Unfinished Housing Developments: Consumer Protection

Helen Morgan Excerpts

Tuesday 18th October 2022 Commons Chamber

[Helen Morgan (North Shropshire) (LD)]

I thank the Minister for his attendance and response this evening. I secured this debate following a number of instances in my constituency in which the buyers of new homes have been left to pick up the pieces when critical infrastructure is not completed by the developer.

Let me tell the House first about The Brambles in Whitchurch. That is a development of 14 houses, built by developer Sherwood Homes Ltd in 2016 on land that had already been granted planning permission for development by Shropshire Council. It was a condition of the planning permission that the road, footpath and drainage should all be complete before the occupation of any houses occurred. However, despite those things never happening, building completion certificates were issued for all the properties and they were subsequently sold and inhabited. Unfortunately for the residents, the drainage system failed, leading on some days to raw sewage backing up in their gardens. Sherwood Homes Ltd had not taken out the section 104 agreement required in the planning permission, and not only was the arrangement dysfunctional, but the connection to the Welsh Water sewerage network was illegal, and neither were the road, lighting and footpath completed to an acceptable standard.

In October 2019, a creditor of Sherwood Homes Ltd, which appears to have shared some of the same directors, petitioned for it to be wound up and an order for insolvency was made by the court in December 2019. As a result, Shropshire Council could not take planning enforcement action against Sherwood Homes Ltd, and the residents of The Brambles, who are the successors in title to the private company established to manage the development, have been the subject of the enforcement process. They have been required to accept five-figure charges on their properties in order to rectify the issue of connecting the drainage to Welsh Water’s network. Indeed, the saga has also cost the rest of Shropshire’s taxpayers a considerable amount of time, as council officers have expended time and effort to attempt to rectify the situation.

Shropshire Council believes that the developer’s failure to complete the necessary works before the first house was occupied should have been established by conveyancing solicitors, and the lessons to be learned from this episode are, “buyer beware.” It may be right, but few residents have been able to establish that principle with their solicitors and would not have the resources to begin legal proceedings against them. I believe that some of the home buyers took up the offer of conveyancing services facilitated by the very developer who left them high and dry, raising serious concerns over a potential conflict of interest.

[Jim Shannon (Strangford) (DUP)]

I commend the hon. Lady for securing the debate. Back home in Northern Ireland—I say this to inform the Minister as well—we have a very clear system whereby each developer must put a bond on the property. Therefore, should there be any difficulty in relation to the footpaths and roads not being finished, or if the streetlights are not done and the sewerage fails, that bond can be used for those repairs. Does the hon. Lady feel that the methodology used in Northern Ireland may settle the problems that she refers to, and that the Government and the Minister should look at that option?

[Helen Morgan]

I thank the hon. Gentleman for that sensible intervention; I will make a very similar suggestion in my speech.

The leader of the council declined my request to undertake a case review of the sequence of events that led to the situation at The Brambles to understand whether the council could have prevented the situation at any point as it evolved. As the law stands, it would appear that she is right. The Building Safety Act 2022 does not cover issues relating beyond the house itself, and the Local Government and Social Care Ombudsman declined to consider the case, arguing that:

“Caselaw has established that where a council issues a completion certificate and the work is later found to be substandard, liability for any defects rests with those who commissioned the work and those who carried it out. We cannot therefore hold the Council responsible for substandard work by the developer and we could not achieve any worthwhile outcome for”—

my constituent by investigating the complaint.

This is a very serious case—the most serious case I have seen in North Shropshire—but there are numerous instances in which roads have not been completed to a standard suitable for adoption, streetlights are not installed, shared areas are not landscaped as per planning permission and, in some cases, even the plot sizes vary from the original plan.

