The hon. Member for Poplar and Limehouse (Jim Fitzpatrick)—my hon. Friend—referred to things going wrong on purpose, and things sometimes going wrong by mistake.
To avoid something going wrong by mistake, I ask the Government, and particularly the Ministry of Justice, to abandon the opportunity of winning a forfeiture order on a residential home over a smallish debt. By all means, in extremis, an asset might have to be ordered to be sold, but the surplus value should certainly go to the leaseholder and should not be forfeited to the freeholder.
One of the worst cases is that of Plantation Wharf in Battersea. Two elderly people applied to challenge management costs of about £9,000. The leasehold valuation tribunal—the lower property tribunal—agreed with them in large part and struck off about £7,000. There were then applications for costs. One of the leaseholders had read on the Government website that the cost of going to the leasehold valuation tribunal was £500 and therefore assumed that there was nothing in the cost application. By inattention, he ended up bouncing between various courts and owing over £70,000. A forfeiture order was granted, with even the mortgage lender not realising that its part of the asset would be forfeited as well.
When the insurance company that provided the mortgage woke up at the last moment—at the prompting of the Leasehold Knowledge Partnership, to which I pay tribute—the debt was settled and the man was able to go off to his new home with the bulk of his equity. He should never have been forced to pay anything, because if someone wins £5,000 out of £7,000, for example, or £7,000 out of £9,000, that should be regarded as a win, not a score draw. At it happens, the freeholder in that case was not an avaricious crook, but people who were
more used to commercial dealings and thought that everyone was professionally advised and could afford to pay costs.
I have a challenge to everybody in the field: do not assume that other people are as clever, wily or crooked as you are. Whether this was criminal or not is not for me to judge, but one crook is Martin Paine—pain with an e on the end—who has taken “lease” beyond sleaze, almost by adding a letter at the beginning, and into an art form. He owns a number of short leases, and anyone who wants to sell them has to get an extension. My understanding is that he offers legally valid, informal extensions. Under a formal extension, the ground rent reverts to virtually nothing.
Martin Paine’s informal leases contain a provision that doubles the ground rent every 10 years or so, but that is written into the lease in such a way that even experienced solicitors fail to find the wording or to connect the clauses together. A person, who may be a first-time buyer of a low-value flat, may then discover that they are asked for enormously high ground rents, and they are enormously high because Martin Paine has written the provision back to the first granting of the lease, not from the time of the extension. A flat might therefore be worth £150,000, but the leaseholder will be asked for thousands of pounds a year in ground rent, with the prospect of that going up. When the leaseholder complains, Mr Paine’s practice, as I understand it, is to say, “Sue your solicitor.” I therefore recommend that providers of indemnity insurance for solicitors get together, which I think they can do without being a cartel, and ask, “What pattern of claims have we had from those we insure?” to see whether this crookedness can be stopped.
Martin Paine will then occasionally buy back the flat at a low price and remarket it with the same terms. To do that once could be regarded as incompetence; to do it twice on the same property is deserving of the word “crooked.” Every single auctioneer should do what we had to recommend to one respectable auction house: look at the leases. It turned out, of course, that Martin Paine had not actually supplied the lease to the auctioneers early on—it was withdrawn.
We should not have to rely on the chance action of a campaigning charity such as LKP or Carlex—the Campaign Against Retirement Leasehold Exploitation—or a passing Member of Parliament, to get things put right.
I ought to declare an interest in that I own the lease on a flat in a freehold building in Worthing. We had a good landlord and a good managing agent, which has now been succeeded by another good managing agent. The freeholder decided that he was going to retire and suggested to the six leaseholders that we might like to buy the freehold from him—and we did. We have not had any problems at any point. Together, we are a good association, and we had our most recent meeting on Friday. However, that is not the experience of all others.
I come now to one of the latest manifestations of things going wrong. Over the past 20 years, some house builders have returned to selling houses on leasehold terms. I have it by communication from one house builder that the price it can get for selling a house leasehold is within 1% of selling it freehold. What is the reason for selling it leasehold? Some argue that the tradition in the north-west is different—it should not
be—and some say that if someone can get away with something, others will copy. There are now examples in north London of builders producing roughly the same kind of home on either side of the street, with some freehold and some leasehold.
