Leasehold and Commonhold Reform Debate

21st December 2017

Alok Sharma responds to a debate on leasehold and commonhold reform and leasehold abuses.

It is an absolute pleasure to serve under your chairmanship, Mr Bone. I congratulate my hon. Friend the Member for Worthing West (Sir Peter Bottomley) on securing this incredibly important debate on leasehold. As Members have made clear, he—along with the hon. Members for Poplar and Limehouse (Jim Fitzpatrick) and Ellesmere Port and Neston (Justin Madders) and other members of the all-party parliamentary group on leasehold and commonhold reform—has demonstrated real dedication to championing leasehold reform.

We have had incredibly thoughtful contributions today. This is Parliament at its best, where we all come together and speak with one voice. We have had humour in the debate, but it has underlined a serious issue that colleagues care deeply about, and we know that our constituents care about it as well.

To respond to the right hon. Member for Wentworth and Dearne (John Healey), in terms of the broken housing market, I hope we all acknowledge that the reason we are where we are is because successive Governments over many decades have not presided over the building of enough homes. In terms of leasehold, successive Governments have left the business unfinished. I absolutely get that what the House wants from this Government is to finish that piece of business.

I have attended and spoken to a packed meeting of the all-party group and heard at first hand the anguish of some of those affected by the leasehold issues we are discussing. Indeed, many Members have highlighted individual cases from their constituencies. I am also grateful for the welcome from right hon. and hon. Members for this morning’s written ministerial statement to the House from my right hon. Friend the Secretary of State for Communities and Local Government. As has been said, today we have also responded to the consultation on leasehold held earlier this year. My remarks will very much echo the Secretary of State’s statement.

A number of colleagues noted this, but in February the Government’s housing White Paper, “Fixing our broken housing market,” set out our commitment to promoting fairness and transparency for the growing number of leaseholders. I do not want to rehearse the whole issue around leaseholders and the number of people affected—we know that a lot of people have leasehold homes.

Of course, ground rents on many such properties have risen from historically small sums to hundreds of pounds a year. As colleagues have pointed out, in some cases ground rents have spiralled into significant sums. That is why the Government acted and published a consultation over the summer. I am grateful to everyone who participated and provided evidence—particularly Members of the House and of course the all-party group. The consultation received an overwhelming response: there were more than 6,000 replies, and the vast majority were in favour of widespread leasehold reform.

I repeat the point made by the right hon. Member for Delyn (David Hanson) about being in an echo chamber when we have talked about the issues affecting constituents. It is clear that many purchasers did not make an informed choice to buy a leasehold house. Far too many reported being surprised to find that their home had been sold on to a third-party investor, and the cost of buying the freehold had risen considerably—as we have heard, sometimes running into tens of thousands of pounds.

Is that not a prima facie case of mis-selling?

I will come on to talk about the work that the Government will be doing with the Law Commission.

We have also heard of consumers with very onerous ground rent terms who are effectively trapped in their own homes, unable to find a buyer. Some of those people have not been able to get redress and do not know where to turn for support. It is clear that the leasehold system as it stands is not working in many consumers’ best interests. Even most developers accept that use of leasehold for new build houses, unless in exceptional circumstances, is entirely unjustified. This has got to stop. That is what we all want.

The Secretary of State’s statement noted that, alongside publishing a response to the consultation, the Government have set out a package of measures to crack down on unfair practices, which includes introducing legislation to prohibit the development of new build leasehold houses, other than in exceptional circumstances. The Government intend to ensure that future legislation to ban the sale of leasehold houses applies to land that is not subject to an existing lease from today’s date. We will continue to work with the sector and other partners to consider the case for exemptions to the policy and its retrospective application, in particular to mitigate any undue unfairness.

We are restricting ground rents in new leases of houses and flats to a peppercorn, and we are addressing loopholes in the law—for example, to ensure that freeholders have a right to challenge unfair service charges. We are also working with the Law Commission to support existing leaseholders, including by making the purchase of a freehold or extension of a lease easier, faster, fairer and cheaper and, of course, by reinvigorating commonhold.

The right hon. Member for Wentworth and Dearne and the hon. Member for Brentford and Isleworth (Ruth Cadbury) raised the issue of the Law Commission. I can confirm that the Government will be funding the work. We will be funding five lawyers and five research assistants, a proportion of the managers’ and the commissioners’ time and some peer review and external consultancy. That work will start in January.

I am grateful to the Minister for giving us that answer. I think everyone will be encouraged and will welcome that. He indicates that work will begin in January 2018. Can he indicate when that work is scheduled to be completed?

If the right hon. Gentleman bears with me, I will come on to that.

As I said, we will be working with the Law Commission. A number of Members raised the issue of freeholds being sold on to investment companies. Our view is very clear: where houses are sold on unfair terms, we have asked developers to be proactive and arrange for the leasehold contract to be put on a fair footing. The right hon. Member for Knowsley (Mr Howarth), who is not in his place, asked whether there should be a requirement for developers not to sell on the freehold at this point. I am sure that developers will be listening intently to the tone of this debate and understanding precisely how Parliament feels about this matter.

We will, of course, want to ensure that there is appropriate support for existing leaseholders with onerous ground rents, and we will work with the ombudsman and trading standards to provide comprehensive information on the various routes to redress. However, that is not enough. We also want to see developers and investors going further with their compensation schemes. I want to see that support extended to all those with onerous ground rents, including second-hand buyers.

