Barry Gardiner
MP for Brent West · Labour · United Kingdom
“Sir Desmond, imagine that the top brains in the country’s security and intelligence community produced a report that told you how to save the world. You would want to see it, right? Well, the report we are discussing is not about how to save the world; it is about what happens if we do not.”
“The nuclear threat will rise as clashes between nuclear powers become more frequent. Those are the cold assessments of the Joint Intelligence Committee. The Government were right to think that those assessments might scare people—they scare me—but they were wrong to think that they could hide them from the public.”
“The Minister will know that the grant structure on which UKRI is based gives out grants for a maximum of three to five years. Very few are for five years—most are for three years or under—yet the sort of long-term scientific development that my hon.”
“My hon. Friend is making a superb case for the importance of funding for her deep earth facility. I had the privilege of going to the National Oceanography Centre’s deep oceans facility, and the innovative science there on carbon sequestration is superb.”
“The Prime Minister has spoken powerfully about the devolution of power and giving back control. Will he therefore ensure that the proposals for commonhold and leasehold reform, for which 5 million leaseholders in this country are waiting with bated breath, do give that power and control back to those people, through the right to enfranchi…”
“We know how much land there is in the UK, and we know the extent of our inland waters and seas, so we can know how much we have to do to protect them, as we are required to do by target 3 of the global biodiversity framework.”
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“It is not a failure of their due diligence; it is a failure of the Government, the housing sector and their agencies to spell out the difference between assured tenancy and leasehold. There is a moral compass argument that they should have the statutory right to lease extension, because of the manner in which they have been sold those short leases. I think there are separate debates to be had about whether 99-year leases were mis-sold. A recent ruling by the Advertising Standards Authority outlined that it is likely to be misleading not to provide material information about the costs of lease extension. That suggests that there certainly is an argument that those short leases have been mis-sold. We cannot change that. Most of those shared owners will be outside any scope of limitations for redress.”
“Q In conversation with my colleague, Matt Pennycook, you talked about the lack of statutory lease extension provision. The Law Commission said that shared owners should have the right to extend. Do you consider that that would be a welcome amendment to the Bill? Sue Phillips: I think it is essential, and this relates to the marketing that I have talked about. Shared owners come into shared ownership believing that they are a leaseholder like any other leaseholder; they have no reason to think differently. Often, there is a caveat emptor attitude and I think that is reprehensible, to be honest, when you are talking about provision of social housing to households that by definition are financially vulnerable compared with people who can afford to buy outright.”
“Q Ms Higgins, do you agree that it would be appropriate to allow leaseholders to withhold service charges where there has not been compliance with the very extensive requirements in the Bill to provide accounts no later than six months after, and so on? Is that an appropriate and proportionate way for leaseholders to be permitted to respond? Ms Paula Higgins : I fully agree with that. It is a bit like the situation where, if you are getting building work done in your home and the building work is not completed or whatever, you withhold money. That happens in all of the construction industry. The stuff in relation to the forfeiture is very disproportionate, is it not?”
“Q Thank you also for what you said about wanting all new apartments to be leasehold with a share of freehold, Ms Higgins. That was echoed by Mr Smytherman. In so far as new apartments are going to have a share of freehold, Mr Smytherman, you indicated that you felt that you had got the best of both worlds as a director of a freehold franchise company. Bob Smytherman: Yes. Ours is a tripartite lease. A ground freeholder owns the land and there is a separate middle lease, which is the limited company—limited by shares—of which we are shareholders.”
“Q As a leaseholder with a share of freehold, if commonhold were to become available, do you think that it would be equitable and fair to charge you for the privilege of transferring to commonhold, or do you think that more people would take the opportunity to transfer to commonhold if that came?”
“It does not have owners associations, for example, so it is less sophisticated than the commonhold proposals that the Law Commission for England and Wales made. But we have problems in Scotland too. There are always problems, no matter what the law says. There are two particular problems. The first is where money comes from to make repairs to flatted properties—we typically call them tenements in Scotland. The second, sadly, is apathy. I was watching the earlier session, and I saw how engaged your witness in Worthing was, but sadly in other cases the owners are not so engaged. Even if you have an owners association regime, which the Scottish Law Commission is now looking at, it still depends on people being engaged. There are no easy solutions. I favour commonhold, but it will not be a magic wand.”
“Professor Steven, my question is to you. Last week, in the House of Lords, the Government indicated that they were looking at the Scottish system of tenements. Could you perhaps explain that to the Committee? My understanding is that the Scottish Law Commission has been looking to review tenement structure and actually make it more like commonhold. Is it correct that there is a lack of standardisation and no ability to ensure those share costs are split proportionately under the tenement structure, and therefore that would not be a quick cut-and-paste for the Government if they are considering what to move forward to? Professor Steven: Yes, I absolutely agree. The legislation in Scotland is the Tenements (Scotland) Act 2004, which is 20 years old and is fairly basic.”
