Leasehold Reform (Ground Rent) Bill [Lords]

Robert Jenrick Excerpts

2nd reading
Monday 29th November 2021 Commons Chamber

[Robert Jenrick (Newark) (Con)]

It will come as no surprise to right hon. and hon. Members to hear that I strongly support the Bill. It would be surprising if I did not, as I was one of the Ministers who instigated it, although stranger things have happened in politics.

I would like to take this opportunity to thank the Minister for his hard work in bringing the Bill to the House, the noble Lord Greenhalgh who has worked extremely hard on this issue for many months, and the fantastic civil servants at the Department who have taken this forward. There is a very strong, albeit very small, team of civil servants who have been beavering away on this issue for many months and will have a lot of work to do ahead of them not just in taking the Bill forward but, perhaps more importantly, in preparing the next Bill, which I will come on to speak about in a moment.

This is an important step on the road to leasehold reform. It is a road that really began with the Leasehold Reform Act 1967, which gave tenants of houses the right to buy their freehold. It then took the next step forward with the Leasehold Reform, Housing and Urban Development Act 1993, which gave leasehold tenants of flats the right, collectively, to buy their freeholds. There was a great deal of opposition, back during the Major Government, to that reform in this House, the House of Lords and from propertied interests, who said that it would be a disaster for the housing market. It was not and those rights have been enjoyed by hundreds of thousands of people pursuing the dream of home ownership across the country. Then the last Labour Government took it forward one further step, with the Commonhold and Leasehold Reform Act 2002, which introduced commonhold, albeit not nearly as successfully as they would have hoped or as I would like to see taken forward in the years ahead.

The destination of those reforms is not just a better situation for leaseholders, but the gradual elimination of leasehold altogether. It is, as some have said here today, essentially a feudal form of tenure: a product of our rich and ancient history as a country, but one that is no longer fit for purpose. It does not exist in any other developed country and it does not, in essence, have a place in a modern society.

The Bill is, as my predecessor as Housing Secretary, the noble Lord Young, said in the House of Lords, the appetiser for the main course. It is a comprehensive piece of legislation to remove more of the iniquities of the present leasehold system, and to pave the way for the wholesale introduction of commonhold.

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

I am very encouraged to hear that my right hon. Friend is so forward-looking on this matter. May I ask him to explain to the House how one rather backward step took place some months ago, which was the allowing of it to become routine that additional storeys could be added to existing blocks of flats? I have lived through that experience and found not only that it is terrible to have a floor inserted above you, but that when things go horribly wrong with the construction and the company goes bust or winds itself up, it is the leaseholders who have to pay thousands upon thousands of pounds to put right the faults. Would he not like to revisit that change that was made and perhaps suggest that it ought to be looked at again?

[Robert Jenrick]

It would not be for me to revisit that even if we wanted to. The purpose of that legislation, which was supported by many Members, was to deliver more homes—particularly on brownfield sites and in urban areas—as part of the mission of us all to deliver more homes and to tackle the housing crisis, and particularly to enable individual homeowners to build upwards on their home as their household expands, particularly if they have young children or if elderly relatives move into the home. That is an important step forward, but, as with any of these changes, we should keep it under review. If there are common instances of abuse or malpractice, we should see whether there are ways to eliminate them.

[Dr Lewis]

rose—

[Robert Jenrick]

I will make progress, if my right hon. Friend does not mind.

The Bill was born out of two issues. One is a recent phenomenon, which the Front Benchers and other hon. Members have mentioned: the abuse of leasehold in recent years. A system that was never perfect and that many of us would wish to see reformed was subject to wholesale abuse and rip-off practices by developers and freeholders, who used ground rents as an income stream and escalated them, leaving leaseholders in a perilous position. Leasehold was used for properties for no good reason, purely to benefit from ground rents. We have heard about such examples, and particularly the use of ground rents for houses. It is difficult to see that any house needs to be built as a leasehold property. In different times, I have bought into the argument that there might be exceptional reasons why one would need to build such a home, but it is very difficult to think what those would be. The system is not used in other countries around the world, including in the United States, where there are gated communities, communities for the elderly—all manner of different homes. They are not being built as leasehold properties, so I do not see why they should be in this country.

[Mark Tami]

I agree fully with that point. As the right hon. Gentleman said, this practice had largely gone away. For years, houses were not built as leasehold properties, but in the north-west and in north Wales, a group of builders decided that this would be an extra way of scamming—I use that word deliberately—even more money out of the people buying the properties.