I can provide further examples. A development at Isherwoods Way in Wem has been without streetlights and a surfaced road for 10 years; although the situation is about to be resolved, it is not quite there yet. On the west side of my constituency, a site that I cannot name because legal proceedings are under way features an unadopted sewerage system that has not been completed to the required standard. A development in Ellesmere was left without an adopted road and open space when the developing company collapsed. The situation is only being resolved now that the development has been purchased by a major national house builder. The developer of another site in Wem has applied for insolvency despite the road being unadopted, the open spaces not having been landscaped and concerns having been expressed by residents about the water drainage system.

The cost to residents of these sites is not only financial. Untold distress and emotional strain have been caused and an enormous amount of precious time has been spent on resolving the situation. At a recent constituency surgery, one resident told me, “I’m a truck driver. I don’t have time to become an expert on planning control.” His neighbour, a construction worker, described the strain of worrying about everything that could go wrong with the drainage system, and about the cost involved in digging up the road to rectify the faults.

[John Spellar (Warley) (Lab)]

I have a similar problem in Cranford Street in Smethwick. I find it utterly deplorable that Severn Trent, which is making hundreds of millions and whose chief executive is paid millions, will not take over any responsibility for the sewage that is backing up into people’s homes. People have bought the home of their dreams and are now finding that it has turned into a nightmare.

[Helen Morgan]

I thank the right hon. Member for his intervention. I have had some productive discussions with Severn Trent on the issue and am about to propose a solution that I hope will help to rectify the situation.

It has become apparent that residents are tied into an impossible situation. They no longer want to live in their homes, but realistically they cannot sell them until the defects are rectified. There are also wider financial ramifications because if any resident defaults on their mortgage, a bank will not be able to sell the property to recover its investment.

The other common theme emerging from all these developments is that homebuyers will be expected to contribute to the costs of maintaining shared areas via a management company to which the title for the shared areas has passed. These companies typically pass on the management cost to the residents at zero profit. However, the ones that I have investigated then subcontract the work to a profit-making company. I am sure that the House will not be surprised to learn that in many such arrangements the subcontractor is related in some way to the original developer.

The companies can charge uncapped amounts indefinitely to the homebuyer, in what is known as a fleecehold—I am aware that several hon. Members have raised the plight of fleeceholders on previous occasions. The management company can be used not only to pass on to the homebuyer the financial responsibility for completing the development, but to extort money for years to come, often for substandard management services. I am aware that the Government have indicated that they will legislate to control such management charges. I urge the Minister not only to commit to a date for such legislation, but to ensure that protections are included to cover previously unfinished developments.

To tackle the issue up front, however, I propose a different course of action. I believe that it is possible for a water company or a local council to obtain a financial bond when a section 104 or section 106 agreement is put in place, such that when critical infrastructure is not completed, funds are still available to complete the work. In addition, there are mechanisms such as section 38 agreements incorporating financial bonds that can be used to ensure that roads are of an adoptable standard. Having spoken to colleagues, I believe that some councils, such as Oxfordshire County Council, use financial bonds for that purpose and to avoid the distressing situations that I have described. I have not been able to establish why that is not standard practice for all councils.

I urge the Minister to consider using the Levelling-up and Regeneration Bill to require councils to take a step involving a financial bond before planning conditions are discharged, so that unsuspecting homebuyers are not left with unmanageable costs if their developer goes bust before the site is completed. The principle has already been established in the Government: National Highways requires a bond from local authorities if they propose works affecting the strategic road network, so that significant disruption is avoided if the works are not completed. I am concerned to learn that the changes proposed to the Bill would reduce councils’ ability to use section 106 agreements for smaller developments and would remove current powers to protect homeowners.

The rationale for planning deregulation is that it will enable house building targets to be met by removing barriers to completion, but I would argue that, certainly in the case of North Shropshire, it is not necessary. The evidence does not show that planning regulations are behind slow rates of house building. Shropshire’s local plan contains a target of 30,500 new homes by 2038, but there are already 18,000 planning applications on which consideration has not yet commenced. The current build rate of just under 1,900 houses a year does not suggest that planning permission is the issue holding things up.

