Oral evidence: Leasehold Reform, HC 1468
Oral evidence, 19 November 2018.
Witnesses
Jason Honeyman, David Jenkinson and Jennie Daly.
Chair
Good afternoon and welcome to the Committee’s second evidence session in our inquiry into leasehold reform. Thank you very much for coming. I will ask Committee Members to put on record any particular interests they have that may be relevant to this inquiry. I am a vice‑president of the Local Government Association.
Teresa Pearce
Aside from my register of interests, I employ a councillor in my office.
Helen Hayes
I employ a councillor in my office. I am a vice‑president of the Local Government Association and I am a leaseholder.
Mr Dhesi
I am a councillor, as per the Register of Members’ Interests.
Bob Blackman
I am a vice-president of the Local Government Association.
Kevin Hollinrake
I employ a councillor in my office and have connections with this industry, which are fully declared in the Register of Members’ Interests.
Mary Robinson
I own a property that is subject to leasehold.
Andrew Lewer
I am a vice-president of the LGA.
Mr Prisk
I am a fellow of the Royal Institution of Chartered Surveyors.
Chair
Thank you very much for coming to give evidence to the Committee this afternoon. Could we ask you to say who you are and the organisation you are representing today?
David Jenkinson
I am David Jenkinson from Persimmon Homes.
Jason Honeyman
I am Jason Honeyman, CEO of Bellway Homes. We build around 10,000 homes per annum across the country.
Jennie Daly
I am Jennie Daly. I am the group operations director of Taylor Wimpey. I sit as an executive board member and a member of Taylor Wimpey Plc.
Chair
Thank you for coming to the Committee this afternoon. As a first question, you as companies all sell leasehold properties, and many of them will have clauses in the contracts about escalating ground rents. How do you justify those clauses?
David Jenkinson
The problem is that there is no real definition of what an onerous ground rent is. If you look at the definitions, there is not really any definition of what onerous is or of what new build is. That has led to a bit of confusion around the numbers and the scale of the problem. That confusion has led to a bit of confusion for the customer. My own view of what an onerous ground rent would be is one that materially affects the customer’s ability to sell or to dispose of their home. Personally, I am not aware of any Persimmon leases where that is the case. I am not really sure where the definition comes from.
Jason Honeyman
As Bellway, we do not have any onerous leases. Our standard lease is based upon a rent review based on RPI, which is acceptable to all the main lenders. We do not have any complaints with regard to onerous leases. I would echo what Dave has said. Where a ground rent value becomes disproportionate to the value of the home, that is where you capture an onerous or a defective lease.
Chair
You are right, but why is there an escalation at all? You are not doing any more for collecting more money, are you?
Jason Honeyman
The purpose of an RPI increase is an index that is acceptable to the lenders. The purpose, as I understand it, is to ensure the ground rent at the time of purchase is the same in real terms at some point in the future. That is the idea.
Chair
Why, if you are not doing more for it?
Jason Honeyman
It is just an index that is acceptable to the lenders.
Chair
Is it acceptable to the person who is buying the property? That is surely the test.
Jason Honeyman
It is a good question. The purpose is simply to design it so the value at the point of sale is in real terms the same value in 25 years’ time. That is the idea.
Chair
You have not really answered the question of what more you are doing to bring more money in.
Jennie Daly
First, I welcome the opportunity to appear before the Committee today, both to repeat our apology to those customers who have been affected by a very specific lease that Taylor Wimpey had historically, which was a 10-year doubling ground rent lease, and, if I have the opportunity, to explain the measures that Taylor Wimpey has taken to date and is taking to help resolve that issue for our customers.
Chair
We will come back to that particular compensation scheme in due course.
Jennie Daly
In respect of ground rent, picking up on the matter of RPI, the expectation is that an RPI index is merely to reflect the progressive value of money.
Chair
Yes, but not necessarily the value of what you do. Nobody has managed to explain that quite yet. Right, so I go into one of your salesrooms and buy a property freehold, as opposed to leasehold. Do I get charged more for that property if it is freehold?
Jennie Daly
It is important to differentiate between houses and apartments.
Chair
Let us start on houses then, because clearly properties of a similar nature are sold both freehold and leasehold.
Jennie Daly
The expectation is that a customer would pay more for a freehold property than a leasehold property.
Chair
Right, so a customer comes into your showroom and wants to buy a property. Do you offer them two different prices for freehold and leasehold?