“You said that we got rid of our feudal system in one fell swoop in 2004. That is broadly true, but in 1974—50 years ago—we banned new feudal payments, which are like ground rents. There was a system whereby the existing feudal payments had to be paid off when the property was sold, so by 2004 there was not much left. My impression is that in England there is quite a lot left, in terms of ground rents. Because there was not so much left in Scotland, the compensation issues and the European convention on human rights issues that Dr Maxwell spoke about on Tuesday were not so prominent. Although we had the feudal system till 2004, it was a shell of what it originally was. In a certain way, it would be much simpler just to change leasehold into commonhold, but I fear that it would lead to all sorts of unforeseen consequences.”
“Q Nothing takes away the capacity of people to disagree with each other. I want to ask you a further question, which Professor Hodges may also have a view on. In the early 2000s in Scotland, the Government did away with feu duty in one fell swoop. You got rid of the inefficiencies of that system. Is it not unfair that we are going through all these inefficient qualifying criteria to ensure that enfranchisement happens only on a development-by-development basis? Could we not do this in one fell swoop in England too? I see Professor Hodges is smiling from ear to ear, but I will allow you to come in first, Professor Steven. Professor Steven: As a former law commissioner in Scotland, I am reluctant to disagree with the Law Commission for England and Wales, given the amount of work it has done on this. It is clearly very complicated.”
“Q Just to make you feel a little better about disagreeing with your Law Commission counterparts in England, of course they were constrained in what they could do by the parameters the Government set them. Professor Hodges: Very briefly: modernise, because we are still living in the past; simplify, because we can easily do that on a comprehensive basis; and get it done so that people can plan, retrain and know what they have to do. You then get good behaviour throughout the system. I am very tempted to repeat facetiously the “Get it done” slogan, which crops up a lot.”
“I have chaired the Post Office Horizon compensation board advising Ministers in the past few weeks. The whole reason why Parliament needs to step in is to correct a massive imbalance of power. Private litigation did not work, or it only half worked. There have been many stories about people being traumatised, and not just unable to enforce their rights. That is why we have invented things like legal aid, Citizens Advice and an ombudsman, and we are still moving—we are still improving that one—because of the ongoing imbalance of power between the little people and larger organisations.”
“Q Professor Hodges, my colleague Richard Fuller sought to make a point about caveat emptor to you. Is it your experience that the inequity of power and information between developers or freeholders and the potential purchaser—the leaseholder—is so great that caveat emptor is inappropriate and that you need the power of regulation to sort out that inequity? I think it was the Law Commission that concluded that “any financial gain for the landlord”— or freeholder— “will be at the expense of the leaseholder…Their interests are diametrically opposed, and consensus will be impossible to achieve.” Professor Hodges: In any consumer or property—certainly social housing—dispute system, there is an obvious imbalance of power. People do not have the money to do things.”
“That is an obvious example of an imbalance of power and lack of transparency, for which you need external people to get involved. Exactly what the final result ought to be, I would leave to a regulator—for them to say that so much commission is either allowable or not allowable, or indeed not at all. It depends on the circumstances.”
“Q Indeed. Thank you for that, and I think everyone will also want to thank you for your work on the Post Office inquiry. I want to ask you about introducing insurance commission. I do not know whether you heard what the witnesses said on Tuesday, but you may know of the Canary Riverside case, in which £1.6 million in commission was given to a freeholder by the insurer—in a kickback—which was deemed to be inadmissible, and that is what the tribunal, mercifully, found. Although the Bill is outlawing commission, it is introducing fees for insurance services. In the Canary Riverside case, that is precisely what that £1.6 million was called. Do you fear that the Bill appears to dispense with commission, but actually reintroduces it by the back door? Professor Hodges: Possibly, but that is why you need regulation.”
“Q Thank you very much, Professor Steven. Turning to the value of the building and property rights, we heard from an eminent lawyer on Tuesday about property rights in relation to ground rent. Looking at enfranchisement, I think it was the Residential Freehold Association, which is charged with guarding the property rights of freeholders, that said that their share in the value of the building was only 2.5%. The corollary of that, of course, is that the leaseholders’ share in the value of the building is 97.5%. Do you feel that the way in which the costs of enfranchisement look at the total value of the building is therefore unjust?”