I appreciate that requiring a financial bond from new house builders might deter smaller companies from entering the market, but first I question whether homebuyers and council tax payers should be taking on the risk posed by a financially unviable housebuilder; and secondly, it should be possible to find an alternative, such as an investment bond, to combat that risk.

I am extremely concerned about the fact that councils lack the tools they need to ensure that the buyers of new-build homes do not fall victim to rogue developers, and the fact that the effectiveness of the tools they do have may be reduced by the Levelling-up and Regeneration Bill. I hope that the Minister will agree to consider making the use of financial bonds as part of section 106 or similar agreements a required practice for councils and water companies, to protect both homebuyers and councils’ own taxpayers from high-risk housing developers.

If the Minister rejects such a solution, however, will he agree to meet me and other stakeholders, such as the Local Government Association, to formulate a practical mechanism to prevent the distress and financial hardship caused by unfinished housing developments? Homebuyers, councils and the wider community need to be confident that they will not be left to the pick up the pieces when a developer fails to deliver. The owners of The Brambles are victims of a rogue developer, and we should act to ensure that their experience is not repeated elsewhere.

--- Later in debate ---

[Lee Rowley]

I will come to those two points, because I agree there are different elements that we need to consider and unpack. I would be happy to discuss the second point with the right hon. Gentleman in more detail, should he wish.

On completing new housing developments—I accept the hon. Member for North Shropshire made a broader point about further down the chain—the Government are clear that developments should be built out as soon as possible once planning permission is granted. The frustration of local communities where that does not occur is completely understandable. We expect developers and local authorities to work closely together to make this happen.

The Levelling-up and Regeneration Bill, which is in Committee today, will increase transparency on build-out, helping councils and residents to better understand what they can expect from development proposals and putting in place sanctions should the homebuilder fall short. Of course, there are examples where developers will need to vary their approach to building and constructing properties, and of course timeframes will both elongate and reduce as part of that process, but in general we are keen to see that when development is granted permission, often through difficult and sometimes controversial processes, and the clock starts ticking, the development should get moving and conclude as soon as possible.

The hon. Member for North Shropshire rightly highlighted infrastructure. Taking roads as an example—she mentioned a number of examples—when a new development is granted planning permission, councils can currently use section 106 planning obligations, as she indicated, to secure a commitment from developers to construct roads to a standard capable of being adopted by the local highway authority. It is up to developers and local planning authorities to agree on specifics such as timescales and funding, which may include the provision of a bond. This is currently a local decision and, notwithstanding the difficulty she rightly highlighted—she made a constructive suggestion on potential compulsion in this area—there are going to be different circumstances in different instances.

I encourage councils to use bonds where they think it is appropriate. Equally, I do not know whether we want to be so prescriptive as to mandate that from the centre, as there may be instances where it is neither appropriate nor necessary. Hundreds of thousands of houses are built each year in very different parts of the country, so we have to have regard to the fact there are different circumstances. None the less, I accept the premise of what the hon. Lady indicates and, where good practice exists—she indicated the good practice in Oxfordshire, and it also happens in Derbyshire—I encourage councils to use it, where appropriate and reasonable.

[Helen Morgan]

If compulsion is not appropriate, what about disseminating best practice to all councils in England to encourage them to use this mechanism, where appropriate, to avoid the situation that my hon. Friend the Member for Caithness, Sutherland and Easter Ross (Jamie Stone) and I have described? That would be a positive way forward to prevent this happening in future.

[Lee Rowley]

Within the bounds of localism, and without an individual Minister directing councils to do so, I think it is reasonable to indicate that, where possible, reasonable and proportionate, and where councils think it is appropriate, they should consider using bonds, which are a helpful lever and tool to be used where possible, while accepting that individual local authorities may have different reasons and different views on either using them or not using them. Ultimately, I will leave it to the discretion of individual local authorities to determine the appropriateness of that utility.

