Leasehold Reform
Debate between Clive Betts and Sarah Jones
Mr Clive Betts (Sheffield South East) (Lab)
I thank the Backbench Business Committee for making time for this statement. Last Tuesday, the Housing, Communities and Local Government Committee published our 12th report of this Session, following a six-month inquiry into leasehold reform. I thank all the members of the Committee, who agreed the report unanimously; several of them are in their places today. I particularly thank Nick Taylor, our Committee specialist, for his excellent work on this technically challenging subject.
We are grateful in particular for the work over many years of the all-party group on leasehold and commonhold reform, which has helped to highlight the multitude of issues of concern among leaseholders. It was extremely helpful to have public evidence from the joint chairs of the group, the hon. Member for Worthing West (Sir Peter Bottomley), who I see in his place, and my hon. Friend the Member for Poplar and Limehouse (Jim Fitzpatrick). I also see in his place my hon. Friend the Member for Ellesmere Port and Neston (Justin Madders). We also had written evidence from my hon. Friend the Member for Weaver Vale (Mike Amesbury), who during his time on the Committee strongly advocated such an inquiry—he is also in his place—as well as from my hon. Friends the Members for Brent North (Barry Gardiner), for Feltham and Heston (Seema Malhotra), and for Manchester Central (Lucy Powell), and the hon. Member for Pendle (Andrew Stephenson).
The Committee has never undertaken an inquiry that has had such an overwhelming response from individual members of the public. We received over 700 written submissions, mostly from leaseholders who wanted to tell us about their personal experiences. It is clear there is a great deal of dissatisfaction: onerous ground rent terms; high and opaque service charges; unfair and excessive permission charges; alleged mis-selling of leasehold properties by developers; imbalanced dispute mechanisms; and unreasonable costs to enfranchise or extend leases. In the worst cases, people have been left trapped in unsellable homes. More common are leaseholders with opaque service charges and poor levels of maintenance who have no reasonable means to challenge or query how their buildings are being managed. The Committee concluded that
“too often leaseholders, particularly in new-build properties, have been treated by developers, freeholders and managing agents, not as homeowners or customers, but as a source of steady profit.”
At the very start of our inquiry into leasehold reform, we invited 50 leaseholders to meet us in Parliament to talk about the issues that most concerned them. We listened carefully to their concerns, and when at the end of the session we asked them what they wanted us to recommend in our final report, they responded nearly unanimously, “Abolish leasehold”. We have listened. Leasehold is an inappropriate tenure for houses, and we support the Government’s proposals to prohibit leasehold development of new build houses. With regard to flats, we are unconvinced that professional freeholders provide a significantly higher level of service than what could be provided by leaseholders themselves. There is no reason why the vast majority could not be held in commonhold. Only the most complex mixed use developments and some retirement properties may continue to benefit from some form of leasehold ownership. We call on the Government to ensure that commonhold becomes a primary model of ownership of flats in England and Wales, as it is in many other countries, and to create incentives—and remove the disincentives—for developers and freeholders to ensure that this happens.
It is right to consider tenure for the future, but much of our evidence was from existing leaseholders who want their concerns to be addressed now. During our inquiry, we heard several accusations from leaseholders, particularly of houses, that they had been mis-sold their properties. A particular concern of a substantial number relates to their accusing developers of reneging on promises made by the sales teams to allow leaseholders to purchase their freeholds at an agreed price after two years. Leaseholders told us their freeholds had been sold on to third-party investors who are not willing to allow leaseholders to purchase their freeholds at the same price as previously offered. One leaseholder told us that the price of purchasing her freehold had increased from £3,000 to £13,000, and another that it had increased from £5,000 to £40,000.
Developers denied they had deliberately misled leaseholders, but the number of near-identical stories reflects a serious cross-market failure. We have called on the Competition and Markets Authority to investigate mis-selling in the leasehold sector and to make recommendations for compensation. We know the Secretary of State for Housing, Communities and Local Government has already called on the CMA to do this, and it has refused. We hope our call will act as pressure on the CMA finally to act in the interests of leaseholders.
It was concerning to hear several reports from leaseholders that they had been advised, incentivised or required by the developer to use a specific conveyancing solicitor who subsequently did not advise them of onerous terms in their leases. We heard that developers had offered free carpets, free lawns, discounts or other financial incentives to use a preferred solicitor. Leaseholders were told that their sale would fall through if they did not complete within 28 days, and that only the solicitor recommended by the developer could be certain to hit the deadline. Consumers must be able to access independent and reliable legal advice when purchasing a property, so we have called on the Government to prohibit the offering of financial incentives to persuade a customer to use a particular solicitor.
