Leasehold Reform (Ground Rent) Bill [Lords]

– in the House of Commons at 4:50 pm on 29th November 2021.

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[Relevant documents: Twelfth Report of the Housing, Communities and Local Government Committee, Leasehold Reform, Session 2017-2019, HC 1468, and the Government Response, CP 99; Correspondence between the Chair of the Housing, Communities and Local Government Committee and the Chairman of the Local Government Association on the Leasehold Reform (Ground Rent) Bill, dated 3 November and 16 November; Correspondence from the Chair of the Housing, Communities and Local Government Committee to the Minister for Rough Sleeping and Housing on the Leasehold Reform (Ground Rent) Bill, dated 23 November.]

Second Reading

Photo of Eddie Hughes Eddie Hughes Parliamentary Under Secretary of State (Department for Levelling Up, Housing and Communities) 5:01 pm, 29th November 2021

I beg to move, That the Bill be now read a Second time.

As hon. Members may know, I have long championed a root and branch comprehensive reform of our leasehold system. It has been a long journey to get here from my private Member’s Bill—Ground Rents (Leasehold Properties) Bill—to try to overhaul the regulations on ground rents. It is particularly gratifying to be standing here today as the Minister responsible for this hugely important legislation.

The Bill will make home ownership fairer and more transparent for future generations of leaseholders. We will do this by reducing the ground rent on new residential long leases where a premium is paid to a peppercorn. I am sure that this change, which will benefit thousands of future leaseholders, will be welcomed right across the House.

Photo of Desmond Swayne Desmond Swayne Conservative, New Forest West

I lobbied for an exemption for the retirement living industry, which was granted and then withdrawn in January this year. Why was that?

Photo of Eddie Hughes Eddie Hughes Parliamentary Under Secretary of State (Department for Levelling Up, Housing and Communities)

I appreciate my right hon. Friend’s strong lobbying on this matter. I think the Government decided that it was appropriate to treat all leaseholders the same and therefore we made that change, although we did allow an extension in the introduction of that to April 2023.

Photo of Chris Bryant Chris Bryant Chair, Committee on Standards, Chair, Committee on Standards, Chair, Committee of Privileges, Chair, Committee of Privileges

The bit I do not understand is why we have leasehold at all. It is just preposterous nonsense, is it not? It is a feudal relic. Would it not make far more sense to have some kind of commonhold situation for flats, which is what they have in nearly every other country in the world and, I think I am right in saying, also in Scotland? Does that not make far more sense? We can then just get rid of leasehold completely.

Photo of Eddie Hughes Eddie Hughes Parliamentary Under Secretary of State (Department for Levelling Up, Housing and Communities)

I thank the hon. Gentleman for his intervention. I wonder why, in the brief periods when Labour has been in control, it has not done so itself. I guess English law is pretty complex, so it would not be so straightforward to simply withdraw it on the basis that he suggests. Perhaps when Labour is in power again at some point in the distant future, it will be able to return to this matter.

Photo of Catherine West Catherine West Shadow Minister (Foreign and Commonwealth Affairs)

The Minister is being generous in giving way. He may not wish to be as radical as my hon. Friend Chris Bryant is suggesting, but does he share my concern at some of the greedier developers, which are insisting on a year-by-year, annual increase? For example, ground rents are going up and up in New River Village in Hornsey. I have to name the Berkeley Group, because it really should know better. It has done very well, including throughout coronavirus, given all the leg-ups that it has had from the Government through various coronavirus packages, and it really should not be demanding multiples every year from my poor old leaseholders.

Photo of Eddie Hughes Eddie Hughes Parliamentary Under Secretary of State (Department for Levelling Up, Housing and Communities)

I largely agree with the hon. Lady, not least because the ten-minute rule Bill to which I referred, which I brought to the House when I was a Back Bencher, completely endorsed her points. It is unfortunate that some people include such egregious terms in ground rents.

Photo of Mark Tami Mark Tami Opposition Pairing Whip (Commons)

Does the Minister agree that this issue is about not only ground rents, but the admin fees that are often associated with any minor changes that the owner of the property wants to make? A lot of these properties are also linked with extra charges for management fees for the land and other things. The levels of charges placed on leaseholders are becoming totally unacceptable.

Photo of Eddie Hughes Eddie Hughes Parliamentary Under Secretary of State (Department for Levelling Up, Housing and Communities)

I do not want to jump forward several pages in my speech, but the right hon. Gentleman is predicting—or at least pointing to—the fact that we have identified this problem and have ensured that when we reduce ground rents to a peppercorn, people will not be able to cheat by introducing associated management fees and other charges. If he is looking for further changes, the second part of our seminal legislation, when it comes in due course, will no doubt satisfy his needs.

The starting point for this legislation has to be our shared recognition that for many people, to be a leaseholder is also to be a homeowner, and we are clear that homes that have been bought should be theirs to live in and enjoy, not be treated as cash cows for third-party investors. This Government are on the side of homeowners, which is why in our manifesto we committed to introduce this important legislation.

Hon. Members will be well aware of the problems that many leaseholders have faced in recent years, including, as pointed out by Opposition Members, spiralling ground rents and onerous conditions that have turned the dream of home ownership into a nightmare for some leaseholders. This Bill is the first of our seminal two-part legislation to reform and improve the leasehold system. Further legislation will follow later in this Parliament to continue to address the historic imbalances in the leasehold system.

Photo of Andy Carter Andy Carter Conservative, Warrington South

I pay tribute to the Minister for the work that he has done so far. He may know that constituents on Steinbeck Grange in Warrington South have been calling for changes for almost 10 years. Will he give an update on the current Competition and Markets Authority investigation, which is vital to people living in Warrington?

Photo of Eddie Hughes Eddie Hughes Parliamentary Under Secretary of State (Department for Levelling Up, Housing and Communities)

The work of the CMA has been pivotal so far in already changing the behaviour of a number of significant developers. I have spoken to it recently; further work is ongoing and I hope that it will have further successes in the future. My hon. Friend is completely right to raise that point.

Both this Bill and the wider leasehold reform programme have been informed by consultation. I thank those present here today, including the Opposition Front Benchers, who have taken the time to discuss the issue. I look forward to further discussions over the coming weeks and months.

The Bill has a specific focus: the ground rent in future long residential leases. Some existing leaseholders face substantial difficulties, including costly enfranchisement, a lack of transparency and burdensome lease terms. Escalating ground rents in particular can reach unaffordable levels and make some properties difficult to sell. That is not right, which is why we have asked the Competition and Markets Authority to conduct a thorough investigation into potential mis-selling and unfair terms in the leasehold sector.

Photo of Mark Tami Mark Tami Opposition Pairing Whip (Commons)

I have met many people who were told by the company that sold them their property that they would be able to buy the lease, only to find out, when they inquire to buy it, that it has been sold on to some financial institution. Does the Minister accept that point?

Photo of Eddie Hughes Eddie Hughes Parliamentary Under Secretary of State (Department for Levelling Up, Housing and Communities)

Once again the right hon. Gentleman points out an egregious and unfortunate practice that hopefully we will be finding ways to address in future.

Photo of Desmond Swayne Desmond Swayne Conservative, New Forest West

That prompts the question of what proposals the Minister may have to enable leaseholders to enforce the purchase of freeholds from such companies. Does he have plans for that?

Photo of Eddie Hughes Eddie Hughes Parliamentary Under Secretary of State (Department for Levelling Up, Housing and Communities)

As my right hon. Friend will know, unfortunately I am not the Secretary of State, much as I would like to be. [Interruption] Not yet, anyway. It is best to leave the fine detail of the formation of future legislation to the Secretary of State to decide. However, I look forward to discussing the matter further with my right hon. Friend as we progress.

Photo of Chris Matheson Chris Matheson Shadow Minister (Digital, Culture, Media and Sport)

I have listened to my right hon. Friend Mark Tami and others. The Minister is waiting for the Competition and Markets Authority report, but is he prepared to say, even before that report has concluded, that on the basis of all the evidence we are hearing from right across the House, what we are seeing is nothing more than a financial scam from a bunch of greedy speculators?

Photo of Eddie Hughes Eddie Hughes Parliamentary Under Secretary of State (Department for Levelling Up, Housing and Communities)

I am not sure I can go so far as to agree, but, as a number of hon. Members on both sides of the House have pointed out, it is an unfortunate practice that we will be seeking to address in future legislation.

Photo of Catherine West Catherine West Shadow Minister (Foreign and Commonwealth Affairs)

The Minister is being very generous with his time; he remembers well what it is like to be on the Back Benches. Does he agree that many of the points under discussion will be good for future generations, but it is all a bit “jam tomorrow” if we cannot help our constituents today?

Photo of Eddie Hughes Eddie Hughes Parliamentary Under Secretary of State (Department for Levelling Up, Housing and Communities)

I would say that we are doing a very important thing with today’s legislation, which effectively draws a line in the sand to prevent future onerous ground rent clauses. Once we have done so, we will then have the opportunity to work, hopefully quickly, to deal with the existing ground rent problem.

Photo of Kevin Hollinrake Kevin Hollinrake Conservative, Thirsk and Malton

I have been known to swim against the tide once or twice with regard to this particular debate. I draw the House’s attention to my entry in the Register of Members’ Financial Interests. I am a leaseholder, not a freeholder, in this context. Nevertheless, it is not right to think that effectively scrapping leasehold and moving to commonhold is a panacea. For evidence of that, hon. Members should look at the system in Scotland, which moved to a commonhold system. Some 80% of buildings require maintenance and there is a £2 billion unfunded maintenance backlog. We should step forward very carefully. Leasehold does need reform, but I am very concerned that if we effectively scrap it altogether, we will create ourselves a new problem.

Photo of Eddie Hughes Eddie Hughes Parliamentary Under Secretary of State (Department for Levelling Up, Housing and Communities)

I thank my hon. Friend, who is incredibly knowledgeable in this area. I remember discussing my ten-minute rule Bill with him at the time. I completely assure him that we will proceed with caution and seek advice from experts both across the House and outside the House. I look forward to discussing this with him again in the future. I also take this opportunity to thank the former Secretary of State, my right hon. Friend Robert Jenrick—I am delighted to see him in his place—for all the work that he put in in driving forward this agenda. Back in January, he announced measures to make buying a freehold or extending a lease cheaper and easier for many leaseholders.

I now turn to the specifics of the Bill. Ground rent is usually paid annually by leaseholders to their freeholder or landlord, but, crucially, no tangible service is provided in return. The industry is also familiar with the term, “peppercorn rent”, to describe a token or nominal rent used as a payment in forming a contract, which typically is not actually collected in practice. Historically, ground rents were generally very low. The past two decades have seen a surge in properties sold with significant and escalating ground rent. At its worst, this practice can lead to properties becoming unsellable. These unfair practices have caused real misery for those affected and, in turn, have undermined the reputation of the leasehold system. Regardless of whether the ground rent is a nominal peppercorn or thousands of pounds, the fundamental issue is that no meaningful service is provided in return. We want to end this for new leases, and that is why we are legislating so that new residential long leases will have no financial demand for ground rent. Instead, nothing more than an actual peppercorn can be collected from the leaseholder.

