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House of Commons Hansard

Leasehold and Commonhold Reform

20 December 2016
Volume 618

  • I beg to move,

    That this House has considered leasehold and commonhold reform.

    I am grateful to the Backbench Business Committee for accepting the bid for the debate from the all-party parliamentary group on leasehold reform. I co-chair the group with the hon. Member for Worthing West (Sir Peter Bottomley), who I am happy to see is present. More than 50 Members of both Houses have joined the APPG since our inaugural meeting, which took place only a short time ago. I want to record the group’s thanks to Martin Boyd of the Leasehold Knowledge Partnership and Sebastian O’Kelly of the Campaign Against Retirement Leasehold Exploitation—Carlex—who act as our secretariat and advisers.

    This debate is overdue. The front page of a library briefing makes the fundamental point. It states:

    “Despite a good deal of legislative activity in this area, dissatisfaction remains.”

    I am sure that, were this not the last day before the Christmas recess, many more Members would be present, because the issue affects millions of homeowners. Under the heading “The extent of leasehold ownership”, the briefing states:

    “DCLG published a technical paper…in August 2014…to produce a new estimate of 4.1 million leasehold dwellings in England in 2012-13…The Leasehold Knowledge Partnership …estimated that there were around 5.37 million leasehold properties…at the end of 2013.”

    On commonhold, the briefing states:

    “Commonhold tenure is viewed as offering several advantages over the leasehold system. It does not remove the obligation on residents to contribute to management/maintenance and major works, but it is argued to be a more transparent system.”

    Describing the advantages, it states:

    “Commonhold will address the problem of lessees being beholden to an absentee landlord who cannot be bothered to carry out building maintenance and management, or who is more interested in trying to make a profit at their expense.”

    I shall say much more about that later. The briefing continues:

    “Commonhold will also remove the problem of leasehold property being a wasting asset. Commonholders will each have a perpetual interest, effectively akin to a freehold, in their individual unit. Standardised commonhold constitutional documents should be of general benefit.”

    In my constituency, as in many, there is a mix of leaseholders: those who have bought former council properties under right-to-buy legislation—perhaps second, third or even fourth purchasers—and/or those who have either bought new properties built in east London as part of its regeneration, or bought into converted warehouses and the like which have been transformed into homes. The constituency contains the second highest number of leasehold properties in England, after Cities of London and Westminster.

    Common issues affecting both types of property, new private sector and former public sector, include the length of leases, service charges, insurance fees, refurbishment costs, recognition rights, ground rents and dispute resolution procedures. I shall deal with all those briefly, but I shall not cover event fees, forfeiture or retirement homes, because I am much less familiar with those problems and I know that other Members intend to raise them.

    The length of leases varies from 99 to 999 years. Many people who buy their homes under leasehold believe that they are purchasing their property, but they are not; they are leasing it. Because some ground rents double every 10 years, mortgages can be more difficult to secure later in the lease for resale. As for service charges, in the former public sector there have been improvements in recent years, with more transparency of costs and detail to show reasonableness of charges. Previously, constituents of mine have been charged for lifts in blocks with no lifts, and for garden upkeep in places with no gardens. Despite the improvements, however, there are still anomalies. The HomeOwners Alliance writes:

    “Many new build freehold houses…on new housing estates are being sold by developers subject to a requirement for the owners to pay maintenance/service charge for common areas on the estate…freeholders in this situation (unlike leaseholders) are unable to bring claims to the Property Tribunal if they feel these charges are unreasonable.”

    My wife and I own such a freehold property.

    Also in the private sector, I have tried to help residents on two large sites in my constituency, Canary Riverside and West India Quay. Both are controlled by a gentleman—well, I would rather say a person—called John Christodoulou, under the Yianis group. LKP has been very involved in assisting the residents. Both sites have tried to work constructively with the landlord’s managing agents over many years, but have suffered from very poor management. Both had not had accounts for years, regardless of what the legislation may say is required. Only when the Canary Riverside site took its latest action through the tribunal process, to replace the landlord’s agent through fault, did the accounts emerge, and what they showed was a far from pretty picture. In the decision, the tribunal was highly critical of many aspects of the landlord’s management, including the fact that it had not had a professional planned maintenance programme and then, having obtained one, had failed to implement it.

    Since the court’s appointment of a new manager, which began in October this year, the landlord’s solicitor, a Mr David Marsden of Trowers & Hamlins, appears to have bombarded the court-appointed manager with a huge number of emails: 22 in October, 29 in November, and 37 so far this month. It strikes me as very important that when the landlord’s management is removed through fault, as happened in this case, the tribunal should act to protect the court-appointed manager from what appears to be little short of harassment. The residents at Canary Riverside wrote to me yesterday, saying:

    “In addition to bombarding our Tribunal-appointed Manager with emails, the Manager is being ground down by the continuous litigation being brought by the landlord in an attempt to undermine the FTT’s”—

    first-tier tribunal’s—

    “decision and frustrate the new management.

    There is a real risk that Canary riverside lessees could find themselves in a worse position than if we had never taken the Section 24 action: i.e., back under the management of a landlord who knows the law does not protect lessees in large mixed-use developments.

    The FTT-appointed Manager is increasingly finding himself in an untenable position, forced to spend more time dealing with the landlord’s demands and injunctions than resolving the estate management issues he was appointed to remedy.

    Section 24 appears only to work if the landlord agrees, even if a decision is unequivocally in lessees’ favour.

    Christodoulou is currently seeking a Judicial Review in an attempt to undo the FTT’s decision (having had three appeals fail at the FTT and Upper Tribunal).

    He is also taking every opportunity to apply to the High Court to chip away at the Manager’s powers. On Friday he obtained an injunction that effectively granted him and his staff unfettered access to the Canary Riverside estate. An estate he no longer manages.

    The lessees at Canary Riverside spent over two years securing the FTT’s decision—at a considerable cost, both financially and in respect of the time and energy needed to pursue legal action. It has been a huge endeavour.

    But it seems the…hearing was just the beginning of our legal battle. The landlord’s fees were £335,000 for the FTT hearing. Since then there have been three appeals, a Judicial Review pending, and several High Court injunction hearings. Legal fees could easily top £500,000, and our (billionaire) landlord knows that the more legal resources he throws at winning, the more likely he is to win.

    Section 24”—

    and I say this to the Minister—

    “is not fit for purpose, and we”—

    the residents—

    “will end up over £500,000 poorer”—

    half a million pounds worse off—

    “and with nowhere else to turn.

    None of this impacts the value of Christodoulou’s investment—the only people damaged by poor estate management and high service charges is the lessees.”

    I should welcome the Minister’s comments on that.

    Over at West India Quay, Christmas eve will mark a new and dismal milestone: the sixth year of accounts will become overdue. The residents have had none since 2010, and more than £10 million of their cash is unaccounted for. In its 14 years of occupation, their building has never been subject to a planned preventive maintenance report. I ask the Minister, “How can that be allowed?” In fact, it can be allowed because there is no enforcement action for the residents to try to ensure that the property managing agents and owners do something about it.

    Those are two examples of the problems faced by residents who are up against powerful, uncaring and unscrupulous landlords.

    In 2012, the consumer organisation Which? estimated that £700 million was being overcharged in service charges each year. That was when everyone thought that there were between 2 million and 2.5 million leasehold homes. Given the size of the sector as we now know it to be, that suggests that £1.4 billion may be being overcharged each year. That cannot be right either.

