Sir Geoffrey Clifton-Brown calls for reform of leasehold and service charge reform

11th July 2019

Speaking in a debate on the Housing, Communities and Local Government Committee's report into Leasehold reform, Sir Geoffrey Clifton-Brown raises concerns about ground rents and service charges, specifically the costs for the management of common parts of an estate, the ownership and control of management companies and the lack of clear explanations about the obligations provided by purchasers' solicitors.

Thank you for allowing me to catch your eye, Mr Speaker. I am really pleased to follow the hon. Member for Sheffield South East (Mr Betts). As Chairman of the Select Committee, he is one of the most knowledgeable people in this House, and I pay tribute to him for the excellent work that his Committee has done in this field. I am one of the few chartered surveyors in the House, and I draw hon. Members’ attention to my entry in the Register of Members’ Financial Interests. I have managed properties of all sorts for more than 40 years and I therefore have a degree of knowledge in this area.

The basic property law in this country dates back to the time of William the Conqueror, and in particular to 1086, when the Domesday property book listed every property in England. The law has progressed since then. In particular, the law on leasehold arose because landowners wanted to come to an agreement with one or more persons to occupy their land for a variety of functions. Sometimes it was to farm it, sometimes it was to build buildings and sometimes it was to run a business, and the leasehold law arose. It has been amended many times since then, as the hon. Gentleman has said.

In recent years, there have been a number of scams in my constituency relating to the leasehold law and, in particular, to the freehold law, and I want to go into one or two of those. As the hon. Gentleman said, the two areas in which these leasehold scams arise are ground rents and service charges. The ground rents in older leases tended to be a fairly small proportion of the total cost, but in recent years modern developers have hiked the ground rents, often doubling them every 10 years. The so-called proposals to modify this with reference to the retail prices index could lead to an even greater scam, because if inflation started to rise, ground rents could double not every 10 years but every five years. We need to look very carefully at that proposal. There are other proposals to make ground rents more moderate.

The other area, which is perhaps a bigger concern, is that of service charges. They can often be completely unknown, and they can include elements that are not immediately apparent to the person buying a leasehold. Those elements include administration fees, accountancy fees, commissions, insurance—the list goes on forever. The problem with all that is that a purchaser’s solicitors often assume that their client has a greater knowledge than they really have and are not explicit about what the obligations amount to.

I will move on quickly, because time is running out. I have constituents in the Gallery who have had equal and similar problems with scams relating to freeholds. Freeholders buy their properties with a covenant—many covenants in some cases—that contain unquantified and unspecified obligations relating particularly to the common parts of their estate. When pressed, the smart salespeople in the smart furnished flat or house on the estate often say, “Well, it’s only a small amount. It will amount to a few hundred pounds.” However, when the buyer gets their first bill, they suddenly realise what they are locked into. In some cases, the charges are so high, as they can be with leaseholds, that the properties are effectively made unsaleable.

We need to look carefully at the purchasing system in this country, and the Government need to work with the Law Society to ensure that all solicitors make it explicitly clear to their prospective purchasing clients what they are letting themselves in for. In my experience—I do not wish to knock either my own profession or the legal profession—they tend to be fairly blasé about inquiring into what the arrangements are for managing these common parts, which can be very expensive. The Government need to examine the arrangements to make it much easier for groups of people representing their estate to take over its management. What actually happens is that the management tends to be vested in a company that is owned by the estate’s original developer, and then people who cannot get out of dealing with that company are locked into whatever said company chooses to charge them.

I pay great tribute to Amanda Davies from Burton Chase and Mike South in Victory Fields for bringing some of these anomalies to me. Like the hon. Member for Sheffield South East, I have written to the Competition and Markets Authority with a draft of how my constituents think the current system is being mis-sold. I hope that the CMA will take close notice of that.

Interventions in the same debate

One of the worst scandals of all has not yet come out in this debate. When people buy their houses, part of the contract states that they must obtain a compliance certificate before they will be allowed to sell them. If they are in arrears with any of the charges that the landlord has imposed on them, if they are in dispute or if they have not paid the interest, they will not be able to obtain the certificate, and they will not be able to sell their houses.

The hon. Gentleman speaks from a position of knowledge, and I am grateful to him for introducing an issue that does not feature in my speech.

Hansard

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