Photo of Theresa Villiers Theresa Villiers Conservative, Chipping Barnet

Will the Minister acknowledge that the situation is slightly different in relation to retirement housing, where the practice has been for ground rents to more or less fund the shared spaces, and ground rents have been part of making retirement housing viable? Will he take care to ensure that the Bill does not have unintended consequences for retirement housing?

Photo of Eddie Hughes Eddie Hughes Parliamentary Under Secretary of State (Department for Levelling Up, Housing and Communities)

The reason why we extended the timeframe for the introduction of this legislation for those properties is to allow people time to adjust their business models, so that they can cope with the change in legislation. To avert the risk of possible future shortages of peppercorns, and to ensure that our meals continue to be well seasoned, I should clarify that we do not expect any landlord to require the actual payment of a physical peppercorn each year. In reality, the new genuine peppercorn rent for future leaseholders means that they will not pay the rent.

The specifics of the Bill apply to residential long leases in England and Wales of over 21 years for which a premium is paid. The inclusion of the requirement for a premium clarifies that normal and legitimate practices relating to rack rents can continue. For leases regulated under the Bill, the rent demanded will not be any more than literally one peppercorn a year.

Following much careful deliberation, we have arrived at a broad and flexible definition of “rent”, using the real-world meaning, and therefore including anything in the conventional nature of rent. The Government are clear that landlords should retain the ability to collect legitimate charges. The definition will ensure that landlords can still collect legitimate charges where the market reserves them as rent, such as charges for services, including building maintenance. The broad definition will deter freeholders or landlords from trying to circumvent the new system by disguising ground rent as a different charge. It will also enable appropriate tribunals to make sound judgments on whether a leaseholder has in fact been charged a prohibited rent.

We plan to leave no loopholes for unscrupulous individuals, so we are also banning the charging of an admin fee for collecting peppercorn rent. Where a prohibited rent or administrative charge is paid, leaseholders will have the right to apply to the first-tier tribunal in England or the leasehold valuation tribunal in Wales. Provided that the tribunal deems the payment inappropriate, the relevant authority can then order the amount to be repaid. In the case of prohibited rent, that must be within 28 days and potentially also with interest.

There are a limited number of exceptions from the provisions of the Bill. The first is leases used purely for a business purpose. The intention behind the Bill has never been to reduce business leases to a peppercorn rent, so through careful consideration, we have excepted business leases that include the use of a dwelling in any way that protects the interest of residential leaseholders and commercial landlords. For mixed-use properties, such as a flat above a shop, the exception will apply only if the residential use significantly contributes to the business purpose of the lease.

Community-led housing may have few other feasible funding schemes that they can use to continue to grow developments that benefit the community, rather than secure profits. To maintain this growth, we have excepted community-led housing schemes. Home finance plan leases are also excepted. That includes regulated home reversion plans, such as equity release and rent-to-buy agreements, where the consumer purchases the freehold at the end of the term. We will also allow shared ownership landlords to continue to collect a market rent on their share of the property. That practice is integral to the shared ownership model.

Photo of Kevin Hollinrake Kevin Hollinrake Conservative, Thirsk and Malton

The Minister is setting out a list of exemptions. Are complex developments included in that—for example, a tube station with a cinema or shopping centre attached, and a block of flats above it, all in effect part of the same development? Who will manage the complexity of that development? If I was a long leaseholder in that block of flats, I would not be keen to manage all the mechanical and electrical systems stuff in that development.

Photo of Eddie Hughes Eddie Hughes Parliamentary Under Secretary of State (Department for Levelling Up, Housing and Communities)

I am not sure that I completely understand my hon. Friend’s point. The Bill will not change the management of that building’s operation; it will just prevent ground rent from being charged. If a leaseholder feels that they are being charged ground rent inappropriately, they will have a right of appeal, and the issue will be determined by the ways and means authority.

Photo of Kevin Hollinrake Kevin Hollinrake Conservative, Thirsk and Malton

I am sorry; I should clarify my point. The Minister is quite right that a management company could look after the whole entity, but things such as common areas and insurance of the whole building —among many other issues—affect the whole building, and they require somebody to have an overarching view of the entire development. I not sure how that is provided for. In fact, in 2019, when I was a member of the Housing, Communities and Local Government Committee, it looked into that and said there should be an exemption for complex developments on that basis. However, that does not appear in the Bill, despite having been referred to in debates in the Lords.

Photo of Eddie Hughes Eddie Hughes Parliamentary Under Secretary of State (Department for Levelling Up, Housing and Communities)

As I said, the Government’s intention is to ensure that, for fairness, the provision applies in as many circumstances as possible. I am happy to pick that up with my hon. Friend for further discussion after the debate, to which I hope he will contribute.

Statutory lease extensions are the subject of existing legislation and so are not covered by the Bill. The peppercorn limit will apply to the extended portion of any lease extended through the voluntary process.

I should note that there is no longer an exception for the retirement sector. As I said to my right hon. Friend Theresa Villiers, we believe that all new leaseholders should benefit from the reforms. The measures for retirement properties will apply no earlier than 1 April 2023. Hon. Members, some of whom are in the Chamber, have raised that as a concern in correspondence, and it has been debated at some length in the other place. We feel that the transition period strikes the right balance between the sector and consumers.

The Government recognise that these provisions require a robust and effective enforcement regime. Freeholders and landlords who abuse the system and deliberately seek to charge a non-peppercorn ground rent on leases in contravention of the Bill will be subject to steep fines of up to £30,000. After listening to and considering carefully the view expressed in the other place, we concluded that the level of fines should be higher. The new maximum fine of £30,000 is in line with other housing penalties, including those in the Tenant Fees Act 2019. Fines can be even steeper for more egregious abuses of the system. For example, if a freeholder breaks the law by charging unfair rents at multiple locations, such as in a block of flats, they will pay a penalty per lease. It does not stop there; penalties can be supplemented by the repayment of all prohibited rent collected. Enforcement will be the responsibility of local trading standards authorities, which already do an excellent job of enforcing similar housing regulations. District councils in England will also have the power to take enforcement action if they choose.

We recognise that enforcement will require additional resourcing. That is why authorities can retain any penalties imposed, and put them towards the costs incurred in enforcement of residential leasehold property rules. Taken together, the enforcement regime will act as an effective deterrent, while giving authorities the flexibility that they need to ensure that any enforcement action taken is proportionate.

The Government’s vision for a reformed and improved leasehold system is one anchored in fairness and transparency. For too long, too many leaseholders have been let down by institutional inertia and a ground rent system that has not worked in their interests. The system has been dogged by opaque rules and left many people in the dark. This legislation is targeted on exactly what it should target. By reducing future ground rents to a peppercorn, we will deliver a tangible and meaningful improvement to home ownership for future generations. We have engaged extensively to get to this point, and this process is by no means over. We are clear-eyed about the challenges ahead, and know that there is more to do, but today is a significant step towards fixing our broken leasehold system for good. I commend this Bill to the House.

Photo of Lucy Powell Lucy Powell Shadow Secretary of State for Housing, Shadow Secretary of State for Digital, Culture, Media and Sport 5:25 pm, 29th November 2021

The Leasehold Reform (Ground Rent) Bill sets ground rents on new leasehold homes to peppercorn levels. We welcome this very small step towards reform, and will not oppose the Bill this evening.

Generating income through high ground rents is an outrageous practice, as has been discussed, but serious leasehold reform is long overdue. Leasehold has been the main way that properties in shared blocks or converted flats have been owned in this country. It stems from arcane feudal laws that date back to an era of landed gentry and aristocracy, and it needs reform urgently. In its more recent manifestations, there has been what can only be described as a scam on an industrial scale, as was pointed out by my hon. Friend Christian Matheson, against innocent leaseholders—and it increasingly affected new houses, not just flats. It is totally wrong, and it needs ending.

Photo of Mark Tami Mark Tami Opposition Pairing Whip (Commons)

I have been struck by the way that two houses, next door to each other, may be exactly the same, but one can be leasehold and the other freehold. We see that all the time. When a house is advertised, the advert often says, “This is not leasehold”—it points out that fact. Leasehold properties are being devalued by the day.

Photo of Lucy Powell Lucy Powell Shadow Secretary of State for Housing, Shadow Secretary of State for Digital, Culture, Media and Sport

My good and hon. Friend makes an extremely well-made point. The practice of new homes being built as leasehold, and sold as leasehold—buyers often do not even know that at first—has got out of all kilter lately, especially in north Wales and north-west England, where it has been a particularly egregious practice. I welcome this Bill, albeit that it is a bit too little, too late, but it does nothing to protect those trapped in the injustice of leasehold. It does not do anything for those facing excessive ground rent increases today or yesterday, nor does it put an end to some of the most egregious practices, such as selling new houses as leasehold.

The ground rent scandal typifies everything that has gone wrong with our housing market. Housing has become a commodity to be traded, packed up in financial products and thrown into an unregulated market. Large-scale developers and investors have been given free rein to create ever more complex financial products, in order to squeeze money out of homeowners. Many people do not even realise when they buy their house that they will not own the land underneath it, as my right hon. Friend has just made clear. Even worse, the leases often contain clauses that double the ground rent—in some cases, every 10 years, which means that a homeowner in a property worth a modest £200,000 might pay £10,000 a year in ground rents after they have owned the property for 50 years or so.

Photo of Catherine West Catherine West Shadow Minister (Foreign and Commonwealth Affairs)

Does my hon. Friend share my concern that this has got so out of hand? The amounts being charged are rising in excess of the retail prices index, which we would expect to be a basic marker. People feel trapped, in that they cannot sell on.

Photo of Lucy Powell Lucy Powell Shadow Secretary of State for Housing, Shadow Secretary of State for Digital, Culture, Media and Sport

Absolutely. My hon. Friend makes a really good point. People are trapped in this situation, because we all know that when we look to buy a home, we look at the overheads, and the ongoing service charges, ground rents and other costs. In recent years, those things have rightly been added to the affordability criteria, so people often cannot get a mortgage for these homes. That leaves the people living in them trapped in that situation with an unsellable home.

Photo of Desmond Swayne Desmond Swayne Conservative, New Forest West

Does this not give rise to an extraordinary question about the legal advice provided by solicitors to those who made such purchases?

Photo of Lucy Powell Lucy Powell Shadow Secretary of State for Housing, Shadow Secretary of State for Digital, Culture, Media and Sport

I am glad the right hon. Gentleman raises that point, because I am sure colleagues around the House will be keen to highlight—

Photo of Mark Tami Mark Tami Opposition Pairing Whip (Commons)

Will my hon. Friend give way on that point?

Photo of Lucy Powell Lucy Powell Shadow Secretary of State for Housing, Shadow Secretary of State for Digital, Culture, Media and Sport

I will first try to answer it, and then when I do not answer it very well, I will give way to my right hon. Friend to give a better answer. What I do know is that, unfortunately, many people who bought houses in this situation were advised to use the solicitor of the marketing company or company selling the houses—I have many in my constituency. So they were given poor advice, and this is a mis-selling scam as well. Would my right hon. Friend like to give a better answer?