    Freeholders in one block in my constituency were asked for £78,000 to insure a building containing about 32 flats. Several of them worked in the sector, and they were sure that £15,000 would have been a more appropriate charge. They settled for £22,000 after negotiation.

    Refurbishment costs mostly affect former council blocks, and leaseholders are almost at the mercy of councils or housing associations. Trying to secure detailed bills or tenders, guarantees on completion of work being undertaken and assurances of the quality of the work being undertaken has proved very difficult and unreasonable, especially from public sector organisations. Fortunately, this is changing, but progress is very slow.

    Recognition rights is a source of much consternation in both the private and the public sectors. I have one group of residents in Campbell Road who won the first-tier tribunal for recognition of their residents association, but their social landlord, Tower Hamlets Homes, is appealing against the ruling. There is an inbuilt sense of reverse snobbery and prejudice against leaseholders among some in the social housing sector.

    There is recognition resistance in the private sector, too. One of my first such cases, nearly 20 years ago, was from residents in the Cascades block, the first high-rise private residential block on the Isle of Dogs in docklands. The freeholder was harassing them in an attempt to frustrate their efforts to set up a residents association to represent them on service and maintenance charges.

    On dispute resolution procedures, I have mentioned the problems at Canary Riverside and West India Quay, but the costs of high-powered barristers defending freeholders at tribunal is now a disgrace. The procedures were originally supposed to be relatively informal. That has totally changed. A constituent of my hon. Friend the Member for Wolverhampton South West (Rob Marris), Paddy McHugh, has written to me saying:

    “Any lessee who files a case at tribunal can expect to face a Barrister acting for the landlord. The costs in issue can outweigh paying for legal representation while a landlord is usually free to put his legal costs onto the service charge even against lessees not party to the case, whether or not the landlord is the respondent.”

    This surely cannot be right either. Where is the justice in a system that favours billionaires protecting their profits over ordinary working people trying to protect their homes?

    Ground rents have been the subject of a number of articles in the press and media reports recently.

  • I congratulate the hon. Gentleman on securing a debate on this important topic, which was raised with me by the Charter Quay residents association in Kingston—and since he raises the point, I should say that I am a barrister, although thankfully not in the landlord and tenant sector. Does he agree that many people entering these leaseholds are entirely unaware that the landlords have the power to make huge increases in ground rents, and if this practice is deemed acceptable, at the very least tenants going into these agreements should have very clear information about what the landlords can do, and what their rights are as tenants and how they can challenge the landlord?

  • I am grateful to the hon. Gentleman for raising that point. As has been evident at a number of meetings that the hon. Member for Worthing West and I have had with legal and property experts and individual constituents from across the country, many people do not recognise the significance of this issue, including many lawyers. People are keen to get their hands on their first home or their new property and therefore will take the advice of lawyers who may not be fully conversant with the implications in this regard.

    There is, to an extent, some relatively good news. After the outcry in a number of media reports, several of the large developers have announced that their policy of doubling ground rents every 10 years, which is the equivalent of 7% interest rates in perpetuity, is untenable and they are returning to the retail prices index. I am sure that the hon. Member for Worthing West, who is my hon. Friend for the purposes of this debate, will be raising that more extensively later. This is a success that the campaigning charities, residents associations and others have had. A number of the developers are backtracking, but that is not happening right across the piece. The question to the Minister is how we protect everybody from the rogues who will not do the right thing and prevent them from being subject to this abuse.

  • I am grateful that the hon. Gentleman has brought this subject up. My calculation is that if a £250,000 house has a £250 ground rent that doubles every 10 years, over 60 years the successive leaseholders will have paid £157,500. For that still to be 1% of the value, the house will have to be worth £80 million; that is in the first 60 years of a lease.

  • The hon. Gentleman emphasises the absurdity of this situation and the abuse. It is a big issue, as he knows; he has been campaigning on it and the all-party group will continue to campaign on it. We have had a modicum of success so far. I think there is an opportunity to drive this issue into reverse and deal with this charge, which should have been peppercorn or tokenistic, but which is now a much more difficult issue for purchasers. There is an opportunity to take it back into the realms of where it should have been or to abolish it altogether.

    The aims of the all-party group are relatively simple: to reduce the opportunities for exploitation; to alleviate the distress and hardship of leaseholders, particularly the elderly; to do away with the high costs of the property tribunal; to examine incidences of lease forfeiture; to examine the value of retirement leasehold properties; to unearth and publicise scandalous behaviour of professionals involved in the leasehold sector; to examine insurance commissions and matters where leaseholders pay but are not party to the contract; and to ensure that the right-to-manage legislation acts as intended.

    We have had a number of successes so far, including the growth of the all-party group. It has been well attended, with many professionals at the round tables organised by LKP and us, helped by Miss Katherine O’Riordan from the hon. Gentleman’s office, to make sure that the meetings are successful. We have had significant media interest, and interest from Ministers and shadow Ministers; I am pleased both the Minister for Housing and Planning and his shadow Minister are in their places today. We look forward to hearing what they have to say on these issues. We have had interest, too, from senior civil servants at the Department for Communities and Local Government, which we are grateful for because it demonstrates that both Government and Opposition are taking this matter seriously. There is a recognition that everything is not quite well here and things need to be examined. We also have today’s debate in which to raise the issue.

    Some matters are easier to resolve than others, and some will require legislation, but it is not all bad news. The industry is also trying to clean up the sector, with the Association of Residential Management Agents, led by Dr Nigel Glen, introducing ARMA-Q, its code of practice for property management companies, and the appointment of a regulator for the sector to oversee and assist in dispute resolution procedures. Many decent professional organisations have joined, and even a number outside ARMA are decent companies too, but sadly there are still too many bullies, cowboys and crooks in the sector. For the Government to feel comfortable with the legislation as it stands is unacceptable. We need not only better regulation, better protection and advice, but legislation. Millions of citizens are looking to their politicians of whichever party to remedy their distress.

    In conclusion, I return to my original comment from the Library:

    “Despite a good deal of legislative activity in this area, dissatisfaction remains.”

    This problem goes back to the ’90s. Governments of both main parties have tried to resolve it and have been unsuccessful, so in some senses it is not a party political issue. But until a Government recognise the unfairness, the robbery and the dissatisfaction, many good people are condemned to suffer. Politically, for me this is a vote winner for whichever party pledges action, and all parties should.

  • The hon. Member for Poplar and Limehouse (Jim Fitzpatrick)—my hon. Friend—referred to things going wrong on purpose, and things sometimes going wrong by mistake.

    To avoid something going wrong by mistake, I ask the Government, and particularly the Ministry of Justice, to abandon the opportunity of winning a forfeiture order on a residential home over a smallish debt. By all means, in extremis, an asset might have to be ordered to be sold, but the surplus value should certainly go to the leaseholder and should not be forfeited to the freeholder.

    One of the worst cases is that of Plantation Wharf in Battersea. Two elderly people applied to challenge management costs of about £9,000. The leasehold valuation tribunal—the lower property tribunal—agreed with them in large part and struck off about £7,000. There were then applications for costs. One of the leaseholders had read on the Government website that the cost of going to the leasehold valuation tribunal was £500 and therefore assumed that there was nothing in the cost application. By inattention, he ended up bouncing between various courts and owing over £70,000. A forfeiture order was granted, with even the mortgage lender not realising that its part of the asset would be forfeited as well.

