Leasehold and Commonhold Reform

William Wragg Excerpts

Thursday 21st December 2017 Westminster Hall

[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.

[Sir Peter Bottomley]

I can quote an example where, if the people had managed to buy the freehold from the developer at the beginning, it would have cost them between £2,000 and £4,000. A year later, when they applied to the so-called long-term freehold interest—often using pension money for purchasing—they were quoted £40,000. When they objected, that came down to £30,000, but they were still left being completed shafted.

[Mr Wragg]

There was certainly an iniquity there, which needs to be resolved.

Like many right hon. and hon. Members present, I am dealing with a number of cases and complaints on behalf of my constituents. I am pleased to be able to put some of them on the record in this debate. A resident of the new build estate at Strines in my constituency informs me that he is entering the fifth year of his lease, and the prospect of his ground rent increasing is causing him a great deal of trepidation. He is paying £250 plus a £300 service charge. Along with the worry about the additional strain on his finances, he is rightly concerned at the possibility of his property becoming less attractive for sale.

Several residents of the new build Offerton Park estate tell me that property developer Bellway recently transferred the freeholds to a financial management company called Adriatic Land 6, so they are now subject to above-inflation ground rent increases every 10 years. They were not offered a chance to buy the freehold themselves at a reasonable cost.

The residents of Davies Court in Romiley, with whom I had a very enjoyable meeting last month, and who are predominantly retired, face annual ground rents of £450. That is £450 being demanded from pensioners for the ground their houses stand on. The managing agency for the building, FirstPort Retirement Property Services Ltd, also charges residents spurious administration fees when homeowners carry out improvement works, such as installing fitted wardrobes or new bathrooms, at their own expense. The company even attempted to charge one retired lady an £80 administration fee when she bought a cat. She refused to pay.

These are just a few examples from my post bag that highlight the unfair and, in places, absurd situation.

[Mike Amesbury (Weaver Vale) (Lab)]

A similar practice was highlighted just last week by one of my constituents in Winnington in Northwich. One householder tried to sell their property and put up a “For sale” sign, but because of various caveats that applied to the lease, she was told that she had to remove the sign. She could not post a “For sale” sign; does the hon. Gentleman not think that is scandalous?

[Mr Wragg]

I am surprised that the agency did not charge a ground rent for the “For sale” sign—that would have been more appropriate—but the hon. Gentleman is absolutely right to highlight that example from his constituency.

I am pleased that the Government are taking action through the recent White Paper to tackle the unfair practices that we see. Future homebuyers may be protected by limiting the sale of new build leasehold houses to exceptional circumstances. I also welcome the Government’s moves to tackle the scourge of escalating ground rents, with the intention to limit ground rents in new leases to start and remain at the peppercorn level.

While I welcome those measures, they really are just the first steps in achieving transparency and fairness for the growing number of leaseholders. They may make the situation easier going forward, but are far more difficult to apply retrospectively. The far more intractable problem—and the one facing my constituents whom I referred to earlier—is what to do about current homeowners on existing leases altering the terms of a lease part-way through. Ministers ought to consider what steps could be taken to help those already facing onerous ground rents or unreasonable and spurious administration fees. That could include, for example, steps to tackle unreasonable ground rent rises within existing leases at their next review period, or to strengthen the rights of homeowners for redress for unfair lease terms.

In conclusion, I welcome the Government’s plans to limit leaseholds on future new build homes and to cap ground rents, but I am concerned about whether any new legislation will retrospectively benefit homeowners already in this invidious situation. There must be more support for existing leaseholders, including making buying a freehold or extending a lease easier, faster, fairer and cheaper. Leasehold property law is a complex area, and not being lawyer myself, I cannot profess to be an expert. So I look forward to what the Minister, who no doubt has the excellent support of the legal team in his Department, has to say in response to the points raised. May I take this opportunity to wish you, Sir David, and one and all a very merry Christmas?