“Q Mr Broadhead, I do not know how long you have been working in your present capacity, but I suspect it is since 1984. In 1984, your organisation’s report “Leaseholds—Time for a change?” said that the “leasehold system is incompatible with home ownership” and that an Englishman’s leasehold home “is his landlord’s castle”. I thought that was a very elegant way of expressing what many of us think. Is that still your organisation’s view? Paul Broadhead: You are absolutely right. We have been advocating for the reform of leasehold since 1984. As you kindly point out, it was not me that made that comment at the time.”
“That elegant comment. Paul Broadhead: Absolutely—I wish I could be as elegant, and I will try to be throughout this questioning. Our position is that leasehold does require reform. If you were going to design the property tenure today, it is not what you would come up with. However, there are 4 million-plus leasehold properties in this country. Undoing that and replacing it overnight with a new, perhaps more just, system will take time. The first thing we need to concentrate on is reform, to make the system fair, predictable and equitable, so that people have the security of owner-occupation. In a sense, yes, they do not own the land on which their home sits, but they have the security of tenure that they would not have in other sectors. But it is important that we ensure that that is fair.”
“Q Let me ask you perhaps a more difficult question: how many of the mortgages that are lent to shared equity owners default compared with normal freehold owners? Paul Broadhead: Are you talking particularly about shared equity or shared ownership?”
“Sorry, shared ownership—where you have shared ownership in the property. Paul Broadhead: I have not got those figures to hand, but we can certainly send those through to the Committee. From speaking to our membership, I think it is fairly comparable. Our sector punches above its weight in shared ownership because it is very keen on affordable housing, and we have some big shared-ownership lenders. One thing I would say about shared ownership is that underwriting and managing those cases are slightly different from managing a traditional mortgage, because you have the housing association interest and some potential staircasing—although, of course, many do not. The arrears levels tend to be higher, but the default levels, I think, are comparable. We can confirm that in writing.”
“Q Interesting. Why do you think the arrears levels tend to be higher? Paul Broadhead: There are two things. One is the housing association rent aspect. Affordability tends to be more stretched by people owning shared ownership properties in any event, as most people land in shared ownership as an intermediate tenure because they are not able to buy their whole home. That, therefore, means their incomes are often less predictable. They do not necessarily always understand—”
“Or that property prices are too high, of course. Paul Broadhead: Well, property prices are too high irrespective of tenure, even if you are buying as a freeholder.”
“Their income may be stable and reasonable—being in shared ownership does not mean that your income is unstable in any way. Paul Broadhead: No, not at all.”
“Q I will pick up briefly on what you said to Mr Carter about the way in which sometimes your members were advising people, “Actually, this is leasehold, and there are these additional costs, and service charges are so expensive that we are not prepared to lend to you.” Are there any particular freeholders who have a reputation in the industry for doing that? I am thinking of people such as the Freshwater or Persimmon Homes, or any who seem to be known for their excessive service charges. Is there an automatic flag for them in the industry? Sitting where you are, you would have parliamentary privilege to name them. Paul Broadhead: Parliamentary privilege notwithstanding, no, we do not have individual organisations I could point to. I certainly do not get reports from my members.”
“Paul Broadhead: In terms of coming back to me as an association, that is a level of detail that is about individual organisations. It is not really part of my role to represent that. That does not mean they ignore that, just to be clear.”
“Q In that case, my question to you is: why not? You know very well that there are “fleeceholders” out there: freeholders who fleece their leaseholders. They have a reputation for doing it over many, many years. Should your industry not be advising somebody who approaches you for a mortgage about that, when you know full well that if they have a mortgage with that particular freeholder, the likelihood is that over the years those services charges will rack up and be abused in precisely the way that we have talked about with previous witnesses, about the inequity of power in this relationship? Indeed, these are the very issues that we are seeking to amend in this Bill. Why does your association not have those flags so that when it sees names such as Freshwater, it says to the person, “Look, we need to tell you a thing or two here”?”
“Q But you rightly said, Mr Broadhead, that your members would advise a prospective purchaser not to engage in a mortgage where it was leasehold, if they felt that the service charges would rack up and they would then be put into financial penury. Why do you not do it when you know that it will be the case? Paul Broadhead: Our members will not advise; they will refuse that mortgage, because it does not meet with their policy. In terms of other service charges, they all have a panel of conveyancers that they approve to act for them, and that is for the consumer purchasing that property. The terms of those panels change as some of these practices have come to light, and they will be nipped in the bud at that point.”