    When the insurance company that provided the mortgage woke up at the last moment—at the prompting of the Leasehold Knowledge Partnership, to which I pay tribute—the debt was settled and the man was able to go off to his new home with the bulk of his equity. He should never have been forced to pay anything, because if someone wins £5,000 out of £7,000, for example, or £7,000 out of £9,000, that should be regarded as a win, not a score draw. At it happens, the freeholder in that case was not an avaricious crook, but people who were more used to commercial dealings and thought that everyone was professionally advised and could afford to pay costs.

    I have a challenge to everybody in the field: do not assume that other people are as clever, wily or crooked as you are. Whether this was criminal or not is not for me to judge, but one crook is Martin Paine—pain with an e on the end—who has taken “lease” beyond sleaze, almost by adding a letter at the beginning, and into an art form. He owns a number of short leases, and anyone who wants to sell them has to get an extension. My understanding is that he offers legally valid, informal extensions. Under a formal extension, the ground rent reverts to virtually nothing.

    Martin Paine’s informal leases contain a provision that doubles the ground rent every 10 years or so, but that is written into the lease in such a way that even experienced solicitors fail to find the wording or to connect the clauses together. A person, who may be a first-time buyer of a low-value flat, may then discover that they are asked for enormously high ground rents, and they are enormously high because Martin Paine has written the provision back to the first granting of the lease, not from the time of the extension. A flat might therefore be worth £150,000, but the leaseholder will be asked for thousands of pounds a year in ground rent, with the prospect of that going up. When the leaseholder complains, Mr Paine’s practice, as I understand it, is to say, “Sue your solicitor.” I therefore recommend that providers of indemnity insurance for solicitors get together, which I think they can do without being a cartel, and ask, “What pattern of claims have we had from those we insure?” to see whether this crookedness can be stopped.

    Martin Paine will then occasionally buy back the flat at a low price and remarket it with the same terms. To do that once could be regarded as incompetence; to do it twice on the same property is deserving of the word “crooked.” Every single auctioneer should do what we had to recommend to one respectable auction house: look at the leases. It turned out, of course, that Martin Paine had not actually supplied the lease to the auctioneers early on—it was withdrawn.

    We should not have to rely on the chance action of a campaigning charity such as LKP or Carlex—the Campaign Against Retirement Leasehold Exploitation—or a passing Member of Parliament, to get things put right.

    I ought to declare an interest in that I own the lease on a flat in a freehold building in Worthing. We had a good landlord and a good managing agent, which has now been succeeded by another good managing agent. The freeholder decided that he was going to retire and suggested to the six leaseholders that we might like to buy the freehold from him—and we did. We have not had any problems at any point. Together, we are a good association, and we had our most recent meeting on Friday. However, that is not the experience of all others.

    I come now to one of the latest manifestations of things going wrong. Over the past 20 years, some house builders have returned to selling houses on leasehold terms. I have it by communication from one house builder that the price it can get for selling a house leasehold is within 1% of selling it freehold. What is the reason for selling it leasehold? Some argue that the tradition in the north-west is different—it should not be—and some say that if someone can get away with something, others will copy. There are now examples in north London of builders producing roughly the same kind of home on either side of the street, with some freehold and some leasehold.

    If a leasehold contains a provision that doubles the ground rent every 10 years, the example that I provided earlier on applies. I might have got the maths wrong because I was doing this late at night, but it is wrong to argue that an ordinary home that started at £250,000 needs to be worth £80 million in 60 years’ time to justify a ground rent that doubles every 10 years—by the rule of 72, we know that that means that it is going up by over 7% a year. I ask the corporate responsibility experts who occasionally go to the annual general meetings of quoted companies to start raising that with the house builders. I would also like the Home Builders Federation to talk about how the practice is justifiable. Its representatives might say that it is just a commercial deal by some of its members and nothing to do with them, but I say that it is to do with them.

    I see that the hon. Member for Brentford and Isleworth (Ruth Cadbury) is in the Chamber. The people who established and ran Cadbury were the sort of people who did not need Members of Parliament to remind them of how to behave; they knew in their bones, their blood and their heart that people should be treated properly.

    I own some shares in Persimmon and some in Taylor Wimpey, and I might buy some shares in other builders. If necessary, I shall go to their AGMs, giving notice in advance, to ask what they will do to unwind the problems that they created in the past. Taylor Wimpey says that it was unaware of what was going on before it came together, because it is an amalgamation of many businesses, but it knows now. The problem comes with putting things right.

    If a building firm—I am not focusing on Taylor Wimpey, because I think it has realised that there are issues to investigate—sells the freeholds, it prevents itself from being able to treat its leaseholders properly.

    Many leaseholders buy a flat through solicitors who work for the seller, and those solicitors will probably have attendance notes and perhaps some letters that point out the provisions of the ground rent. That may or may not be the case. What I doubt—I asked one solicitor, but have not yet received the evidence—is whether the attendance note and the letters point out that if someone were to buy their freehold in the first three years, they might be able to get it very cheaply, perhaps at a multiple of 10 times the ground rent, but that if they wait and the first freeholder sells to another, the new freeholder may say, “Actually, because interest rates have gone down, the value of the ground rent has gone up, and you have to buy it at the new multiple of the value of the ground rent.” Why do the Government not just agree a straightforward graph to show what the purchase price for a freehold ought to be at various stages?

    I interrupt myself now to say that I was going speak for a long section on hedonic regression and Sloane Stanley Estate v. Mundy. As part of that case, Wellcome Trust interests managed to persuade an upper property tribunal of two people to make a change in the valuation of short leases, which probably lifted the apparent cost of extending leases by about 40%.

    It is good for the Wellcome Trust to get good publicity for saying that it will give £1 billion to good causes—mostly medical research—this year. I do not mind its chief investment person being paid £3 million if they have lifted the capital value of the assets by 18% in the last year.

    If £1 billion of those assets involves the estate that was bought from the Henry Smith Charity, which was established to help children and others with its income, and if the Wellcome Trust bought that estate because it managed to persuade people, without a public interest representative present, that the cost of enfranchisement or extension should go up so enormously, something is seriously wrong. It will take people in government and their advisers to work out what that is.

    If there is an appeal against that Mundy case, I hope that the Government will associate themselves with it and try to make sure that, on the hedonic regression, the calculations go back to before the Leasehold Reform, Housing and Urban Development Act 1993, because after that Act the values were affected by what it said. I think that James Wyatt and Parthenia Valuation are more likely to be right. I hope that the appeal succeeds, and that the Government will make sure that if it does not, the decision in the Mundy case will be reversed by statute.

    I return to the issue of smaller leaseholders. If I were a small leaseholder applying either for an extension or to buy my freehold, I would find that the freeholder’s costs has could be put back on to the leaseholders, as was pointed out by my hon. Friend the Member for Poplar and Limehouse. But what about the costs to me? I have to go to surveyors and lawyers. I am new to this and I am dealing with freeholders who do this multiple times a week or a year. They are very experienced and they are often very rich.

    Perhaps the Government could bring in simple graphs to cover most cases where people could ask, “Where do I stand on the graph? What is the length of the lease? What are the terms?” The Government could say, “By the way, there is going to be a cap on ground rents, so you can’t go monetising those and making the leaseholder buy them out on some prospective multiple just because the bank reference rate is very low and the apparent cost of buying them out becomes very high.”

  • I apologise for interrupting as the hon. Gentleman is making a good point. When the dispute resolution procedure was originally designed, was it not supposed to create a relatively informal arrangement whereby residents could go to a tribunal to argue their case? That has been completely distorted by some of these unscrupulous freeholder landlords bringing in high-powered barristers and then charging their fees to the residents, whether they win or lose.