Photo of Mark Tami Mark Tami Opposition Pairing Whip (Commons)

My hon. Friend has in many ways made the point I was going to make. These people were often first-time buyers, keen to get on to the housing market and get their first home. They were told, “Don’t use this solicitor or that solicitor; use these ones, and we will give you a discount to use them”, and—shock, horror—many were not even aware, as my hon. Friend has made clear, of the property being leasehold, let alone of all the other charges associated with that.

Photo of Lucy Powell Lucy Powell Shadow Secretary of State for Housing, Shadow Secretary of State for Digital, Culture, Media and Sport

Absolutely; my right hon. Friend makes a very good point as well. Many people, especially first-time buyers, do not understand the difference between leasehold, freehold and so on, and many of these issues come to light only as problems arise later or when they try to sell the property.

Photo of Justin Madders Justin Madders Shadow Minister (Health and Social Care)

On legal advice, it is worth pointing out that not only were some people told that they had to use particular solicitors, in breach of Law Society guidelines, but some were also told that they had to complete within a certain period of time, so even if they had used a different solicitor, it just would not have been practical for them to analyse or understand the documents correctly. That suggests to me that there needs to be a complete overhaul and inquiry into how the scandal was allowed to develop in the first place.

Photo of Lucy Powell Lucy Powell Shadow Secretary of State for Housing, Shadow Secretary of State for Digital, Culture, Media and Sport

My hon. Friend makes an excellent point, and there is a very strong basis for a wider mis-selling scandal inquiry. Many properties are affected: in terms of houses, for which the practice has been particularly egregious, more than 500,000 leasehold houses have been built over the past 10 years. The vast majority of them are in the north-west of England and north Wales, which is why so many colleagues from those areas are here this evening.

The rights to collect the ground rents are bought and sold on the financial markets as steady income streams to investors, while leaseholders get nothing back for—in some cases—thousands of pounds a year. There is hardly a clearer illustration of the damaging pervasive tendency to treat housing as an investment opportunity—as a product to trade on the market—rather than as homes where people live and build their lives around. That should be the basis of housing in this country. We have lost somewhere what housing is: homes, places where we live, where lives are built, where we become successful —or not—and where we bring up a family. Housing is not a commodity to be traded on the financial market. We have seen more starkly than ever over the past two years that housing is also a public health issue, an educational issue, and a work, security and happiness issue, and we should begin to treat it as such.

Although we welcome this Bill, it is a very narrow first step; there are many glaring omissions—measures which could have been included even in such a narrow Bill. First, there is nothing to prevent freeholders from simply transferring their income stream from ground rents to service charges or administration or other charges, as has been highlighted. As shown by the ground rent scandal itself, there is no limit to the ingenuity that some freeholders will draw on to capitalise off the back of leaseholders. Service charges and administration charges are opaque at best, and far too hard to challenge. Will the Minister address that issue later on?

Photo of Mark Tami Mark Tami Opposition Pairing Whip (Commons)

To list just a few examples that I have come across, some leaseholders who—in theory—own a house and the land around it are asked to pay if they want a pet or want to change the flooring in the house or the layout of the garden. People have said to me, “I’m paying a mortgage on a house that I don’t really feel I own.”

Photo of Lucy Powell Lucy Powell Shadow Secretary of State for Housing, Shadow Secretary of State for Digital, Culture, Media and Sport

My right hon. Friend is absolutely right and he gives good examples, some of which I was going to use later. He makes a very good point—some of these charges are outrageous. Will Ministers respond to that and address how we can stop that practice?

Secondly, the millions of people already trapped in leasehold homes will see no benefit whatsoever from the Bill, so none of the examples that we have heard will end as a result of it. The Government have chosen to limit the scope of the Bill to new homes, which means those already facing these bills will see no benefit at all. Delay has real costs for them; the Minister can pass the buck on to us for what happened 11 years ago, but more than 2 million new homeowners have been trapped in this feudal leasehold system since his Government came to power.

The Competition and Markets Authority has done some good work taking down the largest and worst-offending of the freeholders, but we cannot wait for it to take on every single company involved in this outrageous practice. Will the Minister work with us and support our proposal, which we will table in Committee, to protect existing leaseholders?

Thirdly, the Bill does nothing at all to stop new houses being sold as leasehold. Leasehold houses are straightforwardly wrong, for the reasons that we have already heard. At the same time that the Government promised to set ground rents at a peppercorn, which the Bill does, they committed to ending the practice of newly built homes being sold as leasehold.

Half a million houses have been sold as leasehold since 2010, 60% of them in the north-west. Those homeowners face not just exorbitant ground rents but restrictions on how they can alter their homes. We have already heard some examples: if someone wants to have a pet, or if they want to make changes to the building, they have to ask permission. All too often, people are left feeling that they do not really own the home. When the leaseholder tries to escape this nightmare by buying out the freehold, they often discover all kinds of other restrictions that they were not told about when they bought their home. This needs to change.

As recently as 2017, the Government promised legislation to prohibit the granting of new residential long leases on houses. When will that come in, and why is it not included in the Bill? It makes no sense to me whatsoever that that has not made it into the Bill. Again, perhaps Ministers will work with us, and with some of my colleagues who are in the Chamber today, in Committee to end new leaseholds on houses altogether.

There was a lot more that the Government could have done in a simple first-step Bill, but I hope the whole House will recognise that wholesale reform of leasehold is long overdue. The building safety crisis has brought into stark relief how terrible our feudal leasehold laws are. Innocent leaseholders can be passed remediation bills totalling hundreds of thousands of pounds with no right of recourse. It is a David and Goliath situation that is hitting more and more homeowners across the country. Fixing the building safety crisis truly must mean fixing our outdated leasehold laws too.

As the last few years have shown, this is now an urgent task, so we call on the Government to do these simple things when it comes to wider leasehold reform: enable leaseholders to extend the lease or buy the freehold; make commonhold the norm, and make it much easier for properties to operate that way; abolish marriage value, as they promised they would; strengthen leaseholders’ voices and simplify the right to manage; give real teeth and real recourse to the bodies that are supposed to arbitrate and act on behalf of leaseholders, or create new ones altogether; and prevent freeholders in law from passing on extortionate costs for remediation works, or for putting right problems that they have created that are not the problems of the leaseholders, as well as the things that I have already discussed. Those are just some of the reforms that are urgently needed to ensure that no leaseholder is trapped against their will in this broken, outdated system.

In conclusion, the Bill is a tentative attempt at reform. While it is welcome, it represents a massive missed opportunity to transform a leaseholder sector that continues to scam working people on an industrial scale. Even in a slimmed-down Bill, the Government have failed to close loopholes, protect those already in leasehold homes or end the sale of new houses as leasehold altogether. Wholesale reform is urgently needed to ensure that nobody continues to be voiceless, trapped in leasehold homes they cannot sell, and facing ever-growing bills and charges.

Photo of Robert Jenrick Robert Jenrick Conservative, Newark 5:40 pm, 29th November 2021

It will come as no surprise to right hon. and hon. Members to hear that I strongly support the Bill. It would be surprising if I did not, as I was one of the Ministers who instigated it, although stranger things have happened in politics.

I would like to take this opportunity to thank the Minister for his hard work in bringing the Bill to the House, the noble Lord Greenhalgh who has worked extremely hard on this issue for many months, and the fantastic civil servants at the Department who have taken this forward. There is a very strong, albeit very small, team of civil servants who have been beavering away on this issue for many months and will have a lot of work to do ahead of them not just in taking the Bill forward but, perhaps more importantly, in preparing the next Bill, which I will come on to speak about in a moment.

This is an important step on the road to leasehold reform. It is a road that really began with the Leasehold Reform Act 1967, which gave tenants of houses the right to buy their freehold. It then took the next step forward with the Leasehold Reform, Housing and Urban Development Act 1993, which gave leasehold tenants of flats the right, collectively, to buy their freeholds. There was a great deal of opposition, back during the Major Government, to that reform in this House, the House of Lords and from propertied interests, who said that it would be a disaster for the housing market. It was not and those rights have been enjoyed by hundreds of thousands of people pursuing the dream of home ownership across the country. Then the last Labour Government took it forward one further step, with the Commonhold and Leasehold Reform Act 2002, which introduced commonhold, albeit not nearly as successfully as they would have hoped or as I would like to see taken forward in the years ahead.

The destination of those reforms is not just a better situation for leaseholders, but the gradual elimination of leasehold altogether. It is, as some have said here today, essentially a feudal form of tenure: a product of our rich and ancient history as a country, but one that is no longer fit for purpose. It does not exist in any other developed country and it does not, in essence, have a place in a modern society.

The Bill is, as my predecessor as Housing Secretary, the noble Lord Young, said in the House of Lords, the appetiser for the main course. It is a comprehensive piece of legislation to remove more of the iniquities of the present leasehold system, and to pave the way for the wholesale introduction of commonhold.

Photo of Julian Lewis Julian Lewis Chair, Intelligence and Security Committee of Parliament

I am very encouraged to hear that my right hon. Friend is so forward-looking on this matter. May I ask him to explain to the House how one rather backward step took place some months ago, which was the allowing of it to become routine that additional storeys could be added to existing blocks of flats? I have lived through that experience and found not only that it is terrible to have a floor inserted above you, but that when things go horribly wrong with the construction and the company goes bust or winds itself up, it is the leaseholders who have to pay thousands upon thousands of pounds to put right the faults. Would he not like to revisit that change that was made and perhaps suggest that it ought to be looked at again?

Photo of Robert Jenrick Robert Jenrick Conservative, Newark

It would not be for me to revisit that even if we wanted to. The purpose of that legislation, which was supported by many Members, was to deliver more homes—particularly on brownfield sites and in urban areas—as part of the mission of us all to deliver more homes and to tackle the housing crisis, and particularly to enable individual homeowners to build upwards on their home as their household expands, particularly if they have young children or if elderly relatives move into the home. That is an important step forward, but, as with any of these changes, we should keep it under review. If there are common instances of abuse or malpractice, we should see whether there are ways to eliminate them.

Photo of Robert Jenrick Robert Jenrick Conservative, Newark

I will make progress, if my right hon. Friend does not mind.

The Bill was born out of two issues. One is a recent phenomenon, which the Front Benchers and other hon. Members have mentioned: the abuse of leasehold in recent years. A system that was never perfect and that many of us would wish to see reformed was subject to wholesale abuse and rip-off practices by developers and freeholders, who used ground rents as an income stream and escalated them, leaving leaseholders in a perilous position. Leasehold was used for properties for no good reason, purely to benefit from ground rents. We have heard about such examples, and particularly the use of ground rents for houses. It is difficult to see that any house needs to be built as a leasehold property. In different times, I have bought into the argument that there might be exceptional reasons why one would need to build such a home, but it is very difficult to think what those would be. The system is not used in other countries around the world, including in the United States, where there are gated communities, communities for the elderly—all manner of different homes. They are not being built as leasehold properties, so I do not see why they should be in this country.