[Robert Jenrick]

The right hon. Gentleman is absolutely right; I do not disagree in any way. The north-west was particularly targeted, for reasons that I do not understand, with tens of thousands of homes built in this manner. It really was disgraceful. It gave leasehold a very bad name and necessitated these changes and others that will be introduced in future. The Bill ends these practices for new properties; that is key. It will ensure that the business model behind ground rents—the creation of such properties as leasehold to benefit commercially—will come to an end. We are already seeing its gradual reduction, and the Bill will lead to its elimination.

I want to address the point that was raised about why the proposals should be extended to retirement properties. As Secretary of State, I came under fierce resistance and lobbying from the retirement property sector. Its lobbyists approached Members of Parliament and my Department and threatened judicial review of our proceedings. I considered it to be an unfair practice, targeted at the most elderly and vulnerable in our society, that in addition to paying their service charge they should pay a ground rent that might escalate at a significant pace. Why not have a fairer and more transparent system where an elderly person knows exactly what they are getting when they pay the purchase price on their property and then when they pay the service charge on an annual basis, instead of receiving two bills every year? I think that is a simple matter of fairness and transparency, and it was the right decision to bring that to an end. We did, however, give a longer period for businesses to transition and to change their business model, which is why that part of the industry will not feel the force of the Bill until 2023.

[Matt Rodda (Reading East) (Lab)]

I appreciate the work that the right hon. Gentleman has done to try to get the right balance and stand up for the interests of homeowners rather than large corporations. Does he have any reflection, further to the point made by the right hon. Member for New Forest East (Dr Lewis), on the knock-on effects of allowing additional storeys to be built on existing blocks of flats? In my experience, there is an exploitation issue both for people who live in flats with top-hatted development—I think that is the word—and for the neighbours. In the area that I represent, there have certainly been a number of problems for neighbours to those blocks. Does the right hon. Member for Newark (Robert Jenrick) have any further reflections on that point? If he were still Secretary of State, would he have allowed that development to go ahead?

[Robert Jenrick]

I think it should be kept under review, like any permitted development. As we have seen with past examples, there are always cases at the edges that concern us, and there are usually ways to refine the permitted development over time to ensure that those cases do not happen again. With the permitted development that the hon. Gentleman mentions, I think—from memory —that we ensured that the developer has to work with the local council to ensure that there are not issues with building safety or loss of amenity to the leaseholders in the building, and that the design of the extra storeys is broadly in keeping with the neighbourhood. I certainly think that the issue should be kept under review.

[Sir Desmond Swayne]

Will my right hon. Friend give way?

[Robert Jenrick]

I will, but I appreciate that many other hon. Members want to speak.

[Sir Desmond Swayne]

As I do!

It would be quite unlawful for the capital cost of the communal areas in a retirement living community to be paid for through an administration charge, so we come back to the question whether it is in the interests of the purchaser to pay a ground rent or to pay the up-front cost in the purchase price. For a category of elderly people, it may well be in their interests to pay the former.

[Robert Jenrick]

My right hon. Friend gets to the nub of the issue. The debate, exactly as he says, was whether it would be better for a retired person looking to move into such a community to pay a somewhat lower purchase price for the property or the share in it that they were taking, and then, for as long as they live there, pay a ground rent, which might escalate at an unfair level, and a service charge. That is not a system that occurs in any other country in the world, including countries such as the United States that are far more advanced in their take-up of retirement properties. I took the view that it would be much fairer and more transparent for an individual to know exactly what they had to pay from the outset: they pay their purchase price and then their service charge, but they do not have to face escalating ground rent. That makes sense to me; I appreciate that there will be differences of opinion, but it was done as a matter of basic fairness.

I make it clear that the reason for the Bill’s very limited scope was to bring an end to unfair practices as quickly as possible. That was the advice of the Law Commission, which said that it was better to have a two-step process so that the iniquity of escalating ground rents could be brought to a close, and then we could move on to the much more complex piece of legislation that will inevitably take the Department and Parliament a great deal of time to prepare and pass. I think that that was probably the best way to proceed.

Two further points emerge as a postscript to the events of the past few years. First, as my right hon. Friend the Member for New Forest West (Sir Desmond Swayne) said, we need to think about the conveyancing solicitors who gave or failed to give advice in the process of house sales. They failed in their duty to their clients: many constituents have come to my surgeries who were oblivious about the homes that they were buying. That applies not only in the situation we have discussed, but with respect to management fees, which may be very high or—as the right hon. Member for Alyn and Deeside (Mark Tami) mentioned—may involve charges, for example for putting up a satellite dish, building a conservatory and so on. Conveyancing solicitors need to take much greater care to bring such matters to the attention of their clients.