  • I agree completely. Moreover, that reminds me that the Government have had a review of LEASE—the leasehold advisory service—and I fear that the decision for it to try to make itself sustaining within the next four years is wrong. LEASE is chaired by Roger Southam, and he and his wife know quite a bit about leasehold property. His predecessor was Deep Sagar, during whose time LEASE would hold fundraising conferences where it would take the surplus, and the people who paid to come would listen to experts explaining how they could gain extra income from leaseholders. For example, someone might have stood up there and said, “Do you know, the freeholder gets the managing agent to arrange the insurance, it is paid for by the leaseholders and the commission can stick with the freeholder end?” My hon. Friend the Member for Plymouth, Sutton and Devonport (Oliver Colvile) may address the issue of insurance later. So if the commission happened to be 40% or 50%, a leaseholder would be paying twice as much as they should.

    What happens when the leaseholders want to get together? Again, that will be a point of law for the Government to consider. I do not think that anyone expects the Minister to be able to answer all the points raised today, but we will want to see early in the new year a proposed programme of action, which can then develop into reducing the abuse and improving the happiness.

  • I commend the hon. Gentleman and my hon. Friend the Member for Poplar and Limehouse (Jim Fitzpatrick) for all their work on this incredibly important subject. Given all the complexity that the hon. Gentleman is describing, and the scope for manipulation and exploitation, is anything resembling the current pattern of leasehold tenure actually just not fit for purpose? Do we not need to move to a system that has either freehold vested in resident-controlled management companies, or a form of commonhold that works properly?

  • 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—

  • 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.

  • 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?

  • 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.

  • I am about to take the chairmanship of the all-party parliamentary group on park homes, so my hon. Friend’s comments immediately interest me. The problem is not just the rent that unscrupulous people charge. It is usually elderly people who live in park homes and they are charged a fortune for utilities. They pay double the rate for electricity, water, sewerage and so on.

  • I am grateful to my hon. Friend. If he will sign me up as a member, I would be happy to join the group. I will ask Arun to send the information to him.

    I had not realised how much work I had been drawn into on this topic. I looked at the files this morning and they are enormous, most of the material generated by people more expert than I am. I came into it because some elderly, frail, poor leaseholders were being abused. Because that intervention worked, I was more drawn in. I would prefer to have spoken in the later debate about other cases of injustice that affect individuals, but the leasehold/commonhold area is so big and, as we explained to the Backbench Business Committee last week when it kindly heard the application by the hon. Member for Poplar and Limehouse, there are issues of structure of government.

    The motion suggests that leasehold and commonhold issues have been considered. They have not been properly considered as a whole since 1991 and they need a great deal more attention. I have been involved in a number of campaigns in my parliamentary life. Not one has brought in so many cases from other people’s constituencies, so this debate will help to raise awareness among other Members of Parliament. I thank the House for listening to me at greater length than I would normally speak.

    Given that there are 5 million to 6 million leaseholders in the country, far more than public estimates, the Office for National Statistics should be able to work out the trends and numbers as national statistics and clarify the situation so that we can see what good is being done and what more good needs to be done, and so that we can also find a way of making the property tribunals work at the lowest possible cost with the smallest number of cases.

    I strongly recommend to my hon. Friend the Minister discussing whether he can get graphs which show what the cost of extending or purchasing freeholds should be, which will eliminate a lot of the work for the good professionals and abolish all the opportunities for the bad professionals, the bad freeholders and the crooked managing agents to go on treading over poor people who ought to have the chance to live in their homes at peace.

  • What we are discussing today is nothing short of a national scandal. It is the payment protection insurance of the house building industry. Every now and again a sharp practice comes to light which is totally unconscionable and of which every reasonable person would say, “We cannot allow this to continue. Parliament must act.” This is one such occasion.

    I congratulate my hon. Friend the Member for Poplar and Limehouse (Jim Fitzpatrick) and the hon. Member for Worthing West (Sir Peter Bottomley) on securing this important debate and on their excellent contributions today. They should also be commended for their work on the all-party parliamentary group and for shining a light on a situation that is a national disgrace. As we have heard, there is a huge range of issues underneath the misleadingly simple title “leasehold”, and I hope that today’s debate will bring about progress in resolving some of the huge injustices that I, too, propose to speak about. I echo the tribute paid to the Leasehold Knowledge Partnership for the excellent professional assistance that it has provided to us and to the many homeowners affected by the issues discussed today.

    Thousands of people around the country who bought new homes in good faith are the victims of what can only be described as a racket by some of the country’s best-known developers, who between them have received millions of pounds from taxpayers to provide affordable homes and have also been the recipients of generous subsidies as a result of policies such as the Help to Buy scheme. As we know, the practice that has developed is to sell new homes on a long-term lease, with a misleadingly low ground rent and buy-out price. This practice has become common in my constituency over the past few years and, contrary to what is asserted by some developers, it is not a tradition in my constituency. It now seems to be part of the business model of a great many developers. It is a clever way of selling more units, by dropping the asking price a little to reflect the fact the property is leasehold, but failing to make it clear that in the long run the homeowner will pay far, far more than they would have done if the property had been freehold.

  • Does the hon. Gentleman agree that when ground rent or other charges double, it would be usual to expect double the service? As this is not the case, it goes against natural justice.

  • I thank the hon. Gentleman for his intervention. I know that his constituency is affected by the issue. I have yet to see any evidence that higher ground rents result in any kind of service, particularly for the properties that I am talking about. Obviously, leasehold flats are a slightly different matter. I remember when it was common, if there was a leasehold, for the rent to be described as a peppercorn rent. The implication was that that was nothing other than a symbolic exchange.

  • A service charge or maintenance charge is one thing; the ground produces nothing. I meant to pay tribute to Bob Bessell of Retirement Security who, when asked at the all-party meeting what the ground rent was for, said that it does not produce anything of value so he goes for only a peppercorn. It seems to me that if he can say that openly, others should as well.

  • I thank the hon. Gentleman for his intervention. He is spot-on. The notional figures that we are used to seeing as ground or peppercorn rents ought to come back. We have seen a drip-feed of figures coming in, relatively modest to start with—more than a peppercorn, but still modest—and the ratcheting up of those figures in some leases is my main concern today.

    When people buy their home, they like to know who they are buying it from, but leaseholds are often sold on to third parties who can then vary the agreed terms of the leasehold, at which point—this is a scandal—developers claim that it is no longer anything to do with them. This is an issue affecting my constituency. I have been contacted by a number of constituents affected by it. One, Beverley O’Malley, bought a Taylor Wimpey property. That company provided her with a letter at the point of sale stating that she would have first refusal to buy the leasehold at 15 times the ground rent, plus £199 for legal costs. That lease has been sold on without any option to purchase at this time, and she has now been informed that the letter provided by Taylor Wimpey is not worth the paper it is written on.

    Another constituent of mine bought her property from Bellway in 2010 with a lease of 150 years and a ground rent of £125 per annum. In July 2015 a quote of £3,750 to purchase the freehold was provided, which equated to 30 times the ground rent. However, in March 2016, when attempting to purchase the freehold, my constituent was informed that the lease had been sold to a company called Adriatic, with Homeground acting as the management company, although quite what it is managing remains to be seen. Following this transfer, my constituent received a new quote to purchase the freehold at £12,750. That is more than 100 times the ground rent. No explanation was provided as to why the price had gone up so much, but counter-offers for purchasing the freehold were made by my constituent’s solicitors, which resulted in a revised quote of £6,750.