Photo of Mark Tami Mark Tami Opposition Pairing Whip (Commons)

I agree fully with that point. As the right hon. Gentleman said, this practice had largely gone away. For years, houses were not built as leasehold properties, but in the north-west and in north Wales, a group of builders decided that this would be an extra way of scamming—I use that word deliberately—even more money out of the people buying the properties.

Photo of Robert Jenrick Robert Jenrick Conservative, Newark

The right hon. Gentleman is absolutely right; I do not disagree in any way. The north-west was particularly targeted, for reasons that I do not understand, with tens of thousands of homes built in this manner. It really was disgraceful. It gave leasehold a very bad name and necessitated these changes and others that will be introduced in future. The Bill ends these practices for new properties; that is key. It will ensure that the business model behind ground rents—the creation of such properties as leasehold to benefit commercially—will come to an end. We are already seeing its gradual reduction, and the Bill will lead to its elimination.

I want to address the point that was raised about why the proposals should be extended to retirement properties. As Secretary of State, I came under fierce resistance and lobbying from the retirement property sector. Its lobbyists approached Members of Parliament and my Department and threatened judicial review of our proceedings. I considered it to be an unfair practice, targeted at the most elderly and vulnerable in our society, that in addition to paying their service charge they should pay a ground rent that might escalate at a significant pace. Why not have a fairer and more transparent system where an elderly person knows exactly what they are getting when they pay the purchase price on their property and then when they pay the service charge on an annual basis, instead of receiving two bills every year? I think that is a simple matter of fairness and transparency, and it was the right decision to bring that to an end. We did, however, give a longer period for businesses to transition and to change their business model, which is why that part of the industry will not feel the force of the Bill until 2023.

Photo of Matt Rodda Matt Rodda Shadow Minister (Work and Pensions) (Pensions)

I appreciate the work that the right hon. Gentleman has done to try to get the right balance and stand up for the interests of homeowners rather than large corporations. Does he have any reflection, further to the point made by Dr Lewis, on the knock-on effects of allowing additional storeys to be built on existing blocks of flats? In my experience, there is an exploitation issue both for people who live in flats with top-hatted development—I think that is the word—and for the neighbours. In the area that I represent, there have certainly been a number of problems for neighbours to those blocks. Does Robert Jenrick have any further reflections on that point? If he were still Secretary of State, would he have allowed that development to go ahead?

Photo of Robert Jenrick Robert Jenrick Conservative, Newark

I think it should be kept under review, like any permitted development. As we have seen with past examples, there are always cases at the edges that concern us, and there are usually ways to refine the permitted development over time to ensure that those cases do not happen again. With the permitted development that the hon. Gentleman mentions, I think—from memory —that we ensured that the developer has to work with the local council to ensure that there are not issues with building safety or loss of amenity to the leaseholders in the building, and that the design of the extra storeys is broadly in keeping with the neighbourhood. I certainly think that the issue should be kept under review.

Photo of Robert Jenrick Robert Jenrick Conservative, Newark

I will, but I appreciate that many other hon. Members want to speak.

Photo of Desmond Swayne Desmond Swayne Conservative, New Forest West

As I do!

It would be quite unlawful for the capital cost of the communal areas in a retirement living community to be paid for through an administration charge, so we come back to the question whether it is in the interests of the purchaser to pay a ground rent or to pay the up-front cost in the purchase price. For a category of elderly people, it may well be in their interests to pay the former.

Photo of Robert Jenrick Robert Jenrick Conservative, Newark

My right hon. Friend gets to the nub of the issue. The debate, exactly as he says, was whether it would be better for a retired person looking to move into such a community to pay a somewhat lower purchase price for the property or the share in it that they were taking, and then, for as long as they live there, pay a ground rent, which might escalate at an unfair level, and a service charge. That is not a system that occurs in any other country in the world, including countries such as the United States that are far more advanced in their take-up of retirement properties. I took the view that it would be much fairer and more transparent for an individual to know exactly what they had to pay from the outset: they pay their purchase price and then their service charge, but they do not have to face escalating ground rent. That makes sense to me; I appreciate that there will be differences of opinion, but it was done as a matter of basic fairness.

I make it clear that the reason for the Bill’s very limited scope was to bring an end to unfair practices as quickly as possible. That was the advice of the Law Commission, which said that it was better to have a two-step process so that the iniquity of escalating ground rents could be brought to a close, and then we could move on to the much more complex piece of legislation that will inevitably take the Department and Parliament a great deal of time to prepare and pass. I think that that was probably the best way to proceed.

Two further points emerge as a postscript to the events of the past few years. First, as my right hon. Friend Sir Desmond Swayne said, we need to think about the conveyancing solicitors who gave or failed to give advice in the process of house sales. They failed in their duty to their clients: many constituents have come to my surgeries who were oblivious about the homes that they were buying. That applies not only in the situation we have discussed, but with respect to management fees, which may be very high or—as Mark Tami mentioned—may involve charges, for example for putting up a satellite dish, building a conservatory and so on. Conveyancing solicitors need to take much greater care to bring such matters to the attention of their clients.

Secondly, the work of the Competition and Markets Authority must move forward at pace. It has already ensured that some of the major developers have settled, but I encourage all developers behind the sale of these properties, many of which they mis-sold to members of the public, to do the decent thing—the inevitable thing—and settle, so that the purchasers get some compensation for the issues that they have faced. I see that many are on the cusp of doing that, but I hope that the remaining ones will do so quickly.

I also hope that the Government will ensure that the second Bill features in the next Queen’s Speech and is delivered early in that Session. There is, as I have said, a great deal of work for the Department to do in preparing that Bill and ensuring that it is sufficiently comprehensive, but I think it extremely important that it does so, and that within the course of this Parliament we deliver comprehensive reform to leasehold. It should include 990-year leases, a simpler, cheaper enfranchisement process, ending marriage value, improving the position of leaseholders in the management of buildings, and ending—as has already been suggested—the building and selling of new houses as leasehold, because there really is no justification for that.

Finally, I hope that that Bill will look to the destination of a world beyond leasehold. That is the end point towards which we must work. I established the Commonhold Council to see how we could chart that course, and it seems to me that all the complex issues that are raised are surmountable—that is the evidence from the council so far. It also seems to me that commonhold will never take shape to any substantial degree in this country without a major Government intervention, which means indicating that it is our tenure of preference, or setting an end date for new leasehold properties. I favour the latter: I think we should say clearly that, beyond a certain date, no property, whether it be a flat or a house, should be built unless it is commonhold. I hope that the Bill to be introduced in the next Session will set that course, because I think it would be an important step towards ending a feudal system and helping us to move forward as a country.

Photo of Justin Madders Justin Madders Shadow Minister (Health and Social Care) 5:56 pm, 29th November 2021

Let me first put it on record that, alongside the hon. Members for Worthing West (Sir Peter Bottomley) and for St Albans (Daisy Cooper), l am a co-chair of the all-party parliamentary group on leasehold and commonhold reform. The group is assisted by the Leasehold Knowledge Partnership, which has been campaigning for many years for the kind of reform that we are debating today.

We might have expected the Bill to be a cause for celebration, and indeed any legislation that puts another nail in the coffin of leasehold is to be welcomed, but we are left with a feeling that it is a rather modest measure. Given that it took four years for us to reach this point, it seems that we are making glacial progress. Perhaps four years is not much in comparison with 1,000 years of leasehold, but for those who are still trapped in unsellable or seriously devalued homes because of the leases they signed, progress is not being made quickly enough.

I am not generally a fan of market-based solutions—the market is responsible for most of the egregious injustices that we have seen in leasehold—but, to a significant extent, the market has already moved away from imposing ground rents for most houses, not because those who concocted the leasehold scandal have had a prick of conscience but because a spotlight has been shone on the devastating consequences of their sharp practice. In that respect, I pay tribute to the fantastic work of the National Leasehold Campaign, which has done more than just about anyone to bring the unfairness of leasehold to the public’s attention. It is an irony that those campaigners do not stand to benefit from the Bill because, as has been pointed out already, it does nothing to tackle the existing problems. That said, however, their influence has already benefited my constituents and many others.

A new Redrow estate not far from where I live originally had properties being sold on a leasehold basis. After some pretty determined campaigning from the National Leasehold Campaign, Redrow decided to stop the sale of homes in the second phase as leasehold, but unfortunately not before several hundred people had already bought their homes as leasehold. To be fair to Redrow, I should add that it did then offer them the opportunity to purchase the freehold after two years, although it was a little unfortunate, to say the least, when it subsequently lowered the purchase price for the freehold again, creating another unfairness. While I give Redrow credit for stepping back and weaning itself off the leasehold drug, that should not obscure the fact that all this could have been avoided had it not sold the properties as leasehold in the first place. That takes me back to the basic concern that remains with the Bill, which is that it enshrines in law a two-tier system of home ownership when really we should be ending it altogether.

Very few new houses are now being sold as leasehold, but around 1.5 million houses will remain leasehold after this Bill becomes law. Is there a risk that choking off income streams from those who see other people’s homes as an investment will cause them to turn their attention to redoubling their efforts to squeeze as much as they can out of the existing properties? A number of Members have already mentioned that, and I will return to it later.

Turning to the details of the Bill, I know that a lot of consideration has been given to how we define a ground rent. That debate is instructive, because how can a payment for which nothing is received in return be considered a proper legal payment? The short answer is that it cannot, and I believe that that is another reason to abolish leasehold altogether. The reality is that ground rent is a legal fiction and a method of maintaining control and securing an income for which the recipient is required to do precisely nothing.

It is therefore disappointing that lease extensions for houses are exempt from the Bill, because there is significant concern that freeholders will put in massive multipliers when offering informal lease extensions, just to make the premium look lower and more attractive. They would then make their money back through allowing the ground rents to continue. Let us not forget that both parties do not have equal bargaining power. This all just adds weight to the argument that what we have here is a minor change that will help people in the future, when what we really need to do is to deal with the injustices of the present, and the best way to do that is of course to abolish leasehold altogether.

As I said earlier, we also need to keep an eye on whether those who have been involved in the systematic deception and mis-selling change their sights to deal with the new environment that the Bill represents. They have not gone away, those offshore accounts, those trust funds and those private equity investors who see people’s homes as an opportunity to cream off the cash long after the people living in them think that they have bought them. In particular, we have to keep a close eye on estate management companies, because that is one area in which charges could easily be inflated to more than cover the loss of a ground rent.

Photo of Matt Rodda Matt Rodda Shadow Minister (Work and Pensions) (Pensions)

My hon. Friend is making an important speech and he has hit on a number of central issues, particularly when dealing with his own legal experience of these dysfunctional markets where on the one hand we have developers with enormous financial power and legal resources and on the other we have humble first-time buyers. Does he agree that there needs to be a rebalancing, with far greater protection for first-time buyers and ordinary householders, and with a much greater attempt by the Government to hold these large developers to account?

