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Briefings

Update following Commons debate on leasehold issues

Date: 21/12/16

Update following Commons debate on leasehold issues

As per our note last week, below, the parliamentary debate on Leasehold and commonhold reform was held yesterday. The debate lasted two hours which included a 34 minute speech by Sir Peter Bottomley, chair of the APPG group looking at the issue.

There were also contributions from Jim Fitzpatrick MP (Lab, Poplar and Limehouse); Justin Madders MP (Lab, Ellesmere Port and Neston); Oliver Colville MP (Con, Pymouth, Sutton and Devenport) and Ruth Cadbury MP (Lab, Shadow Housing team ), and a response to the debate by Housing Minister, Gavin Barwell MP.

Most of the debate was around general leasehold issues, Right to Manage and dispute resolution legislation, the role of insurance companies, management companies and the operation of park home sites.

In his speech Bottomley questioned why builders offer houses leasehold at all; said that builders should know how to behave and that he would invest in more builders’ shares so he could raise the issue at company AGMs. He also questioned the guidance solicitors are giving to customers, but warned that builders were advising home purchasers to use their own solicitors. He also referenced HBF, suggesting “they might say it is nothing to do with them, it’s a commercial decision for their members. I say it is to do with them”.

Justin Madders MP explained the circumstances of one of his constituents and her experience with escalating ground rent requirements on her leasehold house and challenged the Government to deal with what he called “the PPI of the house building industry”. He also referenced the “generous subsidies” that builders receive from Government, particularly in relation to the Help to Buy scheme. He posed a number of direct questions:

  • Are the Government happy with this state of affairs? If not, will he set out today, or in the very near future, exactly what he will do to stop these scandalous practices?
  • Does [the minister] agree that developers should be prohibited from recommending a particular solicitor to purchasers because of the clear potential for a conflict of interest and the clear failure, as we have seen here, to provide the best advice?
  • Will the Government consider legislating to prevent ground rents being doubled every 10 years?
  • Will [the Government] intervene to give some hope to those now saddled with the eye-watering commitments that nobody—not the developers, not the lawyers and not the Government—warned them about?
  • Will the Minister consider withdrawing and recouping taxpayer subsidies to any development found to be ripping off householders in this way?
  • Will the Government ensure that there is greater transparency at every stage of the process, with purchasers receiving clear information about the arrangements they are entering into?

Responding, Housing Minister Gavin Barwell referenced some “appalling behaviour” that had been highlighted by Members of Parliament. He said the sale of houses as leasehold was a practice employed by several larger house builders and that his immediate concern “is the level and frequency of increases in ground rents”.

He went on to say that builders “would do well to remember that “they are building homes for people to live in rather than creating investment vehicles for financial institutions”.

In response to a question as to what Government would do he said “Except in a very few exceptional circumstances, I cannot think of any good reason for houses to be built on a leasehold basis. If the industry does not put a stop to the practice and help existing homeowners, we will look to see what Government can do.”

He added that “We want to hear more from the industry on how they will put this right.”

The full transcript can be found here.

As you know, HBF has been liaising with members, Ministers and officials on this issue in recent weeks. We are continuing to engage with officials following the meeting that we, and several members, attended last week and are feeding through the information they requested at the meeting.

We will continue to engage with all parties to try and find a solution to this issue that is acceptable to members and avoids any unintended consequences. We will be in contact shortly with regards to how we move the issue forward.

 

HBF note from last week.

Dear All,

The issue of new build houses being sold as leasehold has recently gained a lot of traction in the media and with Parliamentarians, with concerns being raised in particular about the cost escalation terms for ground rents, the selling on of ground rents to third parties and the potential cost and difficulty for residents to acquire the freehold of their property if they wish to do so.

The All-Party Parliamentary Group (APPG) on Leasehold Reform is campaigning on this set of issues and in response to a question in Parliament from Sir Peter Bottomley MP, co-chair of the APPG, Communities Secretary Sajid Javid said at the end of last month: “We must make sure the kind of abuses he mentioned are stamped out and we will continue to do everything [we can] .... to work  with a number of stakeholders and we can certainly see how we can do more.” This led subsequently to a request for us and a number of HBF members to attend a meeting with senior DCLG officials to explore the issues earlier this week, with officials also having a concern about houses being sold as leasehold under the Help to Buy Equity Loan scheme.

We are following up on the meeting with officials at which they sought further information about the extent and nature of current practice, but my reason for contacting you today is to alert you to the fact that there has now been a further important development in the situation.

At a meeting of the APPG held last night, and chaired by Sir Peter Bottomley, he said that a parliamentary debate on leasehold and commonhold reform would be held next Tuesday, 20th December, and that this debate will again have a significant focus on the issues connected with new houses being sold as leasehold.

In his remarks last night, Sir Peter went on to say specifically that he intended to “name names” in the debate next Tuesday and that “a number of developers should consider before Tuesday if they have done things wrong and, if so, if they want to take steps to put them right.”

I wanted to alert members as whole to the debate, Sir Peter’s remarks last night and the increasing political focus on the issues connected with the sale of houses as leasehold. While we have been in touch with a number of larger member companies in particular on these issues in recent days, we do not have a full understanding of the position on the sale of houses as leasehold across the market as a whole and so wanted to draw the emerging position to your attention.

The political stakes are clearly increasing and we will continue to try and engage with Ministers and their officials and work with them to agree a way forward. In this context, the debate next week is likely to increase pressure on ministers to take action in some way to tackle what MPs will characterise as sharp practice and we will keep you informed of any developments.

Please let me know if you would wish to discuss the issues with me or a member of the HBF team.

With kind regards

Stewart Baseley