Jennie Daly
We no longer sell houses—
Chair
You did in the past.
Jennie Daly
We did in the past. A property would have been offered leasehold and there would have been potentially a separate premium for the freehold.
Jason Honeyman
Can I give you an example of that? We are the same as Taylor Wimpey in that regard. There are only certain areas in the country that seem to have leasehold homes, predominantly now in the north‑west, some parts of the north‑east and very central parts of London. If you were to come into a home in Newcastle, say, and you wanted to buy a home of around 1,000 square feet, you could buy that at £196,000 on a leasehold basis. If you wanted to acquire the freehold it would cost you around £200,000. That is the sort of difference.
Chair
That can be done at the same time. You could go in and choose, could you, which sort of arrangement you had?
Jason Honeyman
Not today, but you could in 2016 when we were selling leasehold properties.
Chair
That was clearly advertised to anyone coming in to buy a property from you, was it?
Jason Honeyman
Our group instructions to all our sales offices are to offer either leasehold or freehold.
David Jenkinson
That was not the case in Persimmon. Once we decided a site was going to be leasehold, the site would be sold leasehold and they would all have a lease, and the same if we sold a house that was going to be freehold. The only exception to that rule would be if it was an apartment. An apartment would have the ground rent to do with the management of the building.
Chair
Just to come again, you did not sell properties leasehold and freehold for the same site.
David Jenkinson
No, not houses, which was your specific question. If you want to ask whether we ever had sites where we sold apartments and houses—
Chair
No, I am talking about houses now.
David Jenkinson
For houses we did not have that, no.
Chair
You just sold them leasehold.
David Jenkinson
Yes. The only exception to that came a little bit later when we decided to stop selling leasehold.
Chair
You just have freehold sales, full stop.
David Jenkinson
Yes.
David Jenkinson
You have changed now to just sell freehold. That means you have increased the price of those properties accordingly, does it?
David Jenkinson
We did, depending on prevailing market conditions. If we had a large site, for example, we would come to a logical area where we would finish selling leaseholds and the balance of the site was sold as freehold houses. We looked at the price at the time, increased the price of the freehold units by about £2,000 to £3,000 per unit, and did not sell any more leasehold ones on that site.
Chair
What calculations do you all do about the difference between freehold and leasehold when you are selling? What is the percentage uplift in a freehold property and how would you calculate it?
Jason Honeyman
It varies, but typically it would be 20 times the annual ground rent. That is a typical calculation we would do in valuing the freehold.
Jennie Daly
When we converted to freehold—and I would explain that we really only sold leasehold properties in the north‑west of England, where it was established custom and practice to sell on a leasehold basis—we set a premium that was roughly around the 20 times £5,900 that Jason has referred to. When we made that change for freehold, the property prices were increased.
David Jenkinson
We did something very similar.
Chair
If anyone wants to come along and buy the freehold from you, then, all they have to do is pay 20 times the ground rent. Is that right?
David Jenkinson
I will talk about what we have done later, but it is similar. We have a policy along those lines.
Jennie Daly
With any freehold that Taylor Wimpey retained, particularly when we were transitioning from leasehold to freehold, we made a commitment to those customers that would hold it for a period of no less than five years and that it would be available for them to buy at a specific price.
Chair
Is 20 times ground rent what you would offer if someone came to you to buy their freehold?
David Jenkinson
We have a company policy on that. I can talk now about what we have done to help the customer. I do not know whether you want to talk about it later. I am quite happy to answer the question at any time.
Chair
We can look at the compensation issue, but if you have done a calculation about the difference in price—
David Jenkinson
The policy we introduced is that it would be the lesser of the market value of the ground rent or 25 times the multiple. If it was to come in at 15, they would get it for 15. If it was to come in at 10, they would get it for 10. We capped that figure, and it is in the leases, at 25 times.
Jennie Daly
We have set a specific price.
Chair
We still have not had an explanation of what you collect ground rent for. What do you give to the householder in return for this money you are taking from them?
Jennie Daly
In respect of leasehold houses, that is a fair question. It is one of the reasons that, when these matters came to our attention in autumn 2016, we made a very quick decision to convert the homes that we sell to freehold.
Chair
You do not think you are giving them anything, basically.
Jennie Daly
We believe that they are unnecessary for leasehold houses in the majority of circumstances.
Chair
You were embarrassed into abandoning them, then, because you could not justify them.