A number of Members, including the hon. Member for North Tyneside (Mary Glindon), mentioned Help to Buy. Given the Government’s position on leasehold, we do not think it is appropriate for the Help to Buy equity loan scheme to support the sale of leasehold houses. We cannot impose a new requirement on developers under existing contracts, but we expect them to work with us to take forward that change ahead of legislation. The Secretary of State has today written to all developers to ask them to stop using Help to Buy equity loans for the purchase of leasehold houses, to encourage them to take early steps to limit ground rents and to ask those that have customers with onerous ground rents to provide the necessary redress as soon as possible. Both the Secretary of State and I will be keeping a very close eye on progress in that area.

I am very grateful to the hon. Member for Ellesmere Port and Neston for proposing a Bill on leasehold reform, and for the considerable efforts that he and other colleagues have made to put it on the agenda. This is a highly complex area, covering multiple Acts of Parliament, which is why we will be working closely with the Law Commission as part of its 13th programme of law reform, announced last week. We want to ensure that we prioritise making the process of buying a freehold easier, and to support existing leasehold house owners, and we will seek to bring forward solutions by the summer recess of 2018.

Will the Minister to clarify whether the proposals that will be brought forward by the summer will address the charity loophole?

As the hon. Lady knows, we are meeting in the new year to discuss the issue of the charity loophole and specifically her case. My officials are in touch with the charity, and I would be very happy at that point to discuss the details. Of course, if she wants to feed some suggestions into the work that we are doing more widely with the Law Commission, I would be very happy to receive them from her.

I suggest that either the Minister or his officials should have a round table with the charities, the National Trust and the Charity Commission, and spell out to those people that, although the law at present may give them the right to say no, they ought to ask whether it fits with their charitable purposes to do so. Perhaps they ought to say yes, because charities are supposed to do good for people.

My hon. Friend makes an interesting suggestion. I will take that away and come back to him.

Certainly, in bringing forward legislation we will continue to work with stakeholders, including the APPG, to ensure the best outcomes for consumers. We have heard many ideas in this debate. We want to ensure that our plans do not have an adverse impact on supply, and we will work with the sector to consider the case for exemptions.

It is important that we get the detail right. We are committed to ensuring that our reforms deliver a fairer and more transparent system for both existing and future leaseholders, and to stamping out the leasehold abuses that have existed to date. I have written formally today to the hon. Member for Ellesmere Port and Neston to confirm that I welcome the opportunity to meet him early in the new year to discuss further his thoughts for a Bill. I am open to a dialogue with the APPG about our thoughts as we move forward.

A number of colleagues have talked about building regulations. As we know, on Monday Dame Judith Hackitt published her interim independent review of building regulations and fire safety. It is important that leaseholders have access to specialist advice to understand their rights. The hon. Member for Poplar and Limehouse, the hon. Member for Brentford and Isleworth and my hon. Friend the Member for Worthing West mentioned LEASE; we can confirm that the Secretary of State announced on 4 December that the Department for Communities and Local Government is providing additional funding to the Leasehold Advisory Service over 2017-18 and 2018-19 to provide a dedicated advice and dispute resolution service for those leaseholders affected. I can also confirm that we will conduct an internal review of the wider landscape of support and advice to leaseholders, to ensure it is fit for purpose in the new legislative and regulatory environment.

To cover a few other points that were raised, the hon. Member for Greenwich and Woolwich (Matthew Pennycook), the hon. Member for Battersea (Marsha De Cordova), the hon. Member for Poplar and Limehouse, the hon. Member for Brentford and Isleworth and, of course, the shadow Minister raised the issue of costs related to cladding. The Secretary of State has said that local authorities and housing associations with which we are engaging are not passing on the costs of essential works. He has also encouraged private sector freeholders to follow suit, and some have. I spoke to L&G, the company mentioned by the hon. Member for Brentford and Isleworth, and I am delighted with the approach it is taking. I realise there are some instances where costs are being passed on. That is why we are providing additional funding to LEASE, as I have just mentioned, to provide leaseholders with the advice and support they need.

Colleagues have raised a number of issues. The right hon. Member for Delyn asked about homes built in Wales by companies that are not from Wales. Of course, whether Wales abolishes leasehold is a devolved matter. However, I can confirm that my officials have been working with the Welsh Assembly to inform them of our plans on leasehold, and we will continue to liaise with them.

My hon. Friend the Member for Worthing West talked about forfeiture. I can confirm that that is being considered by the Ministry of Justice. There are protections in place, but I agree that reform is needed. We will continue to work with the Ministry of Justice to take this matter forward. I also noted his point about the National Trust, but as he knows, National Trust properties are exempt from enfranchisement under the Leasehold Reform Act 1967.

If I understood him correctly, the hon. Member for Witney (Robert Courts) asked whether we were looking to abolish leasehold. Leasehold needs reform, and although in certain cases it is an established structure that can work well, we want to make sure that there is fairness in the way that the system operates.

The Minister has not addressed the point that I raised. I wrote to him several weeks ago about my constituents receiving unreasonable demands from the landlord for payments for historical alterations. I would appreciate it if he would commit to answering that letter.

Let me apologise to the hon. Lady if we have not been answering our letters in a timely fashion. I will make sure that that letter is answered as a matter of urgency. She is absolutely right. She raised the issue about limited ground rents and the impact on leaseholders. As I said earlier, we have asked developers to contact homeowners regarding unfair terms. We will keep a close eye on that, and I will respond more fully to her.

I hope colleagues feel that we are making progress, and that we understand there is more to do on this. We said earlier this year that we would act, and I believe that we have done that so far. We are resolved to reforming leasehold, and ultimately to promoting fairness in the system.

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