaigning on leasehold. In a remarkable contribution, Terry Lewis, the then MP for Worsley, made reference to a number of the abuses that existed then. This was a non-party issue then, as it is now. Nearly all the scandals that Dudley Fishburn was talking about apply now, especially to the shorter-term leases.
Commonhold works, perhaps under different titles, in parts of Australia, particularly in New South Wales, with strata holdings. People from there have come before our all-party group and our forums to talk about this. The problems we have are not found in Canada, New Zealand or South Africa, or in France and Germany. Let us consider what happens when we give people interest in the maintenance of their flats. At the moment, if someone has a leasehold and improves their property, the value goes eventually to the freeholder. If they can get rid of the freeholder, not only is the abuse stopped, but people are encouraged to invest in things that matter to them. I strongly recommend that 1991 debate to hon. Members, and I was going to go through it at greater length.
What I will do is talk about some of the abuses. Benjamin Mire, a well-known surveyor and leasehold property manager, was going to be removed by the Ministry of Justice as a person not fit for judicial office, but by the time the Judicial Conduct Investigations Office had concluded its investigations, he had retired or resigned days before he would have been dismissed. Had he not done this, the full report would have come out into the open, but as he jumped before he was pushed it did not. He is not fit for judicial office and he is not fit to go on being a registered member of the Royal Institution of Chartered Surveyors. The problem is that his clever lawyers, and perhaps a display of not enormous competence by RICS, have left the details of the charges against him by RICS not fully out in the open. There were 35 cases where he or his company, Trust Property Management, were appearing at the property tribunal. There were failings by almost everyone involved.
The problem with the tribunal is that it does not have the power to fine for repeat offences. If it did, Mr Benjamin Mire would have been fined significantly. Everyone is entitled to a fair hearing, but let me give an example of a finding in one case where the trust acted as a property manager. It was stated:
“The landlords have had scant regard to the law and the RICS Management Code in respect of the costs of the proposed interior decorations.”
How can a self-regulation system that does not consider such court findings as warranting even an admonition retain the confidence of the general public? The Government have argued for years that there is no need for statutory regulation, but can anyone name a group that supports that position? Even the main managing agents trade body, the Association of Residential Managing Agents—ARMA—has been asking the Government to regulate the sector.
Leasehold is the only part of the housing market where an unregulated person can hold huge amounts of leaseholder funds and yet has no obligation to act in the leaseholder’s interests. Let me remind the House of something: when the freeholder appoints a managing agent, who does the managing agent work for? It is the freeholder.
I ask Ministers please to establish a legal position so that the leaseholder has an interest in everything that happens either with their money or in the block where they own the lease.
In the CBRE report—the most recent I have seen is from 2013—there are references to “soft income”. We still have too many examples of landlords, sometimes those who even own their own agents, skimming on huge insurance commissions. That was reported by the Financial Conduct Authority as recently as two years ago, when it said—this backs up what I said earlier—that it was not uncommon to charge commissions of more than 40%. The worst situations are those in which the landlords’ own managing agents provide contracts through companies they own, which can result in poor services and high costs. My hon. Friend the Member for Plymouth, Sutton and Devonport might remind the House later of whether there was such a link between the freeholder and the managing agent in Plymouth.
I cannot distinguish between one Tchenguiz brother and the other, or between them and the Tchenguiz trusts, so I will talk about Tchenguiz interests and those who know can pick up on whether they are involved or affected. There are two points on which I criticise them. One was when they controlled Peverel, property managing agents who owned a business called Cirrus—as in the cloud. When some of the company’s large number of freehold blocks were said to have needed the call system replaced, there was a competition between the very big firm, Cirrus, and two little minnows. So, if we think that 99.9% was Cirrus and 0.1% was those two little minnows, there was collusive tendering. Sadly, the economic crime unit of the police, the Financial Conduct Authority and the Serious Fraud Office did not manage to get together at the same time to work out how to deal with this rip-off of millions of pounds from leaseholders.
When Peverel/Cirrus discovered that the game was up, they declared that they had been involved in collusive cartel bidding. We know from the Virgin-BA case that the first to declare that they have been involved in a cartel is penalty free. The fact is that the size of Cirrus compared with the size of the minnows made that an absurd judgment. If the police, the fraud office and the FCA had been together, they would have stopped it, but they did not, so those involved got off scot-free.