    The quadrupling of the buy-out price for the ground rent, then the halving of it after negotiations started, as well as information given to me that the prices quoted can vary significantly for almost identical properties, suggests that the buy-out costs are calculated on nothing more than what the investors think they can get away with. The same constituent recently obtained planning permission to extend her home, but was told that she needed to obtain consent from Homeground in order to proceed, for which she was charged a fee of £333. However, following payment of that amount, an additional £2,440 was requested for the same purpose. This amounts to nothing less than racketeering and it should be stamped out.

    Possibly the most alarming case that I have heard is that of my constituent Lindsay Lloyd, who bought a Taylor Wimpey property in 2009 on a long-term lease. She was reassured that such leases were common practice and that she would be able to purchase the freehold in future for £2,600. She received that advice from solicitors who were recommended to her by Taylor Wimpey, and she felt under some pressure to appoint them. She was advised that the lease did not impose an unduly onerous or prejudicial burden.

    I wonder whether whoever was advising Ms Lloyd had even read the lease. I have, and it states that the ground rent will double every 10 years, so next year, for example, it will rise from £175 to £350 a year, which is a big increase. I can accept that £350 a year for ground rent does not sound too bad, but in 50 years’ time it will be over £11,000, in 100 years’ time it will be over £350,000, and in 200 years’ time—I hope the houses last that long—it will be a staggering £367 million a year. Nobody expects to be around in 200 years’ time, but anyone who wants to buy the house will think twice once they realise that they would be agreeing to a contract that commits them to an annual payment of millions of pounds. What that means in practice, of course, is that nobody would purchase the property, so where does that leave existing owners? I really want to hear about that from the Minister today.

  • The solicitor’s advice is a critical part of this. If the solicitor does not tell the first purchaser that this is a penal clause, what advice would they give to a prospective buyer six years later, who would be facing a doubling of the ground rent in four years’ time? It seems to me that the advice ought to be the same, but I bet it would not be.

  • As a former practising solicitor—not in this area, I hasten to add—I think it is fair to say that some solicitors are now probably more alive to the traps that can be found in leases. I have looked at my constituent’s lease, and to say that it is not set out very clearly would be an understatement, but it still should have been picked up on.

  • Following what my hon. Friend the Member for Worthing West (Sir Peter Bottomley) has just said, surely it is the responsibility of a solicitor helping someone to buy a house to point these things out, because they are professionally qualified and they should know very well what is happening. I cannot understand why that does not happen.

  • I think that individual solicitors have to answer for what they have done. From my knowledge of the profession, I think that over the years we have seen a much more streamlined process for advising people on their purchases and sales and lots of standard documentation, which I think is why some of these things have been allowed to happen. I suppose the real question is this: why would a developer want to put such an onerous clause in a sales document, knowing that if word of it got out people would think very carefully about whether they wanted to buy the property? As we know, they are selling these leases on to third parties, so actually there is no benefit to them. That is the heart of it. I do not think that the legal profession comes out of this with any great plaudits, but clearly the fault for having the clauses in the first place lies with the developers, and I have yet to hear any reasonable explanation for why they are there in the first place.

    My constituents feel that they have been duped by Taylor Wimpey. The reservation form that they signed stated that the ground rent was £175 a year, and there was no mention of it doubling every 10 years. I understand that Taylor Wimpey has now decided not to sell any new properties on a leasehold basis, which is good news—

  • Yes, any new houses. But that does not help my constituents, who believe that they have been comprehensively stitched up. That is why this place has to take action.

    At the moment there is no way out of this for my constituent. She recently inquired about purchasing the lease and discovered that it has been sold to a company called E&J Estates, which is now quoting her a price of £32,000 to purchase it. No wonder it quoted a price over 10 times what she had originally been offered, given what it could rake in over the years. However, having already made significant commitments to purchase the property in the first place, my constituent was simply unable to stump up such a significant amount.

    As disappointing as the response from E&J Estates was, it was a struggle even to get a response from it at all. It initially refused to speak to my constituent about her circumstances, stating that it had a “long-term interest in the property.” Well, so does she: it is her home. And it is a home that has been saddled with an obligation so onerous, so outrageous, that nobody with an ounce of decency in their body would not say that this place had better do something about it.

    It is not enough to say that leasehold valuation tribunals are there to resolve these issues, because these companies are going out of their way to obstruct and delay the process. I do not know whether anybody here has taken the time to read one of the tribunals’ decisions, but I suspect that very few people would feel comfortable going into one of them without a lawyer, and probably also a surveyor. Certainly the freeholders seem to do that, and from what I have seen they also put the cost of their representation back on to the homeowners as well, rubbing salt into an already very expensive wound.

    Although I have named Bellway and Taylor Wimpey, the practice of selling new builds on a leasehold basis appears to be commonplace across the majority of new build estates in my constituency. I should make it clear that the examples I have given of how my constituents are adversely affected do not apply to every developer selling leasehold properties, although every developer I have contacted has indicated that they intend to sell on their interest in the leasehold at some point. That really is where things go wrong, because once they sell them on, the new owners have no interest in anything other than extracting the maximum amount of profit from their asset.

    Of course I accept that some properties by their nature lend themselves to being leasehold, but that does not apply to the vast majority of the properties being built in my constituency, which are detached or semi-detached family homes. There really is no reason for those properties to be sold as leasehold. It is a cynical business decision, which will in the long run damage the reputation of those involved.

    It is also disappointing that the newest development in my constituency, currently being constructed by Redrow Homes, is also being sold on a leasehold basis. Redrow tells me that this fact is made known to purchasers before they reserve their property, although I note that on its website the promotion of that particular development makes no mention of it. What is particularly disappointing is that Redrow, despite my asking twice why it feels the need to sell large detached family homes on a leasehold basis, offers no justification whatsoever.

    It is quite clear that this situation needs to be addressed. I have several questions for the Minister. My first is very simple: are the Government happy with this state of affairs? If not, will he set out today, or in the very near future, exactly what he will do to stop these scandalous practices? Does he agree that developers should be prohibited from recommending a particular solicitor to purchasers because of the clear potential for a conflict of interest and the clear failure, as we have seen here, to provide the best advice?

    Will the Government consider legislating to prevent ground rents being doubled every 10 years? Will they intervene to give some hope to those now saddled with the eye-watering commitments that nobody—not the developers, not the lawyers and not the Government—warned them about? Will the Minister consider withdrawing and recouping taxpayer subsidies to any development found to be ripping off householders in this way? Will the Government ensure that there is greater transparency at every stage of the process, with purchasers receiving clear information about the arrangements they are entering into?

    Finally, I would like to pass on the following message to anyone listening today. If you are looking to buy a new home built by Taylor Wimpey, Bellway or any other developer, look very carefully at the terms that are offered and ensure that you receive independent legal advice. My message to the developers themselves is to act transparently and offer leasehold only where it is strictly necessary.

  • My interest in this important topic stems from two long-running cases in my constituency. They relate to two right-to-manage properties housing mainly elderly and retired residents: Elim Court and Regent Court. My hon. Friend the Member for Worthing West (Sir Peter Bottomley), who is also interested in the matter, has given me an enormous amount of advice, for which I am grateful. I also want to thank Rebecca Cattermole and Martin Boyd for all their help in preparing me for today’s debate; I have no doubt they will mark me out of 10 when I have concluded.

    I should declare an interest. I still have an interest in a company I set up, which gives property developers advice on how to manage public consultation. I also own a leasehold in my constituency, and I am delighted to say that the other leaseholders and I own the management company. I think we manage the whole thing very well indeed.

