Unfinished Housing Developments: Consumer Protection

Debate between John Spellar and Helen Morgan

Tuesday 18th October 2022 Commons Chamber

[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.