Housing: Unfair Leasehold Agreements

Question

Asked by

To ask Her Majesty's Government, further to the report by the Competition and Markets Authority Leasehold housing: update report, published on 28 February, what plans they have to help homeowners who find themselves in unfair leasehold agreements.

My Lords, we welcome the CMA’s report on its investigation into unfair terms and mis-selling in the leasehold market, and I commend on his work my noble friend Lord Tyrie, who led this report. The report underlines the problems caused by onerous ground rents. We have been clear that leaseholders should not pay a charge for which they have received no tangible benefit in return. That is why we have committed to legislating to reduce ground rents to zero for future leases and to banning the sale of new leasehold houses. We are pleased that the CMA is seeking to take forward enforcement cases, following the findings of its investigation.

Does the Minister agree that the actions of some freeholders, property developers and service companies are scandalous? Leaseholders are ripped off with ever-escalating ground rents, service charges, commission fees and, frankly, dodgy sales practices, which effectively make home owners tenants in their own homes. Can she go further and commit that the Government will take immediate, firm action on these practices and stand up for leaseholders? Urgent action is needed now.

The noble Lord is correct. These unfair practices in the leasehold market have absolutely no place in a modern housing market, and neither do excessive ground rents that exploit consumers who get nothing in return. That is why we are reforming the system so that it is fairer for leaseholders. In December 2019, we announced that we would move forward with legislation on leaseholder reform, reaffirming our commitment to making the system fairer for leaseholders. This will include measures to ban the sale of new leasehold houses, restrict ground rents to peppercorn for future leases, give freehold home owners equivalent rights to challenge unfair charges, and close loopholes to prevent unfair evictions. Regarding his question on what action we can take, the CMA has already announced enforcement action and said that this report is an interim report and that its research is ongoing.

My Lords, does the Minister regret that the MHCLG ignored warnings about this crisis from the Leasehold Knowledge Partnership back in 2015? Does she accept that those victims of what the CMA now describes as “significant harm” cannot wait any longer for change? Can she explain to them what happened to Sajid Javid’s promise to change the law before summer 2018? Does she accept that leaseholders’ rights continue to be sold to speculators, with little government protection from everything from doubling of ground rents to extortionate fees for correcting issues such as dangerous cladding?

I agree that the legislation has taken a long time in its gestation, but we have done a number of things since Javid’s report in the other place. For example, we have asked the Law Commission to undertake a series of reports, which it will start producing this spring, about standardising the enfranchisement process, so that buying and extending a lease is easier, cheaper and quicker. It is also going to make it easier for leaseholders jointly to obtain the right to manage and review how commonhold works, so that it may become a viable alternative for existing and new homes. Together with the leaseholders’ pledge that we put in place over a year ago in consultation with housebuilders, that has gone some way—but not nearly far enough—towards mitigating the effects of the actions of those housebuilders.

My Lords, what are the Government doing to prevent house owners falling into the assured tenancy trap?

I acknowledge my noble friend’s significant interest in and knowledge of this area from her position in Westminster Council. The assured tenancy trap relates to property sold as a lease but where the ground rents, due to escalation, exceed the £250 threshold outside London and £1,000 in London; in effect, it becomes an assured shorthold tenancy, meaning that the owner does not have the same rights as a normal owner and it can be repossessed if they fall into arrears. The Government are committed to addressing this issue via legislation, which will take long leases completely out of the assured shorthold tenancy regime and prevent leaseholders being affected by this issue completely.

The Minister rightly condemned and regretted when home owners were ripped off; would she care to comment on Persimmon Homes? The average cost of a house it builds is £250,000, on which it makes a profit of £65,000, and a large number of its homes have already been declared unsafe in relation to fire and other matters, yet last year the chief executive received a bonus on top of his salary of £73 million. Is that not absolutely outrageous? What are the Government going to do about that?

As I said in a previous answer, the Competition and Markets Authority report updating its investigation into the extent of mis-selling and onerous lease terms will address this issue—maybe not the profit motive but the consequences of past actions. I note that in an action of Cardiff Council v Persimmon, Persimmon was forced to give 55 properties sold as leasehold on the St Edeyrns estate back to freeholders in an out-of-court settlement, so they were given their leaseholds as freeholds for nothing. We would like to see more of this happening. Regrettably, it was settled out of court before it became a court case so we cannot use that settlement as a legal precedent.

We recognise that the Government are taking action on a number of aspects, but there remains the problem of couples who have bought—particularly in the north and Midlands—and want to move home but find that their property is totally unsaleable. The noble Lord who raised this Question is absolutely right to do so. Will my noble friend have a closer look at this? We cannot have a situation where young couples buy what they think is a home and are stuck there unable to move.

I agree with my noble friend. That is why we are working closely with the Law Commission and the CMA to inform future legislation. This has become a particular problem in the north of England. In answer to that question and that of the noble Lord, Lord Foulkes, I say that what is most disappointing is the governance of the housebuilders that have been escalating these charges. The non-executive directors of these companies should have taken a longer, harder look at their policies.