    I congratulate the hon. Member for Poplar and Limehouse (Jim Fitzpatrick) and my hon. Friend the Member for Worthing West on securing this incredibly important debate. I also thank them for their stewardship of the all-party parliamentary group on leasehold and commonhold reform.

    The Elim Court case has attracted national attention to right-to-manage law. Elim Court’s RTM company, which was established for this purpose, made an application to acquire the right to manage a block of flats at Elim Terrace in Plymouth under part 2 of the Commonhold and Leasehold Reform Act 2002. The Act created a no-fault right to manage, under which, on satisfaction of some preconditions, a qualifying majority of tenants of a building containing leasehold flats can establish an RTM company to take over management of the building from their landlord. The no-fault part of the Act meant they did not have to show fault in the way the building was managed.

    Elim’s landlord declined to participate in the RTM process and opposed it through the Leasehold Valuation Tribunal—now more commonly known as the first-tier tribunal—which accepted his arguments on a technicality. On appeal, the decision was upheld, and the case thrown out. My constituents in Elim Court have been battling for years for the right to manage their property. The legal system that was put in place in 2002, while welcome, is in desperate need of vast improvement.

    This really is the tip of the iceberg. Since its inception in 2002, the right to manage has proved popular with leaseholders who want to take control of badly managed blocks. However, it is an over-complicated scheme, riven with pitfalls and technicalities that are difficult to overcome without sound legal advice. I have been told that gaping holes have emerged in the 2002 legislation that need to be addressed urgently due to the increase in RTM applications and to landlords refusing to release their tight grasp on highly lucrative management arrangements, while finding every possible loophole to thwart applications by leaseholders and residents. That is an abhorrent way to treat anyone, let alone the retired and the elderly.

    A further issue that Elim Court and Regent Court have encountered is the high costs involved in tribunals and appeals, which have, indeed, become something of a cash cow for lawyers. The fact that RTM is so plagued by loopholes means that the no-fault basis on which leaseholders can obtain the right to manage is proving costly. Currently, Elim Court is awaiting a hearing at the Court of Appeal—as I explained earlier, the process has been highly expensive. If the residents were to walk away now, they would be set to lose between £25,000 and £30,000—a very large amount.

  • Through my hon. Friend, may I suggest that the Law Officers look to see whether they can take over the case and carry it forward at public expense? If this is a question of justice and law, it is about time Justice Ministers got involved.

  • I thoroughly agree, and I thank my hon. Friend for giving such clear advice, as he generally does.

    I would now like to go into further detail about the Regent Court case. In 2012, during severe storms in Plymouth, the roof blew off the building. No insurance claim was paid, leaving the leaseholder with a staggering £114,000 bill. The insurance company, AXA, claimed that the condition of the roof previously would have voided the policy, prompting the landlord to seek to recover £140,000 from the leaseholders—more than the bill for the roof repairs.

    After much investigation, the ombudsman has only just reached its wholly unsatisfactory decision, declining to investigate whether there was a fault in the claims-handling process, because the insurance company had asked it not to. It remains unclear whether the landlord withdrew the claim or it was withdrawn because it was disputed. What I have learned recently is that the loss adjuster’s report may have missed key information that would have meant that the claim should have been paid out to the leaseholders.

    The case illustrates that leaseholders have few rights if the insurance company and the freeholder do not want a matter investigated. Again, elderly residents are being treated in this way. Regent Court is a particularly shocking case, as the landlord has not had an interest in managing the building since the second half of 2013, when the leaseholders took control via their RTM company.

  • The House is following this case keenly. Is my hon. Friend telling the House that the freeholder had the responsibility to make sure the roof was maintained, but did not, and that he had the responsibility to deal with the insurance, but it was apparently not valid or he was not going to claim on it? The leaseholder therefore failed doubly—in terms of the cost of the roof and the cost of the insurance.

  • That is exactly the position, and it certainly needs to be looked at.

    The ombudsman’s decision highlights the fact that millions of leaseholders face the same position across the country. Some landlords also happen to own an insurance broker, as we heard earlier, creating loopholes and conflicts of interest across the board. The Financial Conduct Authority is fully aware that leasehold building insurance is a problem and has reported that high commissions—up to 40%—have been paid on insurance. In 2014, the Competition and Markets Authority investigated leasehold property management, and one of its specific recommendations was that the FCA should look into the matter.

    I would like to see a more flexible, more transparent and less complicated system for RTM, insurance issues and service charges for leasehold properties. The current system has been picked apart by lawyers, and the original Act is not fit for purpose. I urge the Government to relook at leasehold and commonhold reform and to sit up and realise that possibly millions of people across the country face very real blockades, when all they want to do is manage their own property—a right this Parliament gave them almost 15 years ago.

    To conclude, it seems almost unfathomable that we expect pensioners to cope with some of our most complex legislation. If we in Parliament do not understand the process, and officials do not understand the process, why on earth should we expect these elderly consumers to? It may be too late for the residents of Elim Court and Regent Court, although I am keen to pursue those issues, but we owe it to future leaseholders to ensure that they are not swindled out of hundreds of thousands of pounds by greedy landlords and cowboy insurance companies.

  • Before I start, Madam Deputy Speaker, I would like, on behalf of the Opposition Front Bench, to wish you, your staff and all the staff of the House all the very best for Christmas and a very happy new year.

    I congratulate my hon. Friend the Member for Poplar and Limehouse (Jim Fitzpatrick) and the hon. Member for Worthing West (Sir Peter Bottomley) on securing this important debate, and thank them for their work with the all-party parliamentary group on leasehold reform. I thank the Leasehold Knowledge Partnership and the House of Commons Library for the work they have done in supporting me and other Members in preparing for this debate.

    The majority of people in this country aspire to own their own home, and for those lucky enough already to own a home or to be able to buy, a leasehold property often suits their needs better than a freehold house. Long leaseholders are in a landlord-tenant relationship with the freeholder. The rights and obligations of the two parties are governed by the terms of the lease agreement, which is supplemented by statutory provision. When it works, leasehold is fine—the hon. Members for Plymouth, Sutton and Devonport (Oliver Colvile) and for Worthing West spoke of their personal experiences—because there are transparent charges, well-itemised and properly justified service charges, appropriate resale values, and so on.

    Homeowners want and deserve security and safety, but this debate shows that for far too many, their dreams of home ownership have turned into a nightmare. When one has worked hard to save up to buy a home, and budgeted to pay for servicing any loan and other costs that one reasonably expects, one should expect security and then to be able to plan for one’s future.

    Probably all MPs represent leaseholders of one category or another. As we have heard, many MPs have examples from their casework of issues that have been brought to this debate. Too often,

    “leasehold property sells buyers short at every step.”

    Those are not my words; they were in an excellent article in a paper I do not usually read—the Daily Mail—in September 2015. Leaseholders are finding problems they had not expected when they bought their home. I think that “duped” was the word used by my hon. Friend the Member for Ellesmere Port and Neston (Justin Madders). These are some of the examples that we have heard about: managing agents imposing arbitrary and multiple charges; lack of transparency of service charges that are way overpriced; estate owners such as those mentioned by my hon. Friend the Member for Poplar and Limehouse having no right to a tribunal on charges; unexplained and unforeseen increases year on year—sadly, in my experience in Brentford, housing associations are sometimes among the worst culprits; and the cost of extending leases when they drop below the 70-year, or even 60-year, period. I was pleased to learn a bit more about hedonic regression from the hon. Member for Worthing West; I thank him for that.