Jennie Daly
As I said, it was established custom and practice, particularly in the north-west of England. We did it to remain competitive. When the matter was brought to our attention, it was something that we were uncomfortable with and we made that quick decision, because we believed it was unnecessary in the case of houses.
Chair
Taylor Wimpey does not have any reason to collect the ground rent and cannot justify it. What about Bellway?
Jason Honeyman
The only tangible benefit is to buy a home at a lower price from the outset. There is no other benefit. It is just how I described the price differential at the beginning. That is the only tangible benefit I can offer.
Chair
We had witnesses who came to talk to us about Persimmon. They said, “We bought the property leasehold. They would not sell it any other way, but then, when they sold the freehold properties on the next phase because they had changed the policy, the prices were not any different”.
David Jenkinson
I do not know which site that was. I could guess which one it possibly was.
Chair
Quite a few people have complained about it.
David Jenkinson
I imagine it was Harrow. Was it?
Chair
No, it was a northern site.
David Jenkinson
Was it? That is not the company policy. I can assure you that the company policy could not have been clearer. When we stopped building on a particular phase, the instruction went out to increase the price on the balance of the site.
Teresa Pearce
When you sold new build houses as leasehold, was that under the help-to-buy scheme?
Jennie Daly
I have looked at our records and, in respect of leasehold houses—I would repeat that for Taylor Wimpey that was predominantly in the north-west of England—about 2.7% of our leasehold houses were sold under right to buy.
Jason Honeyman
If I can give it to you in context—it is in the thousands, really—we would not differentiate for a buyer whether they are buying cash or whether they are help to buy.
Teresa Pearce
You had to be an approved developer to be under the help-to-buy scheme. Would they have been help-to-buy properties that you sold?
Jason Honeyman
Yes, all properties would be help to buy that are categorised or fit within the criteria. I would guess we sold around 4,000 homes across a five or six-year period on leasehold. As a best guess, looking at the shape of the business, around a third of those would have been on a help-to-buy basis.
David Jenkinson
Just so you understand, when we were developing a site, once we decided it was going to be a leasehold site we did not distinguish between help to buy and any normal form of sale, whether it was a mortgage from help to buy or whether it was a cash purchaser, for that matter. Where it was leasehold for that purchase, when the customer used help to buy it would be a help-to-buy sale of the leasehold.
Kevin Hollinrake
I accept it is custom and practice in the north-west to have leasehold properties, but one of the problems seems to be the level of the charge. Can you just say what you were charging typically on a leasehold house, say, before you changed your practices? What were you charging typically? What was the annual ground rent?
Jennie Daly
The ground rent would have varied.
Kevin Hollinrake
What was it typically?
Jennie Daly
It was somewhere between £150 and £290.
Kevin Hollinrake
Let us say it is an average of £200.
Jason Honeyman
We have always said around £200 is the passing ground rent.
David Jenkinson
Ours would be very similar.
Kevin Hollinrake
What would the figure have been 10 years ago?
Jennie Daly
It was broadly similar.
Kevin Hollinrake
It was around £200 a year 10 years ago. What about 20 years ago?
Jennie Daly
I am unaware.
Jason Honeyman
I would be guessing.
Kevin Hollinrake
Could you let us know? Can you write to us and let us know what you were charging, say, 20 years ago? Is it not the case that the level of ground rent seems to be much higher? I have been dealing with ground rent with leasehold properties for many years, in my life prior to entering Parliament, and grounds rents used to be pretty much peppercorn, yet they seem to have in recent years gone through the roof. The only explanation you can see for that, because, as the Chair said, there is no tangible work, especially for a leasehold house, is that this is just a side door into a profit opportunity. Is that a fair reflection of where we have been?
Jennie Daly
As I say, in respect of leasehold houses, we have taken the decision that it is unnecessary.
Kevin Hollinrake
Is it fair to say the level of ground rent increased well beyond the level that was fair?
Jennie Daly
As I have indicated, it was broadly similar 10 years ago and I am not able to comment on 20 years ago. We will take away your question and reply.
Jason Honeyman
I am certainly not aware of any step change in ground rent in the past 10 years, but I will look into it and see if we can see some correlation over the past decade or two.
Kevin Hollinrake
Two decades would be great.
David Jenkinson
It is a valid question. I will come back to you as well.