Secondly, the work of the Competition and Markets Authority must move forward at pace. It has already ensured that some of the major developers have settled, but I encourage all developers behind the sale of these properties, many of which they mis-sold to members of the public, to do the decent thing—the inevitable thing—and settle, so that the purchasers get some compensation for the issues that they have faced. I see that many are on the cusp of doing that, but I hope that the remaining ones will do so quickly.

I also hope that the Government will ensure that the second Bill features in the next Queen’s Speech and is delivered early in that Session. There is, as I have said, a great deal of work for the Department to do in preparing that Bill and ensuring that it is sufficiently comprehensive, but I think it extremely important that it does so, and that within the course of this Parliament we deliver comprehensive reform to leasehold. It should include 990-year leases, a simpler, cheaper enfranchisement process, ending marriage value, improving the position of leaseholders in the management of buildings, and ending—as has already been suggested—the building and selling of new houses as leasehold, because there really is no justification for that.

Finally, I hope that that Bill will look to the destination of a world beyond leasehold. That is the end point towards which we must work. I established the Commonhold Council to see how we could chart that course, and it seems to me that all the complex issues that are raised are surmountable—that is the evidence from the council so far. It also seems to me that commonhold will never take shape to any substantial degree in this country without a major Government intervention, which means indicating that it is our tenure of preference, or setting an end date for new leasehold properties. I favour the latter: I think we should say clearly that, beyond a certain date, no property, whether it be a flat or a house, should be built unless it is commonhold. I hope that the Bill to be introduced in the next Session will set that course, because I think it would be an important step towards ending a feudal system and helping us to move forward as a country.

--- Later in debate ---

[Kevin Hollinrake]

The hon. Gentleman makes some good points and I am not saying that in certain circumstances commonhold cannot work. He pointed to the simple situation of a non-adopted road to which local residents have to contribute for the upkeep and it can certainly work in those situations, but I am just trying to point out that there are situations where it would prove difficult to make the system work.

Every jurisdiction—those in Australia or the US or Scotland—is different, and the UK is unique in various ways, one of which is in having a high proportion of absentee owners, such as in central London, where we all see blocks of flats that seem to be rarely occupied. Problems might arise in managing such blocks with for instance 100, 200 or 300 commonholders; there might be disputes and difficulties, such as in debt collection.

On the point about simple things to manage, the biggest issue is complex developments, as my right hon. Friend the Member for Chipping Barnet mentioned. Let us consider a block of 300 or 400 flats built above a tube station or adjoining a shopping mall; effectively there will be a common freehold in that development but would anybody here be keen to sit on a committee managing that entire block with, for example, joint M and E—mechanical and electrical—so joint electrical, heating, ventilation and broadband installations, managed not just between the 300 units but the other infrastructure in that development? There are concerns that that would be beyond the appetite of many commonholders who manage that kind of development.

[Robert Jenrick]

Yet it is done in every other country in the world—is that not the point? I share my hon. Friend’s reservations yet every other country in the world with equally complex cinemas and tube stations and infrastructure manages it in a way that is broadly commonhold.

[Kevin Hollinrake]

My right hon. Friend raises a good point and has an advantage over me as I do not know in depth how that would happen in, for instance, Manhattan, but I think we should understand that situation more before pushing ahead and ruling that commonhold will effectively become the default for every single development in the UK. The Government have done a great job in many things and one of them is in increasing the rate of development in the UK, and I have a concern that some developers might be inhibited in taking on a very complex project because of fears about selling the residential units or renting the commercial units. I just think we need to understand more before pushing ahead and rolling complex developments into the legislation, rather than exempting such developments from it as we on the Select Committee recommended and Lord Lytton recommended in his speech—he tabled an amendment.

I just think we should look at this area and make sure we get it right, because one law we constantly effect in this place is the law of unintended consequences and we must avoid that. So peppercorn leasehold and commonhold are fine, but we need to make sure we look at those complex situations. I personally think that if we do not find a simple solution and cannot demonstrate that it will work in the UK, because the UK clearly has some unique elements to the property market, then we should set a cap on the ground rent in exempted developments, for instance of £100 or 0.1% of value, whichever is the lowest, to make sure it is always affordable for leaseholders. I absolutely understand that this has been a problem, but we must make sure that developers do not avoid exploiting development opportunities—particularly brownfield development opportunities in city centres—because of complexities.

Aside from that, I am very happy to support what the Government are trying to do.