    We have heard about exorbitant charges for capital works on common parts, with little advice on how to pay. Too often, sadly, local authority landlords are some of the worst culprits in this regard.

  • I apologise to the House for being unable to be here for the start of the debate. May I offer my hon. Friend another example that demonstrates why the leasehold system needs reform? The residents of Platinum House, owned by Luke and Brian Comer, in my constituency have sought to secure the right to manage, yet the owners have used a whole series of tricks to delay the exercise of that right. Does she think that is a further example of the need for reform?

  • 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.

  • 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.

  • 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.

  • 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.

  • 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.

  • 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 really important debate. I also thank the Backbench Business Committee for granting their request. Both hon. Members have shown over the years a real dedication to leasehold reform, and I appreciate their advocacy not only for their constituents, but for prospective and existing leaseholders across the country.

    As we have heard, there are more than 4 million leasehold homes in England. That figure represents an important and significant proportion of the housing market. It is also a growing proportion of the housing market: 43% of all new build registrations in England and Wales in 2016 were leasehold.

  • I apologise for intervening on the Minister so early in his speech; we look forward to hearing what he has to say. May I remind him that it was campaigning by LKP and others that got the DCLG to review the figure and change it from 2.1 million to 4.1 million? The hon. Member for Worthing West (Sir Peter Bottomley) has already called for a statistical review, because LKP thinks that the figure is closer to 5.5 million and might even be higher. The number to which the Minister refers, which is a significant part of the housing market, may be even bigger.

  • The hon. Gentleman makes his point forcefully. Whatever the actual figure—clearly, the work that was done resulted in the increase to which he refers—I think we can all agree that it is a significant part of the housing market, particularly in Greater London, which he and I have the privilege of representing.

    Leasehold legislation has been amended on many occasions over the past 50 years to improve leaseholder rights, including the right to extend their lease, appoint a new manager, challenge unreasonable service charges and purchase the freehold. All of that legislation has helped, but it clearly has not solved the problem, which is probably a lesson for all of us. Why has it not solved the problem? I think that we can point to two clear things. First, the legislation is seen by many as complex, as a number of hon. Members have said, and that can cause problems for leaseholders and freeholders alike. Secondly—the hon. Member for Brentford and Isleworth (Ruth Cadbury), who spoke on behalf of the Opposition, referred to this—the 2016 national leasehold survey showed that 57% of leaseholders either somewhat or strongly agree with the statement:

    “I regret buying a leasehold property”.

    That is a pretty sobering statistic.

    We should accept at the outset that, whatever changes we make to the law, and whatever system we have for managing properties where a number of people have an interest in the land, some tension is inevitable. Even in those countries that have a commonhold system, some people in a particular block of flats might be keen for further improvements to be made, while others, who might be more financially challenged, might be more nervous about their service charge bills.

    The hon. Lady said that she was concerned that I was going to respond by saying that the concerns that we have heard are just exceptions that do not represent the real problem. I assure her that the leasehold survey shows that they are not exceptions and that there is a widespread problem that needs to be addressed. I was asked directly whether I felt comfortable with the current situation. I assure hon. Members that I most certainly do not feel comfortable with the level of concern right across the country. Indeed, I am very keen to explore how we can promote greater transparency and fairness, and to work with all interested parties to improve leaseholders’ experience of home ownership.

    This is a timely debate because it has highlighted concerns that others have raised, including the Law Commission as part of its consultation on the 13th programme of law reform. We are working closely with the commission and will use the examples raised today in our discussions with it.

    I want to consider the issue of houses being sold as leasehold, which my hon. Friend the Member for Worthing West and the hon. Member for Ellesmere Port and Neston (Justin Madders) have mentioned. Leasehold has been a part of the housing market in this country for decades, even centuries. In the right circumstances, with the right safeguards, it can serve both leaseholders and freeholders well. As we have heard today, however, that is often not the case.

    Analysis by LKP suggests that nearly 9,000 houses were built and sold last year as leasehold. Some have no shared services or estate management functions. In fact, they seem to exist only to create a reliable income stream from the ground rent, permissions to alter the property, and selling on the freehold at some point in the future. Developers can maximise their return by selling the freehold interest to the leaseholder at a higher value after they have moved in, or by selling it to a third party without informing the leaseholder. That is a critical point: if a freeholder wishes to sell a leasehold flat, the leaseholder has the right of first refusal, but that right does not extend to those in leasehold houses.

    Those practices are not illegal, but it seems to me, and to the Secretary of State, to be one of those cases where there is a gulf between the letter of the law and our sense of what is right. Some of the cases that we have seen in the media and heard about today have highlighted some truly appalling behaviour. The Secretary of State and I have been looking closely at the issues raised in recent weeks and we are both absolutely determined to stamp out unfair, unjust and unacceptable abuse of the leasehold system.

    A number of references have been made to Taylor Wimpey’s announcement that it will address some of our concerns about its use of leasehold. I am keen to hear more about what it plans to do, not just to stop such practices in the future, but to help homeowners who are currently stuck with ground rents rising much faster than inflation. The hon. Member for Ellesmere Port and Neston made that point powerfully. The leaseholder does not have to be very far into the lease in order to be stuck with that problem, which relates not necessarily to their actual payments at that point in time, but to their ability either to extend the lease or to sell the property to someone else.

  • It is welcome that this practice is not going to continue, but my constituents are anxious to know what the Government can do to deal with the onerous conditions that exist in leases already.

  • I do not have an answer for the hon. Gentleman today, but I assure him that the Secretary of State and I are looking into this issue. We are very clear that it is not just a matter of stopping this practice; we must also address the situation of hard-working people who believe that they have bought their home, but who may find themselves unable to sell that home further down the line. I give the hon. Gentleman the clear assurance that we are looking at the issue.

  • May I ask the Minister to consult his officials and others on whether there is scope for declaring such a condition to be an unfair term and having it written out?

  • There are a number of different ways in which the issue can be addressed. It is a difficult issue, because although the clear mood in the House is that the practice is unfair, it none the less interacts with the property rights of the freeholder, and those rights have some protection under the European convention on human rights. We need to think about the right way to address the problem. I will certainly reflect on the suggestion that my hon. Friend has made, and other suggestions have been made during the debate.

    We should not be under any illusions. The problem does not just concern one company; a number of our larger developers are involved in it. They would do well to remember that they are building homes for people to live in, not investment vehicles for financial institutions. Except in a very few exceptional circumstances, I cannot think of any good reason for houses to be built on a leasehold basis. If the industry does not put a stop to the practice and help existing homeowners, we will look to see what Government can do.

    Historically, ground rents were set at around one thousandth of the lease value, sometimes increasing every 25 or 33 years. They existed only to create a contract between the freeholder and the leaseholder. However, in recent years, ground rent levels for new leases have increased, as has the frequency of increases. Research by Direct Line suggested that the average ground rent is now £371 for new builds and £327 for older properties.

    My immediate concern is the level and frequency of increases in ground rents. We have heard today about one developer selling a lease with a ground rent starting at just under £300 in 2011 and doubling each decade for 50 years, so that by 2061 the annual cost will reach almost £9,500. The purchaser was not made aware of the escalation by their solicitor, who was recommended by the developer. The purchaser is now unable to sell the property, and the cost of extending the lease or buying the freehold is prohibitive.