The other Tchenguiz interest was in Charter Quay in Richmond upon Thames—
Sir Peter Bottomley
In Kingston. The numbers might be wrong, but they are illustrative. Imagine the Tchenguiz interest buying the freehold of Charter Quay for £750,000 and then, in the same year, writing the value up to £2 million, £3 million or £4 million, before borrowing, say, £2 million against it. When the leaseholders eventually get together, they discover on the accounts that the Tchenguiz interest—or someone—has been running an office phone through the lift phone in the block of flats to get a good deal from the telephone providers.
The leaseholders then get control of management and apply for the freehold, only for the freehold block to be estimated not at £750,000, and not £2 million, £3 million or £4 million, but at just under £1 million. It came down to about a third of the valuation that the new owners had put on it. In that case, I think, there was a settlement before the thing was finally determined by the court, but the figures are there.
The freehold went from £750,000 to £900,000, having gone to £2 million, £3 million or £4 million in between. I ask the professional regulators for the bankers involved in the loan, the surveyors who went along with the valuation and the accountants who did the accounts to ask how they explain this. I think that there was professional incompetence or collusion, and that is not what professionals are supposed to do. I hope that it is not happening again now.
James Berry
I thank my hon. Friend for giving way and for mentioning Charter Quay in my constituency, as well as the fantastic campaigning work done by the residents association to overturn a situation caused by the skulduggery of the Tchenguiz operation. I should point out that I have a property that I rent out—not in Charter Quay or anywhere in the constituency. Does my hon. Friend agree that a lot of people living in leasehold properties are older people who have downsized and can ill afford the additional and inflated costs and expenses associated with such properties?
Sir Peter Bottomley
My hon. Friend is absolutely right.
If a leaseholder wants to exercise their rights under the law or to stop being abused because someone is trying to assert rights that they do not have, they have to know 22 Acts of Parliament, regulations and codes. Tribunals, whether in property or employment, ought not to allow some clever QC to come along and say that there is one thing that they have not been aware of that means that the rest of the case falls away; they should ask whether most of the case has been established, in which case the precise details of law—so long as what the tribunal decides is not unlawful—should carry through. The presumption should be that if there is trickery—legal or economic—or unfair pressure, the small person’s voice should come out on top.
Even during the publicity over the past two or three days, people who have spoken up about the abuse they have experienced because of the ground rent scandal have received lawyer’s letters on behalf of other lawyers saying, “You shouldn’t be saying that.” What is this place supposed to be like if we cannot hear our constituents say what their experiences are? I asked those lawyers to respond to me by 10.30 today, so perhaps the email has come in while I have been speaking, but I think that people ought to start asking whether these are sensible letters to be sending. We should be saying that part of being a lawyer is trying to make sure that everyone has their voice heard properly.
Lord Faulks said on behalf of the coalition Government in 2014 that he did not plan to review the commonhold/leasehold format. I think he should—not him, it is not personal, but the Government certainly should. It ought to be possible with the help of good lawyers. Guy Fetherstonhaugh QC, who presented a paper that is in the notes of the all-party group, has given good advice on how that could happen. I give strong commendation to Philip Rainey QC, who addressed our meeting last week and gave various proposals for what could work and could do so quite fast. That does not solve all problems easily, but it makes most difficult problems become easier and makes easy ones go away.
It is tempting to go on for rather longer than the House would wish, but I have one recommendation. Going back to LEASE, the advisory service, I do not think that it has ever had a leasehold representative as a member of its board. If we are to have six members on the board, I would have at least two with leaseholder interests—one who is a leaseholder and one who is part of the campaigning groups and charities that try to help to represent leaseholders. I would certainly ask those who appoint the chairman of LEASE to consult broadly—not just with people like me—about the experience, ability, talents and attitude we want the chairman to have to give guidance to Anthony Essien, the chief executive, against whom I make no critical comment as he has always been responsive, helpful and straight. If the appointment of a new chairman is coming up, I ask the Government to consult as there is some expertise around and in every other field I have known people get consulted if there is a serious basis for that.
I turn briefly now, if I may, to park homes. In my constituency and the constituencies beside it, Bognor Regis and Littlehampton and Arundel and South Downs, some park homes have recently been developed in a way I would regard as a shocking example of misused legal knowledge. The person involves takes a park home, says that it is a holiday home, and that it is not, and tries to fit it between the two, charging enormously high rents. I ought perhaps to apply for an Adjournment debate on the case I have. The Minister should invite Members to send in constituency cases of park home problems and people using the law in ways that are not justified. I encourage the experts in Arun District Council, who have been doing the best they can, to send in their cases to the Minister, because I think action could quite easily be taken there.