Mary Robinson
We heard evidence that up to 80% of new homes in the north-west were being built and sold with leaseholds attached to them. We seem to be thinking that it is custom and practice. It has always been done that way. Given where we are now, inquiring into it, and some of the changes that have been made by Taylor Wimpey, is it still an appropriate model?
Jason Honeyman
Personally, I do not think there is anything wrong with leasehold tenure, which has been used for a very long time, providing you have a fully marketable lease. I do not think there is anything wrong with leasehold tenure, particularly for apartment blocks, which we are also discussing today. I do not know if that answers your question at all.
Mary Robinson
It is for apartments, more so than for housing.
Jason Honeyman
Certainly, yes.
David Jenkinson
I would agree with Jason on that point. A lot depends upon the situation of each individual, but I agree with Jason.
Mr Dhesi
With respect to leaseholders, based on the evidence sessions and the round tables we have been involved in, I can inform you that there are a lot of unhappy people out there. That is to put it mildly. Let us look into the compensation schemes with respect to ground rent. Last week, one leaseholder accused developers of offering “as little as they can possibly get away with” to compensate leaseholders affected by onerous ground rents. Is that a fair analysis, in your opinion?
Jennie Daly
I can answer that, on the basis that Taylor Wimpey does have a voluntary assistance scheme for our customers who were affected by a specific 10-year doubling ground rent clause. We took the matter extremely seriously when it was brought to our attention around autumn 2016. The reason for that timing is that the leases we created with that specific clause were used on new developments between 2007 and 2011, and they were coming up for their first doubling and were starting to cause concerns to customers. We did act very swiftly. We talked about Taylor Wimpey’s decision right at the very start of 2017 to move away from the sale of leasehold houses in favour of freehold. We also, having undertaken a detailed internal review, established a provision of £130 million, which we announced in April 2017. We have engaged with freeholders to provide umbrella framework agreements, such that our customers with that particular ground rent clause are able to convert their lease from the 10-year doubling clause to RPI. It has been a slow process, but we have engaged quite well with the freehold sector. I am able to confirm that we have agreements with freeholders that represent 95% of those leases. We are in detailed and advanced legals with freeholders representing a further 2% of those leases, and we are still in active negotiation with freeholders representing that very small balance. We have been managing the scheme now for a year, having announced the first agreements with freeholders in September and October last year. While I would accept that progress has been slow, it has been gaining momentum. We have now converted a material number of leases to RPI leases and we will continue to do so.
Mr Dhesi
I will come on to that RPI aspect later as well. Mr Jenkinson, what do you think?
David Jenkinson
We identified a problem mainly with event charges back in 2014, and the company made the decision to not dispose of any ground rents to any third party. We have not made any disposals since 2014. We held them within the business, to ensure our customers got treated fairly to do with them. Once it became clear after that, we also wrote to all our customers in July 2017 and offered them a right to buy. For ground rents that had materialised since 2014, we offered each customer an opportunity to buy the individual ground rent after two years. That purchase was going to be at the lesser of 25 times the ground rent or the market value of the rent at the time. Interestingly, not that many people have taken up that offer. Only 160 people have taken that offer up. Once they knew they could buy that for a sum that equates to roughly 0.5% to 1.5% of the value of the property, they did not want to take it up. They just wanted to know the comfort of it. Secondly, we have controlled the event charges in there, so there can never be more than £250 for a major extension. Minor issues are free and structurals are £75. We also put these clauses into future leases, to protect not just our current customers, but the ones beyond the first sale. Thirdly, we reviewed all the leases that we had, to see if there were any that we considered to be onerous leases. We identified 60 potential leases where we had a problem, wrote to our customers and changed their leases to terms that were acceptable at no cost to them.
Jason Honeyman
Similar to Dave, we do not experience the level of complaints that I sometimes read in the press. Across our group, over the past few years, we have had 142 divisional complaints about leaseholds. We have had 18 at group level. I can only put that down to the fact that we do not have, as a business, any defective leases. We do not have the onerous leases that Jennie has referred to. All of ours are subject to RPI, and hence the lenders are willing to lend on that basis. The majority of complaints we have experienced have all centred on consent fees and the cost of acquiring the ground rent in the future.
Mr Dhesi
As I said, I will come back to RPI later on. Let me reassure you that we have experienced lots and lots of complaints in the evidence sessions, so somewhere along the line our things are not quite corroborating. In terms of Taylor Wimpey, during our last session we had discussion about the Taylor Wimpey ground rent review assistance scheme. It was criticised for having paid out only £11 million of the £130 million that was reportedly set aside, as well as being very, very slow and very difficult to understand. Should you not really revisit how that scheme works?