Photo of Justin Madders Justin Madders Shadow Minister (Health and Social Care)

My hon. Friend makes an interesting point. There is clearly an imbalance. We have already talked about how some enthusiastic first-time buyers who just want to get into their new homes put their trust in the people who have been assigned to deliver the legal niceties such as putting a value on the property and doing the conveyancing. They put their trust in those people, and sometimes that trust is betrayed through the egregious injustices that we have talked about.

Photo of Mark Tami Mark Tami Opposition Pairing Whip (Commons)

My hon. Friend has mentioned management fees, which I see as the next scandal coming down the road. People who bought their properties and were being charged perhaps £100 or £200 a year will have thought that that was okay, but that might now have gone up to £500 or £600 and there are often additional charges because, for example, fences or certain parts of the ground are not covered. People have told me that they feel they are paying their council tax twice. That is how they see it, and it is totally unfair.

Photo of Justin Madders Justin Madders Shadow Minister (Health and Social Care)

I thank my right hon. Friend and neighbour for his intervention, which leads me beautifully into the next section of my speech, in which I shall talk about exactly that.

I will never accept that it is right for developers to choose not to pay a sum to councils to adopt the communal areas, and that they instead save themselves money by passing on that cost to the homeowners and then make even more money from the homeowners by charging them for things that ought to be coming out of their council tax. Like my right hon. Friend, I worry that this trend will be accelerated because the ground rent gravy train is coming to an end, and that we will hear more and more stories of homeowners having no choice but to pay inflated annual service charges that, given the choice, they would prefer to pay through their council tax.

Photo of Kevin Hollinrake Kevin Hollinrake Conservative, Thirsk and Malton

The hon. Gentleman is making a good point about what is referred to as “fleecehold.” Does he agree it is entirely within the gift of the local authority to require the development to be made to adoptable standards in terms of roads and drainage, for example? It can then be adopted by the local authority, so people do not have to pay twice for such services.

Photo of Justin Madders Justin Madders Shadow Minister (Health and Social Care)

That is a fair point in theory, but I find it does not happen in practice. I have estates in my constituency that were built a dozen years ago and still have not been adopted because the developers have not put them up to the required standard. The to and fro never ends, because the developers have left town and they have no interest or incentive to bring those areas up to the adoptable standard.

Photo of Chris Matheson Chris Matheson Shadow Minister (Digital, Culture, Media and Sport)

I am grateful for the advice my hon. Friend has given to me and my constituents on this matter, as he is a neighbouring MP with particular expertise. He will be aware of one estate in my constituency that has been parcelled up and given to different developers, and it has been developed at different times. Not only do we have a problem with the local authority, but he will recall that we have a problem with different developers playing themselves off against each other in order not to bring the estate up to standard, as Kevin Hollinrake suggests.

Photo of Justin Madders Justin Madders Shadow Minister (Health and Social Care)

My hon. Friend and constituency neighbour makes the point well. It all points to the lack of capacity in local authorities to tackle these issues. I do not want to make a party political point, but we have had a decade of austerity and we are now seeing the consequences in how local authorities police these things.

I would like to see a crackdown on unfair fees and contract terms by having an enforceable list of what are considered to be reasonable charges. We should require transparency on those charges and give leaseholders the right to challenge rip-off fees and poor performance. We should also try to ensure that residents are given greater powers to take over the management of their homes, if that is where we are going.

As my hon. Friend Christian Matheson said, I do not want to be standing here in a few years’ time talking about another PPI for the house-building industry because the Government have once again failed to act on the warning signs that are there for us all to see.

This Bill must be promptly followed with the promised wider leasehold reforms, particularly the promised reforms for which we have been crying out that will enable leaseholders to buy their freehold quicker, easier and cheaper. I have had a private Member’s Bill ready to go for three years that would allow us to do just that. It could have already become law if there had been the will to take on the freeholder interests that would lose out as a result.

I have now got the message that my Bill will not find favour with the Government. I am aware the Bill would not have meant an end to leasehold, but it would at least have given the victims of this industrial-scale con an opportunity to take back control of their property at an affordable price. I thought this Government were all about taking back control. Do they not realise that leaseholders do not have control?

What is stopping firmer action being taken against freeholders? I know there are legal opinions floating about on freeholders’ human rights, but what about my constituents’ human rights? Do they not have the right to live in their own home without someone else trying to make it into a cash cow? Do they not have the right to expect that the biggest purchase they ever make will be done fairly and will be properly regulated? Do they not have the right to have a Government who are serious about stopping the industrial-scale foul play we have talked about tonight?

It is disappointing that, although on the one hand the Government accept that unfair practices in the leasehold market can turn people’s home-ownership dreams “into a nightmare,” we are still waiting for action for the many leaseholders who have been trapped in this web that they did not sign up to. We have made it clear that there are a number of reasons why they have found themselves in this position, not all of which are resolved by the Bill.

We know that one in three houses sold in the north-west in the past 10 years is leasehold, and those people will not benefit from the Bill. My constituents and my hon. Friend’s constituents have been disproportionately affected by the leasehold scandal, and they are still waiting for something that will help. If we are to talk about levelling up in this place, we should be looking at something like that as it will deliver true justice, fairness and levelling up.

We need some clear timescales from the Minister for when existing leaseholders can expect to see action on their concerns. What commitments can they expect? I think we all agree that what has happened is unfair and a significant injustice, but when are we going to see action to put things right for existing leaseholders? Sajid Javid, when he was Communities Secretary, promised an outright ban on leasehold for all houses four years ago. That is four years of people being trapped in homes that they cannot sell because of onerous ground rents, and four years of stress and uncertainty about whether they should try to buy their freeholds now or wait until the law is reformed. I get asked regularly, “What should I do? Should I wait until the law changes?” It is very difficult to give an answer on that because we still have no clarity on when that law will be changed. So let us end four years of jam tomorrow. Let us deliver solutions for leaseholders today. Let us stand up to the vested interests and please, finally, abolish leasehold.

Photo of Desmond Swayne Desmond Swayne Conservative, New Forest West 6:10 pm, 29th November 2021

I have had the nub of my argument with my right hon. Friend Robert Jenrick, but it comes down to this: the retirement living industry’s business model funds the capital requirement for the communal areas through a flow of future ground rents from the outset. The Minister said that he has given the industry time to change its business model. My answer to that is: if there was a problem with an escalating ground rent, it would be perfectly appropriate to have dealt in a measure such as this with that specific problem, rather than telling the industry to change its entire model. Nevertheless, this is where we are.

The business model must therefore have changed by 1 April 2023. The difficulty is with the time it takes to sell properties in the retirement living sector. The industry’s estimate is that some 4,000 apartments will remain unsold in part-sold developments. If someone was to complete on one of those properties on 1 April, they would be paying all the capital costs up front, whereas someone who had completed on 31 March would be expecting to pay a ground rent for the remainder of their tenure. That creates a huge legal confusion and a sense of injustice among the tenants in those properties. So I put a solution to the Minister: a technical amendment to the Bill to enable part-sold developments to continue to sell the unsold properties with a ground rent, provided those properties were built when it was lawful to charge a ground rent. That strikes me as proportionate. We are not dealing with a huge problem or a huge number of properties, but with some 4,000. My proposal seeks to avoid the confusion and difficulty that would arise with two different types of tenures in the same development. That seems a not unreasonable thing to ask Ministers to consider in Committee and on Report.

Photo of Matt Rodda Matt Rodda Shadow Minister (Work and Pensions) (Pensions) 6:13 pm, 29th November 2021

It is a pleasure to speak in tonight’s debate. I wish not only to address a number of issues that colleagues have raised, but to add in further details that I hope are particular to my constituency but fear may be common around the country.

First, I wish to support the points raised by my hon. Friend Lucy Powell. Obviously, I welcome this Bill, which will help, but the broader point about the deep inequities of leasehold still stands true and we should be moving much faster on this important matter, trying to remove leasehold from the system of ownership in this country. Is it not incredible that the UK still has this medieval system of ownership, which, as has been mentioned, so discriminates against first-time buyers, people on lower incomes, older people and many other groups, which in many ways deserve more support and encouragement to get on to the property ladder? They deserve not to have their lives blighted by what is, sadly, sometimes the behaviour of irresponsible developers. I am not saying that all developers are irresponsible, but Members have clearly highlighted some awful and appalling examples of behaviour.

First, Loddon Park is a pleasant development on the edge of Woodley, a suburb of Reading. It is a relatively new and really quite beautiful development, with many attractive homes. The homes are freehold properties but some of the shared areas in the large development are subject to charges. In many ways, the sort of problems described so eloquently by my hon. Friend Justin Madders are also occurring for those at Loddon Park—several hundred people living in an attractive new development on the edge of an urban area in the south-east of England. The residents potentially face unlimited extra costs for the maintenance of some attractive grounds—including meadow areas, large ponds and other areas where children can play—because no cap was written into the charging policy and they did not realise that when they bought their properties.

As explained earlier by my hon. Friends the Members for Ellesmere Port and Neston and for City of Chester (Christian Matheson), as well as other colleagues, some of the first-time buyers we are talking about are unfortunately not always aware of some of the difficulties into which they might get themselves. There is an unequal situation in which on the one hand there are powerful and articulate developers with an excellent team of lawyers and on the other hand there are first-time buyers. That is deeply unfair. In this case, young families face potentially unlimited additional costs to pay for the upkeep of the rather attractive communal areas around their houses. That is very sad and deeply unfair. I respect the fact that the local authority had difficulties in trying to provide the properties, but I wish it had been more careful. There is also an element of involvement from Wokingham Borough Council, which is the local authority involved. Will the Minister look into that issue? I will write to him to explain the situation and ask for his help and support.

Before I mention another egregious example from the Reading East constituency, I offer my support to colleagues who have mentioned the issue of snagging and the problems with developers that prevent the adoption of roads. I know of cases in both Reading borough and Wokingham borough in which different developers have started to build a new estate and completed all the properties, which have been sold, but the roads, street lighting and other services have not been properly completed. Although the issue has gone on for years, there has been an ongoing tussle—similar to what Kevin Hollinrake mentioned—between council officers and developers. It has been deeply problematic for local authorities, which often have low levels of resource in their planning departments so are not well equipped to argue the case.

Photo of Mark Tami Mark Tami Opposition Pairing Whip (Commons)

I totally agree with my hon. Friend. Quite often, the moment the developers sell the last property, that is it: they are not interested any more. They are not interested in snagging or doing the roads; they are off to build somewhere else. The problem is that, as my hon. Friend was saying, local authorities do not have the money to chase these people. In my opinion, if they do not finish an estate—what they were allowed to do under the planning permission—they should not be granted permission again to build anything else.

Photo of Matt Rodda Matt Rodda Shadow Minister (Work and Pensions) (Pensions)

My right hon. Friend makes an excellent point. There should be much stricter rules on this issue, because such sharp practice by developers helps no one. It does not help the building industry as whole, homeowners, local authorities or, indeed, other businesses that have to operate. In one estate near me, drivers can feel the difference as they drive on to the unadopted piece of road because their vehicle goes over a huge bump. That is not good for anyone, including many of the small businesses that have to deliver to that estate. It is surely in everybody’s interests, including those of the wider building industry, to get on with it and come up with a clear, simple and fair solution to the problem so that we can all move on and not spend vast amounts of unnecessary energy chasing after developers to sort out problems such as lamp posts that do not work or roads that have not been finished off.