    Of course, there is a degree of caveat emptor when we buy a new house, but we all know that our housing market is a seller’s market at the moment and the advantage lies firmly with the developer. Just because they can sell desperate people something does not mean that they should be doing so. Institutional and other investors increasingly see ground rents as an alternative to equities and bonds, but leaseholders see no return or value in ground rents, especially when they can rise to onerous levels. Obviously, Members on both sides of the House welcome institutional investment into our housing market, but I would much rather institutional investors put their money into productive projects instead of just hoovering up ground rents because they are seen as a safe bet. Both this House and the Government want to hear more from the developers about what they are going to do to put the situation right.

    I turn briefly to commonhold, although Members will probably be aware that the Ministry of Justice is the lead Department for this matter. Commonhold was intended to be a voluntary alternative to long leasehold ownership. As we heard from the hon. Member for Brentford and Isleworth, it was introduced by the last Labour Government in 2002 with good intentions, but it has had very limited take-up. There are several explanations as to why. Developers have not favoured the model, and leaseholders have found it a complicated process. Commonhold can be created only where all the owners of the land in question agree to its creation, so it is for developers to decide whether to build commonhold, or for everyone with a shared interest in an existing block to agree to convert to commonhold and to agree their commonhold community statement.

    I know that several Members have pressed strongly for commonhold and continue to do so, arguing that it is a better alternative to leasehold arrangements. Commonhold is one way forward in considering improvements for leaseholders, but we also need to look at what we can do to change the existing system. There have been calls for responsibility for commonhold to be transferred from the Ministry of Justice to my Department. That would require a machinery of government change, and it has been agreed with Ministers that we will have a look at that in the new year.

    I hope I have made it clear that the Government accept that there is a lot to do in this area. If the House will forgive me, I would like to say a few words about the things we have already done to improve matters and to ensure that there is easy access to remedies when things go wrong. In the Housing and Planning Act 2016, we introduced two important measures to help leaseholders to exercise their rights and to ensure that they are not ripped off by unscrupulous landlords. Members will probably be familiar with the Landlord and Tenant Act 1985, which allows a tenants association made up of “qualifying tenants” to seek statutory recognition. Such recognition provides the tenants association with additional rights over and above those enjoyed by individual leaseholders, including, crucially, the right to be consulted about the appointment of managing agents, to be notified of works proposed by the landlord and to receive copies of estimates.

  • I am grateful to the Minister for pointing out the right to be consulted under the Housing and Planning Act 2016. Does that extend to the right to have a veto?

  • The 2016 Act does not give a right to veto, but it gives improved powers to residents associations. Groups have had some difficulties in exercising those powers. If the hon. Lady will give me a second, I will try to explain what we seek to achieve.

    Section 130 of the 2016 Act will make a big difference to residents associations, which are finding it difficult to obtain the number of members needed to help them to apply for statutory recognition and the additional rights that that brings. It will do so by requiring a landlord to supply to the secretary of a residents association information that would allow contact to be made with absent leaseholders for the purposes of increasing the association’s membership and therefore its likelihood of achieving recognition.

    Another important aspect of the Housing and Planning Act 2016, concerns a landlord’s recovery of litigation costs from leaseholders as administrative charges, which the hon. Member for Poplar and Limehouse raised. He gave a pretty horrific example from his constituency of how that is being abused in a particular case. At present, where a lease allows a landlord to recover the costs of legal proceedings through the service charge, a court or tribunal can decide to restrict the amount that can be recovered in that way. Courts or tribunals do not have similar powers where recovery of the costs of proceedings as an administration charge is permitted by the lease.

  • The hon. Gentleman is nodding; that is the situation in the case that he mentioned. That can lead to unfairness, because the leaseholder will have no choice but to pay the costs of proceedings as an administration charge, regardless of the proceedings. That discourages leaseholders from exercising their rights to challenge the amount of a service charge, particularly as the landlord’s costs in the proceedings could well exceed the amount that is being disputed. The commencement planned early in the new year of section 131 of the Housing and Planning Act will enable the tribunal or court to consider, on application by the leaseholder, whether it is reasonable for a landlord to recover all or part of those costs.

    The complicated nature of leasehold can make it challenging for people to ensure that they follow the correct legal procedures. To help leaseholders to navigate through the system, the Government provide access to free, independent legal advice and information through the leasehold advisory service, or LEASE, as it is known. My hon. Friend the Member for Worthing West referred to it in his speech. Last year, Government provided LEASE with more than £1 million of funding, and 850,000 people across the country benefited from free advice.

  • May I, through the Minister, thank LEASE for all the work that it does to help my constituents, and for always being willing to attend residents’ meetings to give advice when people feel all at sea about this complicated area?

  • I am very grateful to the hon. Lady for her intervention. It is good that people are paying tribute to LEASE for the important work that it does, and which I know is very much valued by people right across the country.

    I want to reassure the House that the Government remain committed to ensuring leaseholders have the best professional advice available to them. Given its increasingly important role, I want to make sure that LEASE is properly equipped to offer help to everybody who needs it. Particularly in the light of the comments made by my hon. Friend the Member for Worthing West, we will look again at how it works, its funding model and its membership.

    In conclusion, this well-informed debate has raised important issues affecting millions of people in this country. We take all the issues raised very seriously, as I hope has been indicated by the tone of my speech. We have a strong interest in making sure that the system works as effectively as possible, and we are looking at suggestions for alternative systems, but this issue clearly needs attention. The motion states that the House “has considered” this issue, and I want to reassure my hon. Friend that it will be considered by the Government and that we will come back in the new year with proposals on how to tackle it.

  • This has been an important debate. We have had fewer contributions than we expected when we put in a bid for this space at the Backbench Business Committee, but it is reassuring that so many colleagues have come into the Chamber to listen to the Minister’s winding-up speech. They recognise that this is an important issue, and they therefore wanted to hear what he had to say. Perhaps that will reassure him about his popularity: he did not realise it was quite as widespread as it is.

    The hon. Member for Worthing West (Sir Peter Bottomley) comprehensively exposed the abuses and he named names. He said this goes “beyond sleaze”. My hon. Friend the Member for Ellesmere Port and Neston (Justin Madders) said this is the PPI scandal of the property sector. The hon. Member for Plymouth, Sutton and Devonport (Oliver Colvile) talked about the unfairness in the system. The shadow Minister, my hon. Friend the Member for Brentford and Isleworth (Ruth Cadbury), quoted the Daily Mail. She said it is not her usual read, but even the Daily Mail gets some things right occasionally, which is reassuring. She gave many examples of poor, shoddy and criminal practices, and on behalf of the official Opposition she made several commitments on leasehold and commonhold. We heard interventions from the hon. Members for Kingston and Surbiton (James Berry) and for Bolton West (Chris Green), and my hon. Friend the Member for Harrow West (Mr Thomas), who gave examples of problems in their constituencies. I thank the Minister for his response, including his declaration that he is uncomfortable with the current situation. He said that there is “a gulf between the letter of the law and…what is right”.

    He indicated that he will look at this issue in the new year and do something about it, and we welcome the promises he has made on behalf of himself and of the Secretary of State.

    The all-party group will continue to campaign on this issue. We look forward to engaging with the Minister and his civil servants, as we have during the past year. We intend to engage with the Government not only to examine and address the abuses and anomalies in the system, but to put the position straight. On behalf of the all-party group, the hon. Member for Worthing West and I wish you, Madam Deputy Speaker, and all colleagues, as well as all the staff of the House, a very happy Christmas and a decent break. We look forward to 2017, when leasehold and commonhold will be back on the agenda.

  • Thank you, and may I return the compliment of the hon. Gentleman and the House by wishing everybody a very happy Christmas and a good new year?

    Question put and agreed to.

    Resolved,

    That this House has considered leasehold and commonhold reform.