Jennie Daly
First, the £11 million figure referred to was a point in time and was reported for accounting purposes in July to the City. Reporting on our progress in the utilisation of the provision is not necessarily the best indicator for members as to the progress we have made. We have made substantial progress. We have expended or utilised a significantly greater figure than has been identified. We have had a significant number of our customers apply. As I say, we have had over 2,200 deeds of variation now completed. We have a significant number of customers in the system. It is a complex process. We have sought on behalf of our customers to take as much of the complexity out of it as possible. We have worked with the freeholders to agree that framework agreement. We have set up, through external solicitors, a legal hub that will assist the customer and their solicitors. We have a customer-facing team, who will assist customers. We have a website with readily understandable FAQs. We do, however, have a meaningful number of customers in our system who have, for reasons of their own, chosen to pause their applications while the Government’s consultation is in train. We can process applications in somewhere between eight and 10 weeks. We have achieved conversions much more quickly than that. Sometimes it takes a little longer. We have a number of solicitors, the freeholders, lenders and management companies, but we are determined to resolve this matter on behalf of our customers. We have indicated no end date on that scheme and we will continue to work hard on their behalf.
Mr Dhesi
Taylor Wimpey seems to be ahead of the curve on this particular aspect. Gentlemen, in terms of Bellway and Persimmon, do you have any similar plans to introduce such compensation schemes?
David Jenkinson
“Ahead of the curve” is not quite the right line. It is behind the curve, almost, because we are not in that position. We did not have the leases, exactly the same as them. We were not in the same position as they were, so we did not have to carry out the same actions. We did not rest on our merits. We noted back in 2014 that there was an issue with event charges. Therefore, we did not sell the freeholds. They were kept by us. Therefore, third parties were not able to charge the amounts that have caused so much concern. We have not just done that. We have gone much further than that. We have introduced a right to buy to our customers, so if they want to buy that freehold they can buy it off us at the lesser of market value or 25 times.
Mr Dhesi
What other compensation schemes are you looking to introduce?
Jason Honeyman
We do not have any onerous leases, so we have not had the level of complaint that Taylor Wimpey has. We just do not have that volume of complaints coming through our business. All our leases are perfectly marketable, as they would be on an apartment scheme. I just do not have that problem.
Mr Dhesi
Okay, fair enough, it is there for the record. Let us come back to the issue about RPI. Some developers have made offers to leaseholders to convert the doubling ground rent clause to one that increases at the rate of RPI. Is that really a better deal for leaseholders?
David Jenkinson
It depends on who controls the freehold itself. Personally, I do not think that is the real issue, whether it is RPI or doubling. If you are doubling £2, for example, it would only be £4. What is more important is the starting amount, where it ends up and whether it is capped. The crux of this whole point is whether they have a marketable product at the end and whether it materially affects the value of that customer’s house. We do not believe we have leases like that. However, if anybody brings a lease like that to me, I am more than happy to look at it and deal with it personally. Similar to Jason, I do not believe we have those leases.
Mr Dhesi
You do not mind which one, whether it is doubling ground rent clauses or whether it is at the rate of RPI.
David Jenkinson
From Persimmon’s experience, that is not what really worries customers. What worries the customer is how much it is going to cost them to buy the freehold.
Mr Dhesi
We had one person giving written evidence who said, “I must sign away my rights to take any further action and be prepared to have RPI increases for the entire length of the lease—some offer”. That was against Taylor Wimpey. “The current doubling lease terms provide the freeholder with a ground rent in excess of £800,000 for the term of the lease. The proposed changes to RPI generate ground rent in excess of £2.2 million for the term of the lease. How can this be judged as a good offer?” It is very well put. What do you think?