I wish to address a specific issue that relates to a social housing enterprise in my constituency that operates across large parts of Berkshire. I have been deeply disappointed by Housing Solutions and ask for the Minister’s help. This organisation appears to have badly let down a number of residents in Woodley, the Reading suburb I mentioned earlier. It applied for planning permission to build properties next to a transport depot, where there are a lot of heavy goods vehicle movements, and on an industrial estate. The properties have been sold in a part-ownership scheme to local residents who were desperate to get on the housing ladder and were finding it quite difficult because they are on modest incomes. The local authority gave planning permission and carried out all the relevant checks—again, this is Wokingham Borough Council not Reading Borough Council. There was nothing in planning law to stop these flats from being built next to a haulage yard. The local authority looked into it and it was not able to reject the plans on that basis—on the basis that the flats were close to a noisy and polluting business. However, it did try to insist on conditions on the development. Sadly, though, it appears from lengthy inquiries from my office and also from one of the local councillors—Councillor Shirley Boyt—that these conditions have not been met. Residents, including a constituent of mine, Elise Maslen, who lives in the development, were not told of the additional changes that would need to be made to these properties—in particular, the need to adapt to air quality problems, such as mechanical ventilation and other forms of enhancements to the properties. They were also not told about the noise and pollution from the depot when they purchased the properties. That has resulted in around 20 families being trapped in flats that they do not want to be in, suffering from noise and air pollution.

The local authority has tried to find a way of bringing these properties up to spec. It has insisted on Housing Solutions doing that, but there has been a great deal of delay. This has gone on for five or six years. Sadly, some of the residents have moved away and are now having to pay for the cost of living in these properties while also living at a new address. They are deeply concerned about the health of their children and of themselves. This seems to be an egregious abuse of the situation. While it is not directly related to leaseholders, it has many of the same features, with powerful organisations, sadly, abusing their position of power and ordinary householders struggling and being provided with incorrect information. I wish to write to the Minister to ask for his help on this matter because it is of huge concern to me, to the local community and to the residents concerned. They have been treated appallingly by the housing association.

Photo of Matt Western Matt Western Shadow Minister (Education)

My hon. Friend is making some incredibly important points. I have parallels in my constituency, as I am sure do other Members across the House. In one example, we have a managing company, a massive social housing provider and a partnership scheme, as he describes it, and the builder. It is a big organisation, but there is no overall ownership of the issues. Residents get utterly frustrated—I am thinking about Ellie, Matt, Sarah and others. There are 200 of them in this one development and they cannot get answers from anybody because no one is really taking ownership of the problem.

Photo of Matt Rodda Matt Rodda Shadow Minister (Work and Pensions) (Pensions)

I thank my hon. Friend for his intervention, because he shows that there is a wider issue with this type of behaviour. It is deeply worrying. These are ordinary families trying to get on with their daily lives. They want to be able to find a home of their own in a high-cost area and they are being treated in the most appalling way by an organisation that should be much more responsible. As I have said, I, my office and local councillors have been struggling to find a way of solving this problem, but we have not had much success so far and would appreciate the Minister’s help. We hope that, at some point, Housing Solutions will compensate these poor residents for the way that they have been treated and, indeed, buy them out of their properties if possible. It is absolutely appalling to live next to a haulage yard. People are constantly interrupted by noise from HGVs, driving past at all hours of the day and night. The air pollution from diesel particulates and nitrous oxide is deeply worrying. There is no way of protecting children and other vulnerable people in that situation. I am sure the whole House would agree that no one wants that for their constituents. There is also an issue with planning law that needs to be addressed, by which I mean looking at the risks from air pollution and from putting housing in close proximity to an industrial development. I would appreciate the Minister’s help with that.

Finally, let me reiterate the points made by other colleagues about the wider issue of leasehold, which is a completely out-of-date system and totally unfair to first-time buyers and other householders—whether they be young residents, people in leasehold properties for long periods of time, or, as Sir Desmond Swayne said, older residents. This system should come to an end. It is a feudal system. Our country is unique in having such a system. Surely we need to end it once and for all and move on from it.

Photo of Theresa Villiers Theresa Villiers Conservative, Chipping Barnet 6:24 pm, 29th November 2021

I refer to my declaration in the Register of Members’ Financial Interests, which includes an investment property that is a flat held on leasehold.

I join other Members in strongly condemning the abusive practices that have prompted this legislation, including the sale of new leasehold houses where there is no justification, and spiralling ground rents that double every few years. All the rip-off practices about which we have heard in the Chamber this evening are simply not acceptable. I, like others, very much welcome the investigation initiated by the Competition and Markets Authority into some of the major developers in relation to unfair contract terms and what looks like mis-selling.

It is clearly right to legislate to stop sharp practices in the leasehold sector. It is also correct not to apply the ban on ground rents to existing leases, as that would retrospectively impact on long-standing investments, many of which are held by pension funds that support millions of people in their retirement. Instead, the Government will be helping existing leaseholders by making it easier to enfranchise or buy themselves out of ground rent obligations, and through their second-stage reforms.

As the Bill proceeds through Parliament, we need—as I said in my intervention earlier—to consider the retirement homes sector, where, as we have heard, ground rents are often being used to generate the capital to fund communal areas and shared facilities. Including retirement homes in the ban could affect future investment in this type of much-needed housing. As my right hon. Friend Sir Desmond Swayne said, there is a case for considering a technical change to the Bill so that at least the retirement homes built but not sold prior to the commencement of the Act in 2023 are covered by the current rules, rather than the new ones.

A second potential alteration that should be looked at carefully is whether to allow the continued use of ground rents for some large, complex apartment blocks. This matter has been raised with me by a constituent who is worried that the exit of professional freeholders from the market, which is the expected consequence of abolishing ground rents, will leave leaseholders moving into such buildings with extensive financial and legal responsibilities. These complexities are intensified if there is mixed residential and business use.

The Housing, Communities and Local Government Committee acknowledged this issue in its 2019 report and advocated at least a temporary exemption for large, mixed-use buildings. If this carve-out were made, there would need to be a robust code of conduct to ensure that the remaining freeholders acted fairly. Violation of such a code should be subject to enforcement mechanisms. Having spoken to my constituent and his colleagues in the professional property sector, I think we need seriously to consider whether some leaseholders in some new blocks might want to have the option of leaving stewardship of their block to a professional freeholder.

Photo of Kevin Hollinrake Kevin Hollinrake Conservative, Thirsk and Malton

My right hon. Friend is making an important point. Would the code of conduct to which she refers—for those kinds of complex developments—include a cap on ground rents of, say, £100 or 0.1% of the value, whichever was lower, to ensure that the ground rent was always affordable?

Photo of Theresa Villiers Theresa Villiers Conservative, Chipping Barnet

We would certainly need a cap, and the sort of levels that my hon. Friend mentions sound reasonable to me.

Let me turn to how this legislation will interact with new building safety laws. New building safety legislation will impose stringent responsibilities on freeholders, whether they are professionals or just flat owners who are banded together to manage their building. Frankly, not all leaseholders will want to take on such liabilities, yet this Bill will mean that for new flats, residents—whether they want this or not—will be jointly responsible for the safety, maintenance and upkeep of the apartment buildings in which they live, regardless of the size or complexity of those buildings. As my hon. Friend Kevin Hollinrake highlighted in his earlier intervention, worrying research in a 2019 report commissioned by the Royal Institution of Chartered Surveyors and Built Environment Forum Scotland indicates that the removal of professional freeholders in Scotland has contributed to buildings falling into disrepair. A key problem that has been identified is that difficulties in securing a majority agreement among leaseholders and getting all flat owners to fund the repair works needed can significantly slow down remedial work, and that pushes up costs.

Photo of Matt Rodda Matt Rodda Shadow Minister (Work and Pensions) (Pensions)

I appreciate that the right hon. Lady wishes to make a point about the importance of shared ownership and the difficulties of managing the shared parts of a large block of flats. Has she looked into the way that this issue is managed in other countries, given that all western countries other than the UK do not have the leasehold system? Surely there are ways to manage communal areas other than by maintaining leasehold, which involves all the difficulties that we have heard about.

Photo of Theresa Villiers Theresa Villiers Conservative, Chipping Barnet

The fact that English property law is unique does not necessarily mean that it is wrong, but I acknowledge that it is important to look at how other countries manage these issues. That is partly why it is instructive to look at what has happened north of the border. Of course, Scotland has a different legal system. Leasehold and commonhold have been a fundamental part of its system for a long time, and it seems that, in some instances, that is making it more difficult to keep buildings in a decent state of repair.

This is a very important Bill, but it needs careful scrutiny if we are to ensure that it protects leaseholders effectively from abusive and unscrupulous practices, operates fairly and avoids unintended negative consequences for the very people whom it was designed to protect.

Photo of Stephen Hammond Stephen Hammond Conservative, Wimbledon 6:31 pm, 29th November 2021

Let me say to my hon. Friend the Minister how much I think everyone across this House supports his aim—I certainly do—of getting rid of some of the egregious behaviour that we have seen in the market in the past five years. That behaviour undermines the work done by those professional freeholders who have done a good job for leaseholders for many years.

We are right to look at the whole process of leasehold. My right hon. Friend Robert Jenrick described this Bill as the appetiser before the main course. A lot of us will welcome the main course, in which we can look at making it easier for leaseholders to extend their leases through simplification of the extension process, which I assume will come in that very complex Bill. Justin Madders was right to say that although progress has been not as fast as many would have liked, it is coming. I warmly welcome that.

This Bill is fairly tightly drawn: it is very much about the ground rents on future leases. I make only four points, and I would like those on the Treasury Bench to respond to them. First, a practical point: while we all welcome and recognise the work done by the Competition and Markets Authority, it is missing half the problem. On the many people who may or may not have been instructed to use solicitors recommended by the developer or their agents, those solicitors had an obligation and a duty to the client purchasing the property, for whom they were working. I strongly advise Ministers to talk to the Solicitors Regulation Authority about whether this should be looked at as a corollary of the work being done by the Competition and Markets Authority.

Secondly, I heard what the Minister said about doing away with ground rent and moving to a peppercorn that will not have to be paid. What I am not clear about—perhaps if I am on the Committee, we can explore this a bit more—is why anyone would not just transfer all the increase in ground rent to other charges. He said that there are protections in progress, but some of those will be really difficult to establish. We have talked about “excessive” admin charges, repair charges and service charges; I think that will be quite difficult for the Minister to define, and I look forward to exploring that with him. If I am not on the Committee, I hope he will meet me to talk about how we might make sure that that is more tightly defined.