Concerns were raised about onerous ground rents. Ground rents bear no relation to the level of maintenance or the quality of service provided to leaseholders; that is the function of the service charge. Some developers had imposed 10 to 15-year doubling ground rent terms in the leases of new build flats and houses. Taylor Wimpey has apologised and set up a remediation scheme, albeit with limitations, but others have not. Redrow told us that it had introduced 10-year doubling ground rents on 347 properties, with an average starting ground rent of £400 per annum, which would rise to £12,800 in the 50th year, but it has no plans to remedy these leases.
There is a growing trend for mortgage lenders to refuse to lend on leasehold properties where the ground rent exceeds 0.1% of the property or will do so. The options for leaseholders with onerous ground rents are limited. We are not convinced by voluntary offers, so what more can be done? One option is to use legislation to amend existing leases. The Government told us initially that they were not able to use legislation in these circumstances. The Secretary of State said that
“the nature of contract law means legislation cannot change the terms of leases that have already been signed.”
However, we found that it would be legally possible for the Government to introduce legislation to remove onerous ground rents in existing leases and retrospective legislation could be compliant with human rights law. Indeed, the Government propose to reduce the premium payable to enfranchise, which will in effect buy freeholders out of a contractual income stream at a discount. There is little difference in principle between altering the terms of enfranchisement and altering ground rents, and both are likely to be equally justifiable in human rights terms. Freeholders would probably need to be compensated, but that compensation need not necessarily be at full value. Our view is that existing ground rents should be limited to 0.1% of the present value of a property up to a maximum of £250 a year.
On future leases, the Government initially said that they would require those to be set at a peppercorn or zero financial value, but they have since proposed making £10 per annum a standard cap. It is unclear what value there is for the leaseholder or freeholder in requiring a ground rent of £10. We therefore recommend that the Government revert to their original plan to require ground rents on newly established leases to be set at a peppercorn or zero financial value.
Although it is fair that freeholders should be able to pass on reasonable costs arising from a change initiated by a leaseholder, many of the permission fees we heard about were plainly excessive and exploitative. Charges such as £3,500 for permission to build a conservatory or making a charge to fit a new doorbell are clearly ridiculous. We have called for permission fees to be limited to the true administrative costs incurred by freeholders. The Government should require this in the lease of new build properties, and legislation should be introduced to restrict such fees in existing leases.
Furthermore, the growing practice of imposing permission fees in the deeds of new build freehold properties and enfranchised former leasehold properties is an unjustified intrusion on homeowners that many campaigners have rightly referred to as “fleecehold”. We have made recommendations to deal with “fleecehold”, including that the Government should require that permission fees be only ever included in the deeds of freehold properties where they are reasonable and absolutely necessary, although we noted that we could not think of any circumstances in which this would be the case. We have also called on the Competition and Markets Authority to exercise its powers under section 130A of the Enterprise Act 2002 to indicate its view about whether onerous leasehold terms constitute unfair terms and would therefore be unenforceable. Where leaseholders have paid unreasonable fees or ground rents over the course of their leases so far, they should have them refunded by freeholders with interest.
Our report has made many other recommendations, and we welcome in particular the work being done by the Law Commission on a number of matters, such as enfranchisement, commonhold and other matters.
Mr Betts
The word “scandal” is absolutely right to describe the way some of these developers have behaved. Hopefully action will follow quickly from the Law Commission’s report, and the Committee will keep an eye on that and press for action, as I am sure will other hon. Members. We must keep reminding ourselves that the companies who have done this are hardly hard up. In the last financial year, Taylor Woodrow made profits of £800 million and Persimmon of £1 billion. Those companies are not relying on that money to keep themselves afloat.
Sarah Jones (Croydon Central) (Lab)
I apologise, Mr Deputy Speaker, for standing up too soon—just when I begin to think I know what I am doing, I realise that I really do not.
I congratulate the Chair of the Select Committee and its members on an excellent report, as well as the all-party group on leasehold and commonhold reform, and the work of my hon. Friend the Member for Ellesmere Port and Neston (Justin Madders). They have managed to deliver cross-party consensus, and the need for reform is clear. Does the Chair of the Committee agree that following the Law Commission’s detailed work into enfranchisement, it is important that a simple formula is set for leaseholders to buy the freehold of their home, based either on a multiple of ground rent, or on a percentage of the capital value of the property?
Mr Betts
We need something simple, and the Law Commission has been asked to consider that issue because something as simple as a multiple of ground rent might not be fair. The freeholders who would get the biggest benefit from a multiple of ground rent will be those who made the largest ground rent charges, and it would be perverse if those who behaved the worst were to benefit in that way. We want the Law Commission’s report as quickly as possible and a formula that is as simple as possible but also fair.