Jennie Daly
There are a few points that you have raised there. The first is in respect of what is known as the settlement agreement, to which the customer is referring. It is not a requirement to sign away their rights. The settlement agreement has been defined in the narrowest terms, and we have set it on the narrowest terms, to address only and very specifically the doubling ground rent provision clause. It in no way prohibits or would prevent any customer from seeking legal remedy on any other matter to do with their lease or, indeed, from third parties. I am quite happy to provide the Committee with a copy of the settlement agreement. It is very straightforward. It is a single A4 page. We have made that point with great clarity to customers who are concerned. Regarding RPI, RPI is by far the most significant lease in the residential leasehold sector. It is readily understood. We talked earlier about preserving effectively the value of money. If a lease is set at £150, effectively RPI reflects what that would be worth in years hence. The issue with the doubling ground rent was specifically around the affordability of that ground rent. The clause only doubled five times. There were only five review events, but the escalation was a matter of some concern to our customers, which we entirely understood and we felt that we should respond to. In returning them to an RPI lease, we have effectively returned them to a lease that would have been the case had we not introduced the doubling ground rent, and which is the lease of preference for the sector. Really, we have put them on a level playing field with the vast majority of leases in the residential leasehold sector.
Mr Dhesi
For the record, Mr Honeyman, what are your views on this issue?
Jason Honeyman
Sorry, I feel like I am always trying to blame Jennie for the problem, but it is the doublers that are the problem. Our standard lease from Bellway is compliant with CML, which is the Council for Mortgage Lenders. It is accepted by all the main lenders, so we do not experience the problems that you are referring to. All our leases are perfectly marketable. It is a very similar lease to the one that we use for our apartments, where we do not experience any problems.
Bob Blackman
I just want to clarify the understanding from each of your perspectives. I understand that maybe this does not apply to Bellway, but from Jennie and David’s perspective it is the principle of the doubling I just want to confirm. If the ground rent typically starts at, say, as Mr Hollinrake referred to, £200, after 10 years that becomes £400, after 20 years it becomes £800, and so on up to 50 years, when it becomes £6,400. There are companies out there that double the ground rent after five years, so you get to £6,400 after 25 years. What is your understanding of what your company classifies as the doubling of ground rent?
Jennie Daly
I am referring specifically to a lease that Taylor Wimpey introduced in 2007 to new developments up until 2011, which was a 10‑year doubling ground rent lease.
Bob Blackman
Every 10 years, the ground rent would double. Starting at £200, after 10 years it would go up to £400.
Jennie Daly
That is correct.
Bob Blackman
After 20 years it would be £800, and so on.
Jennie Daly
Yes. As I have said, we are uncomfortable with that and we have introduced the voluntary assistance scheme to resolve the matter with our customers.
Bob Blackman
We have clarified that.
David Jenkinson
We had some doubling ground rents and it is important to understand how that came about. It was to do with customers wanting certainty on what they were going to pay in the future, but they are capped, so the actual amount of money works out the same as if it was RPI, or as near as could be expected.
Bob Blackman
How can you predict what RPI is going to be?
David Jenkinson
You cannot. That is why some of the customers would rather have certainty of knowing what the payment was going to be. What we did not want to do was to keep doubling.
Bob Blackman
So you cannot say it was capped.
David Jenkinson
No, it was capped once it doubled. When it reached £1,200, for example, it was capped. It could not go any higher.
Chair
Very briefly, you are saying that you do not have onerous ground rent arrangements because they are linked to RPI. You are all saying, if ground rent increases are linked to RPI, they are not onerous. That is your view.
David Jenkinson
There is no definition. It depends where your starting point is with RPI. If a £10,000 ground rent was RPI linked, it would probably affect the value of the house if it was £100,000. I am saying, to be clear, it is anything that materially affects the marketability of that house.
Jason Honeyman
If you have a modest ground rent with a rent review at 10 years on RPI, it is perfectly acceptable.
Jennie Daly
My view would be that there are very specific legal and financial accounting definitions of “onerous”, which I am not qualified to advise the Committee on. I can say that the 10-year doubling ground rent lease that Taylor Wimpey introduced is not consistent with our high standards of customer service. We felt uncomfortable and wished to work on behalf of our customers to resolve the matter.
Chair
Linked to RPI, it is not onerous. That is your definition. It is not onerous if you have a ground rent increase linked to RPI.
Jennie Daly
It is a combination of factors. As I have said, I am not legally qualified to advise members on the definition of what is onerous.
Chair
You can tell the Committee whether you think your arrangements are onerous or not.
Jennie Daly
The Government’s work on—
Chair
I am asking for your view, not the Government’s view.
Jennie Daly
My view is that “onerous” has some very specific definitions in legal and financial terms. We are uncomfortable about the doubling ground rent that we introduced and we are working to resolve that.
Chair
Linked to RPI, your ground rent rates are not onerous.
Jennie Daly
The RPI form of lease that we are returning our customers to, I am satisfied, is marketable, saleable and affordable.
