Leasehold and Commonhold Reform
Debate between Peter Bottomley and Ruth CadburyWestminster Hall is an alternative Chamber for MPs to hold debates, named after the adjoining Westminster Hall.
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Ruth Cadbury (Brentford and Isleworth) (Lab)
It is a pleasure to serve under your chairmanship, Sir David. I thank the hon. Member for Worthing West (Sir Peter Bottomley) and my hon. Friend the Member for Poplar and Limehouse (Jim Fitzpatrick) for introducing the debate. I also thank our colleagues in the Leasehold Knowledge Partnership, who have been a great help to me, both as a constituency Member and in my former housing role on the Opposition Front Bench. Frankly, they have been doing the work that LEASE should have been doing, but they have not been funded to do it by the Government. They have done a sterling job representing leaseholders and supporting the Members, local authorities and others who have supported leaseholders in recent years. I was on the Front Bench when we debated leasehold and commonhold reform on 20 December 2016 —a year and a day ago—but I will not repeat the arguments of my speech in that debate, which can be easily found.
There are many leaseholders in my constituency who live in the blocks of flats that have been built there in recent years, particularly in Brentford, my home town. Things have moved on in the past year, and many of us are grateful for the new tone from the Department, which can be seen from the release that it issued last night at midnight. Relatively recently, however, we have seen a racket growing, particularly from developers.
Ground rents for houses mean that people who had thought they owned their home actually own a depreciating asset. The racketeers are withholding the right to own and the right to manage. Freeholds are being sold on without notice. Links between freeholders, conveyancing solicitors and managing agents are far too close. People are having fees demanded of them on conveyancing that the solicitors did not originally tell them about, as well as fees for changes to homes, building extensions, sub-letting and so on. I was perturbed to hear from my hon. Friend the Member for Heywood and Middleton (Liz McInnes) of people being charged again down the line.
That is absolutely shocking. The examples we have heard already in this excellent debate show that elements of the private sector, instead of doing their job as developers and in some cases managing agents, are frankly taking homeowners for a ride, and that has to stop. We have heard about a series of things that are symptomatic of how freehold ownership has become an asset class in itself. Money is being made not on buying and selling, but on owning and ripping people off, and that has to stop. The extent of the problem is illustrated by the fall in the share price of McCarthy & Stone and other developers on the back of the Government’s announcement this week. That shows how much of their asset value is based not on what we should think of as their core business, but on these appalling practices that we have been hearing about.
I am grateful to the Government for the movement they have made on new build leasehold houses, ground rents and protecting leaseholders from possession orders. I also welcome the additional staffing in DCLG, and I hope that those things are an indication of a new-found commitment to serious change. Will DCLG fund the work recommended in both parts of the Law Commission’s report? The first part recommended a simplification of the law and improved fairness and transparency for leaseholders. The second part of its release earlier this week looked at the assignment of leases under new contracts, ground rents, which the Government mentioned, high fixed service charges and fees on assignment.
The single biggest opportunity for the Government is the introduction of a commonhold law that works. England is perhaps unique in that we have a lack of true rights for the owners of flats. We should learn from similar jurisdictions, such as Australia, and nearby jurisdictions such as Scotland. Previous Tory and Labour Governments have tried introducing commonhold law that works, and my right hon. Friend the Member for Wentworth and Dearne (John Healey) tried to do that. I am sure he will refer to that later this afternoon. Let us have another go at ensuring we get a commonhold law that works, because it would put a permanent end to the racketeering practices we have heard about today. The Minister can be assured that if the legislation he proposes is good, he will have support from many Opposition Members.