If a leasehold contains a provision that doubles the ground rent every 10 years, the example that I provided earlier on applies. I might have got the maths wrong because I was doing this late at night, but it is wrong to argue that an ordinary home that started at £250,000 needs to be worth £80 million in 60 years’ time to justify a ground rent that doubles every 10 years—by the rule of 72, we know that that means that it is going up by over 7% a year. I ask the corporate responsibility experts who occasionally go to the annual general meetings of quoted companies to start raising that with the house builders. I would also like the Home Builders Federation to talk about how the practice is justifiable. Its representatives might say that it is just a commercial deal by some of its members and nothing to do with them, but I say that it is to do with them.
I see that the hon. Member for Brentford and Isleworth (Ruth Cadbury) is in the Chamber. The people who established and ran Cadbury were the sort of people who did not need Members of Parliament to remind them of how to behave; they knew in their bones, their blood and their heart that people should be treated properly.
I own some shares in Persimmon and some in Taylor Wimpey, and I might buy some shares in other builders. If necessary, I shall go to their AGMs, giving notice in advance, to ask what they will do to unwind the problems that they created in the past. Taylor Wimpey says that it was unaware of what was going on before it came together, because it is an amalgamation of many businesses, but it knows now. The problem comes with putting things right.
If a building firm—I am not focusing on Taylor Wimpey, because I think it has realised that there are issues to investigate—sells the freeholds, it prevents itself from being able to treat its leaseholders properly.
Many leaseholders buy a flat through solicitors who work for the seller, and those solicitors will probably have attendance notes and perhaps some letters that point out the provisions of the ground rent. That may or may not be the case. What I doubt—I asked one solicitor, but have not yet received the evidence—is whether the attendance note and the letters point out that if someone were to buy their freehold in the first three years, they might be able to get it very cheaply, perhaps at a multiple of 10 times the ground rent, but that if they wait and the first freeholder sells to another, the new freeholder may say, “Actually, because interest rates have gone down, the value of the ground rent has gone up, and you have to buy it at the new multiple of the value of the ground rent.” Why do the Government not just agree a straightforward graph to show what the purchase price for a freehold ought to be at various stages?
I interrupt myself now to say that I was going speak for a long section on hedonic regression and Sloane Stanley Estate v. Mundy. As part of that case, Wellcome Trust interests managed to persuade an upper property tribunal of two people to make a change in the valuation of short leases, which probably lifted the apparent cost of extending leases by about 40%.
It is good for the Wellcome Trust to get good publicity for saying that it will give £1 billion to good causes—mostly medical research—this year. I do not mind its chief investment person being paid £3 million if they have lifted the capital value of the assets by 18% in the last year.
If £1 billion of those assets involves the estate that was bought from the Henry Smith Charity, which was established to help children and others with its income, and if the Wellcome Trust bought that estate because it managed to persuade people, without a public interest representative present, that the cost of enfranchisement or extension should go up so enormously, something is seriously wrong. It will take people in government and their advisers to work out what that is.
If there is an appeal against that Mundy case, I hope that the Government will associate themselves with it and try to make sure that, on the hedonic regression, the calculations go back to before the Leasehold Reform, Housing and Urban Development Act 1993, because after that Act the values were affected by what it said. I think that James Wyatt and Parthenia Valuation are more likely to be right. I hope that the appeal succeeds, and that the Government will make sure that if it does not, the decision in the Mundy case will be reversed by statute.
I return to the issue of smaller leaseholders. If I were a small leaseholder applying either for an extension or to buy my freehold, I would find that the costs that the freeholder has could be put back on to the leaseholders, as was pointed out by my hon. Friend the Member for Poplar and Limehouse. But what about the costs to me? I have to go to surveyors and lawyers. I am new to this and I am dealing with freeholders who do this multiple times a week or a year. They are very experienced and they are often very rich.
Perhaps the Government could bring in simple graphs to cover most cases where people could ask, “Where do I stand on the graph? What is the length of the lease? What are the terms?” The Government could say, “By the way, there is going to be a cap on ground rents, so you can’t go monetising those and making the leaseholder buy them out on some prospective multiple just because the bank reference rate is very low and the apparent cost of buying them out becomes very high.”