“Q In your leasehold update report 2020, you adumbrated numerous complaints and you said: “It is a real concern that homeowners who have entered into a lease are captive consumers with very little influence over the costs incurred by landlords or their managing agents that will in due course be passed on to them.” Do you believe that the Bill will give them control or simply greater transparency and access to understand their own exploitation, and has the CMA come across any comparable part of the economy where those paying the bills have no control over the bill or the standard of service? George Lusty: It is worth saying at the outset that we approached our leasehold investigation primarily from the framework of consumer protection law, looking at instances of mis-selling and unfair contract terms. We cannot use consumer law—”
“Q But you are concerned with the competition, and you have rightly pointed out that these are captive consumers. Simon Jones: You are absolutely right. We think the captive consumer problem is a real problem. We spoke to a lot of people about what the solution might be. There was not an obvious solution, but we did think that if there were better redress mechanisms, that would at least help.”
“Leasehold itself and the exploitation we have been discussing over the past few days are really embedded in a non-capitalistic structure, are they not? James Vitali: Yes, I quite agree. One of the cases I make in the paper I mentioned is that not only is ownership becoming more concentrated in a narrow stratum of society, but the type of ownership we are offering the aspirant is being thinned out. You were just listening to the suggestion that leasehold is almost mis-sold to consumers. I think aspirant property owners are being mis-sold when it comes to leasehold. They think they are buying into a genuine form of property ownership, but in many ways, as I said at the start, they lack the rights and responsibilities that should come with an ownership tenure, so I completely agree.”
“Q Policy Exchange describes itself as a conservative think-tank, so you and I might find ourselves rather strange bedfellows on this, but I welcome what you said about shared services. This whole section is really about competition and free markets and so on. Would you not agree that the leasehold system has all the hallmarks of monopolistic practices and market failure? It has a lack of choice, uncompetitive prices and high barriers to entry, and there is an inability to substitute a service, all of which are the standard accusations that a conservative think-tank might make of an unfree market, and it is against consumer interest. All credit to you, that is what Policy Exchange is supposed to be promoting: the free market and the interests of the consumer.”
“Q Thank you. Freeholders, in that sense—particularly in relation to ground rent—are really a rentier class because they are not providing a service in return for the revenue stream they are cashing in on. James Vitali: Yes, charges should be connected to the provision of a service, so I think ground rents should be reduced to a peppercorn. Charges should be made through this new and very sensible regime that is being proposed in the Bill for how charges are requested and demanded.”
“The key here is giving existing leaseholders greater choice over who is managing their building and how it is being maintained, and increasingly giving them the chance to take on those responsibilities themselves.”
“Q I cannot believe we are agreeing quite as much as this—this is wonderful stuff. That rentier class often says, “Well, we do provide a service,” but of course that is to conflate and confuse what they do with the service provided by a managing agent, which of course could be equally well performed by an enfranchised community that has the right to manage their own block. The domain of the freeholder is actually simply the accumulation of the ground rent, is it not? James Vitali: I think the key here is whether the leaseholder has a choice in who is providing the service and what service they are providing. Any functioning free market is based on strong property rights and competition.”
“Thank you very much. In order to preserve both our reputations, I will not say that you agreed with me and I trust that you will not say that I agreed with you.”
“Q On the point of marriage value, Mr Vitali, let us go back to free market principles. You and I would agree that a free market is one in which properties are sold between a willing seller and a willing buyer—would you not? James Vitali indicated assent .”
“All I would say is I think it is important that the compensation mechanisms in the Bill are such that it does not feel like the things we are trying to spread more equitably—property rights—are being diluted by the state.”
“If I might impair my socialist credentials even further, it was Margaret Thatcher who sought to abolish it outright, and it was only the foolishness of the subsequent Prime Minister, John Major, that brought it back in for flats in 1993. Is that not your understanding of how a free market should actually work, between a willing buyer and a willing seller? James Vitali: I will deflect and answer a slightly different question. It is interesting that the leaseholder enfranchisement process is kind of redolent of and similar to right to buy, in that it is a no-fault compulsory purchase of an asset. The difference with right to buy is that compensating the state is a different consideration from private citizens who have property rights.”
“Q Of course, the argument that Mr Fuller sought to put forward to you was based on the old cup and saucer analogy, or the pair of vases being more valuable than the one. In this situation, we do not quite have a willing seller and a willing buyer. We have an encumbered buyer, because they are trammelled by the fact that they have lived in that property for the past 30 years, and they now see it becoming worthless. When the Custins v. Hearts of Oak decision in 1967 went through, the Government immediately came back in primary legislation, and legislated to abolish marriage value precisely because of that purpose.”