Among other things, the Government need to end the false departmental divide between the Ministry of Justice and DCLG and bring all the issues into one place. Like other Members, I ask the Minister to address the situation of the hundreds of thousands of victims of the current law who seek recompense for the failures so far. We cannot let them be left high and dry. We also need to address the challenge for residents’ groups in leasehold blocks of flat. Let us not forget that residents’ groups work as volunteers. Many have gone through or are going through the ever-twisting hoops to set up a resident management company. Some are trying to seek ownership. Even when they do not have the kind of freeholder that we have heard about today, that is a lot of work in their own time, and they need recognition and support for that. I hope the Government will take that into account.
Finally, I want to talk about post-Grenfell fire cladding. In my constituency, we have more than 300 leaseholders in the Blenheim Centre in Hounslow. The freeholder, Legal & General, has agreed to pay the full cost of the recladding that will need to be done and the back pay of the fire marshals, who were costing the leaseholders an awful lot of money. The total bill could be £10 million. I am also pleased that Notting Hill Housing has agreed to fund the recladding in the modular housing at the Paragon development in Brentford. That is not because of inflammable cladding, but because of the lack of fire breaks. My understanding is that those two cases are exceptions to the rule. There are an awful lot of leaseholders in flats across England where the freeholders are not prepared to pay the cost of recladding. There is an awful lot of uncertainty, and we have not seen a response of any substance from the Minister. We look forward to hearing that today.
Sir Peter Bottomley
The hon. Lady has raised a point that the hon. Member for Poplar and Limehouse also raised. LEASE has been given extra responsibility for trying to help people living in blocks that may be affected by post-Grenfell issues, but what is presently on the LEASE website is totally inadequate. It may be a start, but it is not good enough. LEASE should get together with the LKP to use the LKP information. That information has already been of advantage to a number of residents, and it could be of advantage to more. It will not solve all the problems, but why not try to put all the information together, rather than staying away from some of the people who have been helpful and putting responsibility on those who have not?
Ruth Cadbury
I concur with the hon. Gentleman’s comments. He is absolutely right. Mere words of comfort and a promise of mediation are not what leaseholders are looking for. Many leaseholders are working people or retired. All of their wealth and quite a lot of debt is tied up with their homes, and there is an awful lot of stress and worry across the country on the issue. I hope we will get something from the Minister today.
All that is left for me to do is to wish merry Christmas to you, Sir David, to fellow Members and to the many parliamentary staff who make our jobs possible in this place.
Leasehold and Commonhold Reform
Debate between Peter Bottomley and Ruth Cadbury
Ruth Cadbury
I thank my hon. Friend for that excellent additional example where the right to manage has been proved not to be as simple and straightforward as it should be. Too many people who want to manage their property collectively with their neighbours are finding it too difficult and costly with too many hurdles.
We have seen many complicated hurdles put in the way of leaseholders exercising their right to manage or the right to enfranchise. Dispute resolution procedures are complicated and costly. Lessees are having to pay the landlord’s legal costs. Resale charges are up to 20%, which then suppresses resale values. I ought to declare an interest in that this happens particularly in the retirement sector, and my mother has just bought a flat in a retirement community. There are the questionable tie-ups between freeholders and managing agents, and the solicitors they recommend, as mentioned by my hon. Friend the Member for Ellesmere Port and Neston. There is the scandal of lease forfeiture, again brought to the debate by the hon. Member for Worthing West. New homes on their own plots are being sold by volume housebuilders on 999-year leases when they could be freeholdings. Despite advice given to many first-time buyers in these instances, I must say that no, 999-year leases and freeholds are not one and the same thing.
Sir Peter Bottomley
Another illustration of this issue comes from a CBRE report of 2013 saying that some people who are developing property with leaseholds are now selling the freehold in advance so that they escape the responsibility of offering it to the leaseholders after two years.
Ruth Cadbury
That is yet another example of poor practice—and that would be a generous term.
We have heard about the difficulties of people who buy park homes. They often do that because they cannot afford bricks and mortar, and park homes look, on the surface, to be an affordable option. We have heard about the charges on owner-occupiers for the “privilege” of modifying their own home, even if they have planning permission. We have heard about buyers who want to purchase the freehold finding it incredibly difficult to do so; some big-name volume housebuilders such as Taylor Wimpey and Bellway have been mentioned. The hon. Member for Kingston and Surbiton (James Berry) raised that matter.