Returning to the point about roads, the Government believe it should be made clear to potential purchasers what the arrangements are for the maintenance of roads. Section 38 agreements facilitate the adoption of such roads as highways maintained by the public purse. It is certainly possible for local authorities to adopt streets and roads. Ultimately, though, that is a decision that is taken in relation to how these estates are created and how local authorities want to approach ensuring that they have highways that are at a standard that they can then maintain.

Although I recognise, as has been indicated, that this does not work in a number of instances, if we can balance the appropriateness of localism—of making sure that local areas have the ability to vary how they approach this—while also ensuring that there is a general usage of the tools that are available, I hope that will be reasonable and proportionate.

The other element of the discussion is effectively around the quality of what is delivered at the end of the process when people move in—or by the time they move in. The Department for Levelling Up, Housing and Communities has also provided local planning authorities with tools to enforce requirements with strong penalties for non-compliance. Again, we encourage councils to use them where possible, and, again, through the Levelling Up and Regeneration Bill we are seeking to strengthen those measures.

I should add that when residents have a complaint about the local planning and highways authority that has not been adequately resolved, they may be able to complain to the Local Government and Social Care Ombudsman. I know that, in at least one incident, as the hon. Lady said, the residents of North Shropshire tried to do that. Obviously, the ombudsman is independent, but it is worth reiterating that it is there to redress issues, and I hope that anybody watching this debate who has a similar concern will consider its usage should that be appropriate.

On the matter of delays to completion, warranties and the actual quality of new homes themselves, I know of the problems that new home buyers face regularly and we do not underestimate the detrimental impact that this has. Most new-build home contracts typically have a “short-stop” date, which is an estimated completion date, and a “long-stop” date, which is the date by which a home must be completed in the contract. The rights and responsibilities of the homebuyer and developer should be set out in that contract, including the circumstances in which a deposit and other money is returned.

There are other routes to redress, which we are strengthening, and I will come to those in a moment, because they offer alternatives that the hon. Lady may wish to consider. The status quo currently is that most new-build homes are issued with a 10-year new-build warranty. Home buyers may also be able to complain to the Financial Ombudsman Service about their insurance cover.

Within the first two years of most warranties home buyers may be able to seek to resolve issues with their new homes through that warranty provider. If the new home is covered by one of the consumer codes, they may also be able to help resolve the issues that residents unfortunately face.

Even with those options available to home buyers, we recognise that the system is not in a perfect place. That is why the Government have committed to taking further steps to improve consumer redress. Through the Building Safety Act 2022, we have included a provision that contains a statutory new homes ombudsman scheme, which will place greater accountability on developers and make it easier and simpler for new home buyers to seek redress when things go wrong, which perhaps will move us closer to the Northern Ireland model in terms of outcomes.

In the meantime, and as we consider the next steps for the statutory scheme, the independent New Homes Quality Board has progressed work to set up the voluntary New Homes Ombudsman Service, which will launch shortly. My second visit was to see the launch of a New Homes Quality Board and to see the first developers to be brought onto that scheme. I went to Solihull a couple of weeks ago, and I am grateful to the chief executive for meeting me. It is an important step forward. The scheme is voluntary at the moment, but, equally, that voluntarism gives the opportunity for home buyers to see the different ways in which developers are engaging with that system, and I hope that most developers will in the end engage with that system.

The hon. Lady talked about leasehold at the end of her speech and I just want to dwell on that for a few seconds. We acknowledge that there are practices that are not where they need to be within the leasehold sector, and the Government and previous Ministers have given commitments that we will reform leasehold. We remain of the view that that is what should be done. Although I cannot give the hon. Lady the date she seeks, I am personally committed to trying to take the matter forward and I hope I will be able, with my colleagues, to give further information in fairly short order on the process for that.

In conclusion, this is an important area of policy, and I am grateful to the hon. Lady and all those who have contributed to the debate tonight for the opportunity to talk about it. It is important to note that there are processes already in place that homeowners should use if they are in the unfortunate place described by some people in North Shropshire, which I know is also the case elsewhere. They should seek to use those and seek to—