“Q On mixed use, you made a very good case about the reasons for looking at the shared services previously. Would you be in favour of seeing the Bill say that the threshold should increase not simply from 25% to 50%, but maybe to 75%? James Vitali: I have not given that too much thought, I must say; 50% seems absolutely reasonable. I think there are some practical issues in getting to that 50% threshold in itself. I have heard stories about the process by which leaseholders whip around the building trying to get together enough—”
“Q Sorry—this is not about the number of people for an enfranchisement; this is on the shared services point that we discussed earlier. It is about if it should be where the actual commercial element of the building is more than 50%. The limit was 25%; now it is proposed to be 50%. Actually, given that the right to manage would apply only to the leasehold part of the building, it would seem fair that that should be as high as, say, 75% commercial and 25% leasehold, because at the moment it is one person—the freeholder—who is the counterparty for the shared services. In this case, it would be the managing agent of the right to manage leaseholders. James Vitali: I must say that I have not given that a lot of thought. I think increasing it to 50% will have a significant effect itself, but you may wish to go further.”
“Q Mr Rainey, first, thank you for what you said about the preferability of commonhold to leasehold. Is it your view, therefore, that it would be good if the Bill were to make all new flats that are constructed leasehold with a share of freehold, as a staging post, in effect? Philip Rainey: Yes. In a sense, that is the downside. It is possible to create what you might call commonhold-lite. It is a leasehold system—it is so encrusted with restrictions and requirements, although you own the freehold, that it is very similar. It would be only a staging post, because one of the problems with the current system is that it creates a “them and us” situation. You see it even when tenants own the freehold. Somehow they still think, “Well, it’s ‘my’ lease and it’s ‘them’”, which is them under another hat as the freeholder.”
“Q Yes, I was taken by your remarks earlier about the disputes that can go on even where you have an enfranchised situation. Philip Rainey: If you go to Australia and look at the websites, you find “I hate my strata” websites. Neighbours will be neighbours.”
“Unfortunately, legislation cannot make your neighbours more considerate. I often wish it could. Philip Rainey: I think I would be inclined to agree that it would be a reasonable step forward to say that there should be a share of freehold with—”
“The current position is that the first-tier tribunal has decided that the manager cannot be an accountable person. I therefore cannot comment on that outcome.”
“That responsibility under the BSA ’22 regulations is now being given, in effect, to the one person whose track record shows that they are incapable and not to be trusted to perform the obligations of managing that building—namely, the freeholder who let it go to rack and ruin in the first place. The leaseholders, whom the courts sort to protect, will have that former, negligent freeholder back in charge. I do not know, but I am looking to you to tell us, how one might draft an amendment to the Bill to preserve the protection for leaseholders who find themselves in an incredibly invidious position. Philip Rainey: The first thing to say is that—as you may know—there is an ongoing piece of litigation, in which I am involved, where that question of whether a manager can be an accountable person is yet to be finally decided.”
“Q I want to probe your thoughts on what I find a very tricky part of the way in which the pieces of legislation are now interacting with each other. One of the great freedoms for leaseholders who either cannot afford or do not wish to enfranchise themselves, but where the building has deteriorated to a terrible state under the existing freeholder, is the provision for a court-appointed manager under section 24 of the Landlord and Tenant Act 1987. That is something that I hope we very much want to protect, because these leaseholders really require the protection of a court-appointed manager. However, the Building Safety Act 2022 bars the court-appointed manager from being an accountable person and from taking full responsibility for the necessary safety remediation works.”
“I was aware that you were involved in the case, but I did not want to drag you into the specific—I wanted to keep you at the general. Philip Rainey: If, hypothetically speaking, the law is that a manager cannot be an accountable person; if, hypothetically speaking, that restricts what a manager can do; and if you, as Parliament, wished to alter that position, then you would amend the definition of a relevant repairing obligation in section 72 of the Building Safety Act 2022. That amendment would make it clear that a relevant repairing obligation includes an obligation under a manager order under section 24 of the Landlord and Tenant Act 1987.”
“Q Right. You think faster than I can even listen. Are you saying that we could introduce an amendment to this Bill that amended the Building Safety Act 2022 in such a way that we could ensure that those protections continue? Philip Rainey: The obvious answer is that you are Parliament—you can change any law.”
“Q I suppose my real question is, would you care to write to the Committee framing such an amendment? Philip Rainey: I could, if asked. As I say, you can amend section 72 to change a particular definition. Arguably at least, subject to the regulations, it is not actually necessary for Parliament to do it, because section 72 has a power for the Secretary of State to amend it—it is a Henry VIII clause, which I am not very much in favour of, but that probably could be done by secondary legislation.”
“I have no doubt that the Secretary of State could do that, but I always feel more comfortable if things are on the face of the Bill. Philip Rainey: I respectfully agree.”