Finally, and perhaps most shocking of all, there is the scandal of what I call the ground rent scam whereby a new asset class has been created as ground rents rise and rise, and properties are being treated as a marketable commodity over the heads of the owner-occupiers. Several hon. Members have mentioned this shocking situation. My hon. Friend the Member for Ellesmere Port and Neston described this national scandal as the PPI of the housebuilding industry.
I am looking forward to the Minister’s response. Before he thinks of saying that the examples brought here today from Members across the House are exceptions that prove the rule, I want to say that they are all too common. The APPG is a new group that has a large membership. A recent survey by LEASE, the Government’s agent, showed that 53% of leaseholders regret their purchase. If there are 4 million leaseholders in this country, and that is probably an underestimate, then 53% of 4 million represents an awful lot of people. Legislation has been changed to benefit far fewer than 2 million people.
Before the Minister thinks of talking about weighing up the relevant benefits to different parties as an excuse to delay radical change and review, I have to ask him whether it is right that people can buy and sell freehold interests and ground rents as a lucrative tradeable asset. The Leasehold Knowledge Partnership suggests that developers alone are now earning an additional £300 million to £500 million a year from ground rent reversionary sales of their head leases and freeholds—and that does not include the buyers and sellers of ground rent funds, such as Ground Rents Income Fund plc, whose website I visited earlier today. This asset class is one of the highest-performing investments for canny investors. I think that following this debate we know why.
Yet hard-working people—those who are doing the right thing by investing their hard-earned cash into buying a home—are being ripped off left, right and centre. The Government must act urgently to stop this gross exploitation of hard-working homeowners who are finding that they cannot sell their homes. In fact, the Government must do more than that. The Labour Government introduced commonhold in the Commonhold and Leasehold Reform Act 2002. My right hon. Friend the Member for Wentworth and Dearne (John Healey), who is here, was a key player in that. Commonhold works in the rest of the world—for example, in Ireland and in most of our ex-colonies—and it could work in the UK. Labour introduced the Act, but we accept that it is unfinished business. The Government should review it, consider amending it, and implement the necessary changes.
We call on the Government immediately to stop the scandal of exploding ground rents, which is the biggest legitimate scam in Britain. They should review how commonhold works and make it work, and also end leasehold tenure. We strongly argue that we need to update, consolidate and simplify all the legislation, not just add another Bill and yet more complexity. The Government should consider revising the law on replacing leasehold forfeiture, as the Law Commission has recommended. We ask the Government to consider proper regulation of managing agents and to simplify the right to manage, so that residents are able jointly to take control of the block in which they live.
Sir Peter Bottomley
We need to make it much easier for any individual leaseholder to have access to the contact details of every other leaseholder, not just tenants, so that they can apply for their rights. At the moment, for all sorts of bad reasons, they are blocked from being able to do that. I hope that the Government hear what the hon. Lady is saying and that they will work out practical ways to make things easy.
Ruth Cadbury
The Government need to look at that detailed and critical issue. We look forward to not just an acknowledgement of the issues, but a solid commitment from the Minister to look at them. To date, the Government have shown no sense of urgency, just half-hearted promises to end the problem.
Reform of leasehold law is “unfinished business”, in the words of my right hon. Friend the Member for Wentworth and Dearne. There are too many loopholes in too many pieces of legislation, and the balance of power remains with the freeholder and their agents.
A Labour Government would give leaseholders security against rip-off ground rents and end the routine use of leasehold ownership in new developments. Will this Government do that? Labour will cap ground rent charges and set out a plan to end their routine use. We need a clear commitment from the Government. We all owe that to the millions of leaseholders in this country, for now and for the future.