My third and fourth points have already largely been made by my right hon. Friend Theresa Villiers. If ground rents are taken to a peppercorn, freeholders are unlikely to want to be involved, so we will move to a system of commonhold in reality, rather than by legislation. That raises two issues. The first is: who will manage the blocks of flats, and how will that come into place? Matt Rodda mentioned that there are systems in other countries, but in complex buildings—those large buildings with mixed use underneath, or large-scale blocks of flats—a number of people will not want to actively participate in the management of that building; nor will it necessarily always be possible to bring them to resolution and agreement with the rest of the commonholders. For things to work, there may have to be an obligation on the commonholders to have a management company; otherwise, a number of repairs simply may not happen. My right hon. Friend the Member for Chipping Barnet talked about Scotland a moment ago.

My other major concern is this: if that provision is not there, and we no longer have professional managing agents or freeholders, who will ensure future building safety? I am interested to hear how the Minister intends to protect complex buildings. Commonhold can easily be seen to work in smaller buildings, but there is real concern about buildings over 18 metres and large buildings. If safety standards change in the future, who will force through building safety measures? I am keen to hear a response to that from my right hon. Friend Christopher Pincher.

Photo of Jane Hunt Jane Hunt Conservative, Loughborough 6:36 pm, 29th November 2021

I am delighted to speak in support of this Bill. I have one or two points to raise, but in general this is an excellent Bill.

For too long, many of my constituents who have realised their dream of owning their own home have been trapped in a cycle of cumbersome bureaucracy and additional, unnecessary and, frankly, unfair expenses in the form of both ground rent and service charges. Since becoming an MP, I have supported a number of these constituents, some of whom have told me that they were not clearly informed about the additional costs they were signing up to when buying their house—costs that have caused significant stress and hardship. I had hoped to provide an example, but unfortunately, all the cases are currently undergoing legal action, which only reinforces my point that change is necessary. I therefore welcome the Bill, which seeks to end these unfair practices.

Photo of Matt Western Matt Western Shadow Minister (Education)

I share a lot of the hon. Lady’s concerns about what her constituents are experiencing. Many thousands of new homes are being built, and constituents are frustrated and surprised when they discover that they have just bought a leasehold house. We understand that a third of leasehold properties are typically houses. Does she agree that where houses have been built as leasehold, surely the simplest thing would be to make them all freehold, and to get agreement with all the developers to reduce the cost of transfer?

Photo of Jane Hunt Jane Hunt Conservative, Loughborough

I wonder whether that is part of the main course that is coming up. I am not sure; we will see, I suppose.

I think I got the same memo as my right hon. Friends the Members for Chipping Barnet (Theresa Villiers), and for New Forest East (Dr Lewis), as I am going to talk about retirement homes for a moment. I draw the Minister’s attention to an issue I have previously raised with him. I have been contacted by a leading developer and manager of retirement communities, which has recently completed Mill Gardens and Farnham House retirement living in my constituency. McCarthy and Stone is concerned about the impact the Bill could have on the retirement sector, following the decision not to provide it with a concession from the ban on ground rents. While it is welcome that the Bill provides for a short transition period, it does not take into account developments that were in the pipeline before the position changed, and the impact that the provisions will have on schemes that will be part-sold when the legislation comes into force.

The proposals are likely to mean that retirement developments on which building started when ground rents were expressly permitted will find themselves split, with two lease structures operating in the same building. That is likely to cause legal complexity and on-site management issues, and to complicate future apartment transactions. It could throw into doubt the financial sustainability of some communities, on the basis that the collective ground rent income on which a development’s funding was predicated will be substantially reduced, even though the development has already been built.

Furthermore, financial contributions to the development costs of communal areas, which were previously shared transparently and equitably, will become complicated, and that risks a sense of unfairness and disunity arising between residents in the same block. I wonder, therefore, whether a modest technical change could be made to the Bill to allow for developments already part-sold to complete sales, so that all apartments operate on the same basis.

I heard the points made by my right hon. Friend Robert Jenrick, the previous Secretary of State, on retirement homes and wonder whether a longer transition period for retirement homes would be better than one ending in 2023. That said, it cannot be right for buyers of new properties to face further financial demands for ground rent. House buying must be made fairer and more transparent, and freeholders and landlords must not be able to continue to amass significant profits from ground rent and, indeed, administration charges to the detriment of homeowners. The Bill is therefore an incredibly important piece of legislation that I wholeheartedly support.

Photo of Kevin Hollinrake Kevin Hollinrake Conservative, Thirsk and Malton 6:41 pm, 29th November 2021

It is a pleasure to speak after my former colleague in the Cabinet Office, my hon. Friend Jane Hunt. She made some good points, not least on part-built developments. I support the Bill’s intent.

There is an expression that you should never take down a fence until you know why it was put there. As I set out in my intervention, I have one or two particular concerns. I draw the House’s attention to my entry in the Register of Members’ Financial Interests. I have been involved in the property sector for a long time. I am not directly involved in it today and I have no vested interest—that is for the people who make comments on Twitter in particular, because I will not agree entirely with many of the points made about completely scrapping leasehold, in effect. I am actually a leaseholder, rather than a freeholder, in this context.

On the leasehold system, for most of my life, when it comes to selling and renting property, leasehold has been a perfectly workable form of tenure for most people—for most leaseholders and indeed freeholders. In recent years, there is no doubt that the system has been tremendously badly abused. It is right of the Government to act on that in no uncertain terms. However, the fence to which I referred is between freeholders and leaseholders, and it was put there to try to ensure a proper mechanism for resolving disputes. That is why we ended up with a professional landlord who had an overall interest in an entire block, rather than in a specific unit in that block. The Bill will in effect remove any interest that a professional landlord would have in a future block. My hon. Friend Stephen Hammond is therefore right that the default will become commonhold.

On freehold, in my formative years of selling property in York, most flats were leasehold, and those flats were perfectly saleable and rentable. However, if ever we came across a development of freehold flats—a block where all the owners were freeholders, or commonholders, in modern-day parlance—we found that those properties were almost impossible to sell. In fact, mortgage lenders would not lend on them because of concerns about maintenance. If there was not a method to ensure that the building was maintained or that its insurance continued, the building might fall into disrepair and the lender’s security over the property would not be sufficient to cover the mortgage. That is the concern we potentially have here, as we move to this system of commonhold. I think commonhold can work for quite a number of flats—most blocks of flats, indeed—if it is simple and easy to operate.

However, commonhold is far and away not, in any shape or form, a panacea. We can see that from the current experience. There are some effective leasehold or commonhold ways of managing blocks, with residential management companies or right to manage agreements, where in effect the leaseholders manage the block and take on the responsibility of a freeholder. However, there are disputes within such blocks or organisations. The trouble with the commonhold rules—as I understand it, and the Minister may tell me differently—is that each commonholder has the right to raise their own dispute regarding the particular property, and I do not think there is any clear means of resolving such a dispute.

Previously, in a leasehold agreement, the freeholder would have been able to say, “This is what is actually going to happen. These are the terms of the lease, and these are the terms of the lease that you must adhere to.” A simple example of that is the payment of insurance. As I am sure most Members in this debate will know, in a leasehold agreement the freeholder will normally arrange the buildings insurance for the entire block, which obviously covers communal areas, as well as things such as the roof. That would be the responsibility of the freeholder, who would pass on the costs to each individual leaseholder in proportion. If one leaseholder decides not to pay the insurance, the freeholder can say, “Well, you must pay the insurance”, and they can actually carry out debt collection on that leaseholder. If it is an absentee leaseholder, they can go even further: ultimately, they could disenfranchise that leaseholder completely, and take the apartment back from the leaseholder.

I know that that has been used in some draconian ways in leasehold, but generally there is a mechanism that makes sure everybody in the block pays a fair amount for maintenance and things such as the insurance, but I am not sure how that happens in commonhold. If somebody stops paying for their particular element of responsibility for the charges, I do not think there is any such mechanism. The others could take that person to court, but again, the problem is that the fellow residents—fellow commonholders—in that block would have to take one of their own residents to court, instead of a freeholder doing so who does not have a cheek-by-jowl relationship with the resident.

This is why I think we have some of the maintenance issues in Scotland, and in Scotland there are some big maintenance issues, as my right hon. Friend Theresa Villiers mentioned. The hon. Member for Reading West asked about other jurisdictions. Australia has a very similar system, which I think is called the strata system. There are issues there about the recruitment of people to sit on the management boards, with 37% of companies expressing difficulties in recruiting residents to sit on these management boards.

Photo of Matt Rodda Matt Rodda Shadow Minister (Work and Pensions) (Pensions)

I absolutely appreciate the difficulties that the hon. Gentleman is outlining, including indeed in relation to my constituency. I should say that my constituency is Reading East; Reading West is the COP26 President’s. In Reading and Woodley, which I represent, there are a number of private roads and other shared facilities where residents come together and share the ownership of assets. Certainly in my experience as the local MP and previously as a councillor, that can be done quite effectively. I do appreciate that there may be issues with very large blocks, and the point I was making to the right hon. Lady from Chipping Campden—[Interruption.] Sorry, I mean Theresa Villiers; there are various interesting places around the country that we come from today. The point I was making is that we really should look at the wide range of jurisdictions overseas and try to work through some models of what is most appropriate in each given set of circumstances.

However, it is possible to bring residents together. Certainly, that is my experience locally, and in the example of shared private roads, that has been extremely successful. We have a number of areas where they are maintained to a very high standard, the residents all work together effectively and that is absolutely fine. So I do not think we should try unduly to put obstacles in the way of progress on this matter. At the end of the day, the real issue is moving on from this totally unequal system to one where individual householders are treated more equally, and work together in a collaborative and sensible way.

Photo of Kevin Hollinrake Kevin Hollinrake Conservative, Thirsk and Malton

The hon. Gentleman makes some good points and I am not saying that in certain circumstances commonhold cannot work. He pointed to the simple situation of a non-adopted road to which local residents have to contribute for the upkeep and it can certainly work in those situations, but I am just trying to point out that there are situations where it would prove difficult to make the system work.

Every jurisdiction—those in Australia or the US or Scotland—is different, and the UK is unique in various ways, one of which is in having a high proportion of absentee owners, such as in central London, where we all see blocks of flats that seem to be rarely occupied. Problems might arise in managing such blocks with for instance 100, 200 or 300 commonholders; there might be disputes and difficulties, such as in debt collection.

On the point about simple things to manage, the biggest issue is complex developments, as my right hon. Friend the Member for Chipping Barnet mentioned. Let us consider a block of 300 or 400 flats built above a tube station or adjoining a shopping mall; effectively there will be a common freehold in that development but would anybody here be keen to sit on a committee managing that entire block with, for example, joint M and E—mechanical and electrical—so joint electrical, heating, ventilation and broadband installations, managed not just between the 300 units but the other infrastructure in that development? There are concerns that that would be beyond the appetite of many commonholders who manage that kind of development.

Photo of Robert Jenrick Robert Jenrick Conservative, Newark

Yet it is done in every other country in the world—is that not the point? I share my hon. Friend’s reservations yet every other country in the world with equally complex cinemas and tube stations and infrastructure manages it in a way that is broadly commonhold.