Private Rented Sector
Debate between Clive Betts and Sarah Jones(5 years, 5 months ago)
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Sarah Jones
It is interesting that the hon. Gentleman should say that, because we are looking at developing our policies in this area and have also said that we want to scrap section 21. We need to look at how that would work and what the conditions would be. It is really important to stress, though, that we are not saying that people should have the right to remain in their home indefinitely if, for example, they are not paying their rent or are, in other ways, causing disruption or antisocial behaviour. That is absolutely not the point of what we want to do. There will always be a need for a landlord to be able to evict tenants who are not paying their rent or who, for whatever reason, should not be in the property.
We need to find the middle ground. At the moment, there is a problem, particularly in London, and I have seen it in Croydon. When we talk to renters organisations such as Generation Rent, they talk of a cycle whereby people are being evicted for no obvious reason. For example, a landlord might not be an expert landlord, as we have talked about. Someone may have inherited a property or have moved out of London. They might have a property and not really know what they are doing. They might decide to move back in or they might decide to do something else with the property. Then we have a group of people who are constantly having to move because they are being moved on through section 21 evictions, or we have people who cannot afford the rent increases, so they are also having to leave through section 21. An imbalance of power is our starting point when we are looking at policy development. I hope that that answers the hon. Gentleman’s question.
Mr Betts
Is my hon. Friend basically saying that the proposal will be very similar to one that I think Shelter put before the Select Committee in 2013-14, which was to introduce three-year tenancies, with the rent in that period linked to some inflation measure so that there was a clear understanding by both landlord and tenant of how it would progress in the course of the tenancy? The other issue that we raised, which brings us back to the housing court idea, is that if that tenancy proposal happens, landlords do need a way reasonably quickly to get out a tenant who is not paying their rent. Having a housing court might be one way to enable that process to happen and to make landlords more comfortable with longer-term tenancies.
Sarah Jones
I thank my hon. Friend: I did not see Shelter’s evidence in 2013, but, yes, that sounds a reasonable way forward. The absolute starting point, as I said at the start of my contribution, is that we know that most landlords are good landlords. We are not trying to create a system in which they cannot function and cannot evict people when they need to; we are trying to create a system that is fair. The Labour Front-Bench team were fortunate to go to Berlin recently to see, as many people have, the system of renting that people have there and to look at some of the other models. There are lots of lessons to be learned from other countries.
I should make progress. The Guardian and ITV investigation into the private rented sector, which has been talked about and has forced a U-turn from the Prime Minister, is worrying. Despite the Government estimating that there are 10,000 rogue landlords, not a single name, at the time of that investigation, had been added to the database; that was in October, which was more than six months after its launch. One wonders what the point of a rogue landlord database is if the rogue landlords have not been identified. The Mayor of London’s database has more than 1,000 entries. I hope that the Government, through the Minister, can update us on where the rogue landlord database has got to today.
The Government announced that they would give £2 million to local authorities to take action against bad landlords, but that amounts to £6,000 per council. Meanwhile, the trading standards teams expected to enforce new legislation such as the Tenant Fees Bill have seen enforcement officer numbers go down by 56% since 2009. These teams have faced funding cuts of almost £100 million since 2010. Local authorities overall have had billions of pounds taken away from their budgets. In that context, £6,000 does not feel like enough.
The Opposition recognise that the scale of the challenge means we need a more radical response—a consumer rights revolution. We have a commitment to end unfair evictions. I am proud that my local authority, Croydon Council, was the first to pass a motion calling on the Government to scrap section 21. We have committed to give renters greater security, as we have just discussed, with a three-year cap on rent rises. We want to name and shame rogue landlords and introduce tougher fines for those who fail to meet minimum standards, with those fines funding local authority enforcement work. We would properly support landlord licensing. We also want to see greater powers for Mayors across the country to control rents, if appropriate, in high-cost areas such as London.
Inspired by the system in Germany, we have committed to spend millions to kick-start renters’ unions. I spent time at the Labour party conference talking about that with London Renters Union, which has helped many renters out of situations in which they would have struggled on their own. We want root-and-branch reform of the private rented sector. It is too dysfunctional for us to tinker around the edges. The end result of insecure tenancies, unsafe homes or extortionate rents is staring us all in the face. The end of a private tenancy is the leading cause of homelessness today. There are 1.6 million people in chronic debt, and 120,000 children will wake up tomorrow without a home. That is not to mention the extra 1 million people under the age of 35 who are unable to buy their own home and are forced to rent in the private rented sector. For all of their sakes we should reform the private rented sector.