Photo of Kevin Hollinrake Kevin Hollinrake Conservative, Thirsk and Malton

My right hon. Friend raises a good point and has an advantage over me as I do not know in depth how that would happen in, for instance, Manhattan, but I think we should understand that situation more before pushing ahead and ruling that commonhold will effectively become the default for every single development in the UK. The Government have done a great job in many things and one of them is in increasing the rate of development in the UK, and I have a concern that some developers might be inhibited in taking on a very complex project because of fears about selling the residential units or renting the commercial units. I just think we need to understand more before pushing ahead and rolling complex developments into the legislation, rather than exempting such developments from it as we on the Select Committee recommended and Lord Lytton recommended in his speech—he tabled an amendment.

I just think we should look at this area and make sure we get it right, because one law we constantly effect in this place is the law of unintended consequences and we must avoid that. So peppercorn leasehold and commonhold are fine, but we need to make sure we look at those complex situations. I personally think that if we do not find a simple solution and cannot demonstrate that it will work in the UK, because the UK clearly has some unique elements to the property market, then we should set a cap on the ground rent in exempted developments, for instance of £100 or 0.1% of value, whichever is the lowest, to make sure it is always affordable for leaseholders. I absolutely understand that this has been a problem, but we must make sure that developers do not avoid exploiting development opportunities—particularly brownfield development opportunities in city centres—because of complexities.

Aside from that, I am very happy to support what the Government are trying to do.

Photo of Mike Amesbury Mike Amesbury Shadow Minister (Housing, Communities and Local Government) 6:53 pm, 29th November 2021

This is a Bill not for the many but just for the new leaseholders. Ministers have now heard the speeches of all Members taking part in the debate and in one sense they all spoke with one voice: they welcome this Bill in its narrow scope as far as it goes. We agree that abolishing ground rents via peppercorn, and beginning to rebalance the system so that it works for those who live in homes rather than for investors who use them as income streams, looking only for returns, is a good thing. However, as Members have stated—I think we heard from around 11 speakers, including interventions—the Bill deals only with ground rents, and only with the future. The feudal system now unique to England and Wales is still alive and kicking; that is something that I and the former Secretary of State, Robert Jenrick, agree on.

That is the issue with the Bill. For people already trapped in leasehold properties with high and escalating ground rents, it does nothing. For those trapped in flammable flats, facing soaring costs and crippling remediation bills, it does nothing. For leaseholders facing extortionate service charges without any transparency on where the money is going, or suffering from other unfair terms and conditions or limitations on enfranchisement, it does nothing.

We heard from my good friend and neighbour, my hon. Friend Justin Madders, who has constantly referred to this as the new payment protection insurance scandal. People across the House have referred to the obscure practices of recommended solicitors and so forth. The right hon. Member for Newark—I name check him again—referred to the Bill as an “appetiser” before the main course. I and Members across the House—certainly those of us on the Opposition Benches—would prefer an all-you-can-eat buffet of reform. My right hon. Friend Mark Tami, who is a good friend, referred to the scamming in north Wales and the north-west, with a plethora of dodgy clauses creating a cash cow for some interesting people in the market.

This Bill could do so much more, and given that it has taken this long to get any progress on leasehold reform from the Government, we expect it to do more. It is, in many ways, a missed opportunity for the Government to make good on a long-held promise. This is a story we are becoming familiar with—a Government on the side of vested interests. They are a Government on the side of some big developers who see housing as an income stream rather than as homes to be owned or lived in; developers who contribute £1 out of every £10 that the Conservatives receive in donations—developers who should instead be held to account for bad building and bad management.

We expect from Ministers at the very least a clear timetable for the more substantive second-part reforms of the leasehold landscape. We expect to hear that those will happen in the not-too-distant future. The Bill tackles only new homes yet to be built. As Members across the House have said, it will leave us with a two-tier system with nothing to help people, including those in my constituency, who are experiencing problems right now. Will the Government outline why, instead of using the Bill as an opportunity to help people currently exploited through leasehold, Ministers have left them waiting once again by failing to apply this legislation retrospectively, as the shadow Housing Minister, my hon. Friend Lucy Powell, spoke about?

Do the Government have any numbers on how many more people will join those currently scammed into buying leasehold properties on bad terms while we wait for more legislation? It is those current leaseholders—people such as Katie Kendrick and Jo Darbyshire at the National Leasehold Campaign—who have been pushing for these changes over the years. Alongside the brilliant people at the Leasehold Knowledge Partnership, they have made the case time and again for doing better for those across the country who have been misled and taken advantage of. I also pay tribute to all members of the all-party parliamentary group on leasehold and commonhold reform.

Can the Minister answer why this legislation has arrived without banning houses being sold as leasehold properties? Just take a look at properties advertised on Rightmove for evidence. Local authorities will be keen to hear how Ministers will resource Trading Standards to conduct its new roles, as will I. I am also keen to hear what further action will be taken against those in the legal profession, as well as developers, who mislead. We also need to hear assurances from the Government on how they will tackle developers looking for new streams of income, for example so-called informal leasehold arrangements. Tackling ground rents only, this time around, means a risk of playing whack-a-mole. Banning freeholders from charging ground rents leaves them open—this was referred to by other Members—to finding new ways of replacing that income stream with other charges.

In conclusion, campaigners such as the National Leasehold Campaign, representing millions of leaseholders, are tired of consultations and bland statements uttered by Ministers about “When parliamentary time allows” giving the green light to foot dragging. This feudal system from a medieval era should be kicked into history, with commonhold as the default position. Our call to action and our amendments to the Bill intend to do just that.

Photo of Christopher Pincher Christopher Pincher Minister of State (Department for Levelling Up, Housing and Communities) 7:01 pm, 29th November 2021

I thank the Front Benchers from the official Opposition for their support for the Bill. I am grateful to them, as is the whole House. It is a pleasure to see them still in their places. We know there is an Opposition reshuffle going on. It must feel to them that it is taking as long for the Leader of the Opposition to conduct his reshuffle as it is to reform leasehold. We trust that we can get on a little bit quicker than he can.

It has been a real pleasure to listen to the debate unfold. We have had a valuable and considered set of speeches. One of the ornamentations, one might say, of our Standing Orders is that they allow right hon. and hon. Members to range freely across the terrain in a Second Reading debate, and that is what has happened tonight. As the House will know, the Bill is narrowly focused on leasehold ground rent reform, but the debate has allowed the House to debate more freely the wider question of leasehold reform, retrospection and other matters. We will be addressing them in future, but let me say, before I make some further and more detailed points, that I am grateful to Matt Rodda for his very thoughtful contribution. It sounds to me as though he is going to write me and the Under-Secretary of State for Levelling Up, Housing and Communities, my hon. Friend Eddie Hughes, a very long letter. We look forward to working with him to resolve the issues he raised.

I am grateful to my right hon. Friends the Members for Chipping Barnet (Theresa Villiers) and for New Forest West (Sir Desmond Swayne), and my hon. Friend Jane Hunt for raising the issue of retirement sector ground rent reform. As the Under-Secretary of State for Levelling Up, Housing and Communities, my hon. Friend the Member for Walsall North, said, we have made it absolutely clear that the retirement sector has had an exemption of a further 12 months to get its business model in order. We believe that that is a right and proper amount of time, because there are a number of business models that the sector can use to effectively and appropriately levy reasonable charges that are transparent and fair on residents. It sounds as though my right hon. and hon. Friends may be interested in amendments. They know the process by which to pursue those, if they so wish. However, there will always be disparities between one set of buildings and another and between new buildings to which ground rents will not apply and older buildings to which ground rents will apply. I suspect that those differences will be factored into market calculations or will have little effect on the actual challenges that face residents.

Photo of Desmond Swayne Desmond Swayne Conservative, New Forest West

The case for an amendment—I thank the Minister for his guidance in that respect—on the retirement sector is that it was clearly given an exemption and was assured throughout last year that that exemption would hold, but that exemption was suddenly withdrawn in January this year. Given the time that it takes to change the model and to sell such properties, this is crying out for amendment.

Photo of Christopher Pincher Christopher Pincher Minister of State (Department for Levelling Up, Housing and Communities)

I am grateful to my right hon. Friend; he is not so much an ornament as an energetic battery in this House. We look forward to seeing what further proposals he has in due course.

My hon. Friend Stephen Hammond put his finger on it when he described how complicated the matter of wider leasehold reform is. He asked whether the Solicitors Regulation Authority and conveyancers will be engaged; whether tighter definitions will be employed; what happens in more complex developments to repair charges; and what the interaction is with the Building Safety Bill. That is why the Bill is so narrowly defined, as the Law Society advised—so that we can get on and deal with the most egregious offences on ground rents and then move on to the more complicated matter of wider leasehold reform.

As my right hon. Friend Robert Jenrick said in what I thought was a very eloquent and forceful speech, making it clear without saying a word how integral he has been to the advancement of these reforms, they are really quite challenging. We know that leasehold is woven into the tapestry of our law and our tort. We know that in parts of the country, particularly the north-west—I think you know it as well as anybody, Mr Deputy Speaker—businessfolk of yesteryear, factory owners, would buy land in order to build houses and tie workers to those factories. Unpicking those sorts of complicated arrangements needs to be thought through carefully. With an all-you-can-eat feast, as Mike Amesbury knows full well, if someone stuffs themselves rather too quickly and rather too much, there may be unfortunate consequences down the line. We want to avoid those sorts of challenges with this Bill.

A great deal of thought has gone into the definition of rent to avoid the sort of loopholes that Lucy Powell mentioned. We want to ensure that we close loopholes that would allow freeholders or landlords to collect ground rent. We considered a closely defined meaning for “ground rent”, but at the end of the day, we came to the conclusion that that would be something of a fixed target, because experience teaches us that clever operators with clever lawyers often find loopholes in such circumstances. A flexible definition of rent will help us to ensure that the tribunal will have the flexibility to consider what actually represents a prohibited rent, even if it is not explicitly called “ground rent”—the sorts of prohibitive and prohibited charges to which she referred.

We have made it absolutely clear that we will introduce legislation to ban leasehold houses; we have made that manifesto commitment and will introduce legislation as soon as we are able. We will also ensure that the second part of our legislative reform addresses the challenges with respect to existing leaseholders and retrospection, because we are committed to addressing the historic imbalance in the system.

Meanwhile, I am grateful for the work that the CMA has done, which I hope the whole House will welcome. We want to make sure that the CMA moves as quickly as possible to tighten up on egregious practices; we look forward to its report and to the next steps that we will then undertake. I assure the House that we will move as rapidly as possible.

My hon. Friend Ian Levy is not in his place, but he has certainly raised with me the issue of ground rent in future long leases. In January, we announced that we would legislate to change the way in which the cost of buying a freehold or extending a lease is calculated to make it cheaper and easier for leaseholders. I hope that that gives my hon. Friend some reassurance.

The Bill is the beginning of a process that we, the Conservative Government, have started and that others, for too long, have shirked. It will ensure fairness and transparency in our leasehold system. I look forward to working with right hon. and hon. Members across the House in the coming weeks to get this vital legislation on the statute book and working for leaseholders. I commend it to the House.

Question put and agreed to.

Bill accordingly read a Second time.