Chair
It is not onerous.
Jennie Daly
It is not onerous.
Chair
Does that go for your rates as well?
David Jenkinson
As I have said previously, there is no definition of what an onerous ground lease is. You have asked me what I think it is. My personal view is that, if it is a lease that affects the marketability of the house, it is onerous.
Jason Honeyman
I am satisfied that our lease is CML compliant. It is satisfactory for purchasers and it is fully marketable.
Bob Blackman
I am going to come back on this issue of what the definition of “onerous” is, because, Mr Jenkinson, as you are quite rightly saying, it is whether it is marketable or not. Would you accept that marketability is dependent on the lenders being willing to lend money for the purchase of that property?
David Jenkinson
I could not agree more. That is a perfect assessment.
Bob Blackman
The definition of that is 0.1% of the value of the property. If the ground rent is above that, it is considered onerous.
David Jenkinson
Those were the rules that Nationwide introduced. If you have a look at what that rule says itself, it says, on affordability, “Lenders need to establish if the lease will have any impact on the borrower’s affordability. It is a regulatory requirement for lenders to take account of all known future changes […] As such, understanding the level of ground rents, how they increase over the mortgage term and other known charges due under a leasehold agreement are relevant to lenders’ assessments of affordability”. If ground rents and other charges appear to have an impact on the value and saleability of the property, this needs to be taken this into consideration in deciding whether, and how much, to lend. That is basically saying, if the ground rent, due to its terms and conditions, affected the saleability of that property, they should not lend on it. To me, that is a reasonable assessment. If any of our ground rents had criteria in them that meant they had to be valued in accordance with those conditions and, therefore, they would not have been able to lend—
Bob Blackman
If any of your customers—they are still your customers, because they are leaseholders as opposed to freeholders—cannot sell their property because other people cannot get a mortgage due to the ground rent issue, you would accept that that is onerous.
David Jenkinson
I totally accept that point. If they cannot, I am more than happy to look into it. I have had a look, over the last two years, at how many of these we have had.
Bob Blackman
I am happy that you are prepared to do that, because we have had lots of evidence from your customers saying that they cannot sell their properties.
David Jenkinson
I am more than happy to look at individual cases for you.
Chair
Coming back to Taylor Wimpey, you have spent more than £11 million on your scheme, so how much?
Jennie Daly
We have utilised over three times that, and then we have a significant amount pending.
Chair
If you do not have a figure immediately to hand, can you let the Committee have the figure?
Jennie Daly
I would be happy to write to you, yes.
Mr Prisk
Perhaps we can look at the Government’s proposals for reforming ground rents. The proposal at the moment is to cap at £10. A number of written and oral evidence pieces have been provided to us saying that this could have adverse impacts. As builders, what impact would a £10 cap on ground rents have on housebuilding?
Jason Honeyman
To put a £10 cap on everything may be a blunt instrument to apply to all. The reason I say that is because certainly some apartment blocks that I build in London are quite complex. You will have 25 storeys. You will have subterranean central heating plants. You have concierge services, gymnasiums, yoga rooms, all sorts of facilities within that envelope. A £10 ground rent, for a complex building that needs a specialist to manage it for the long term, is probably too low, but it may work on a low rise block of, say, 12 or 15 apartments without all those complexities. I certainly a support a calculation for a ground rent, but the complexity and the style of the building, I would suggest, have to be taken into account.
Mr Prisk
Presumably, a lot of the things you have just described would be covered by the service charge.
Jason Honeyman
Yes, they would, but it is about the quality of the freeholder as well. You would not want an inexperienced freeholder managing a building, being responsible for firefighting, lifts and the like, in a complex high-rise building in that instance. You are not going to create sufficient investment value to attract the quality investors for long‑term management.
Mr Prisk
Would it affect the housebuilding numbers? Would you build fewer?
Jason Honeyman
Would I build fewer? No, I do not think so.
Jennie Daly
I would agree that the level of income from the sale of freeholds is relatively small against our main business of selling homes. I would share the concern around the incentive for professional freeholders to be involved in buildings of certain typologies that are complex. I would reconfirm the discussion we just had, really. The important thing is that it is clear, appropriate, fair and transparent from a customer’s perspective.
Mr Prisk
So you are happy with the £10 cap.
Jennie Daly
It introduced issues, as I say, in respect of the incentive for freeholders to remain involved in the sector, particularly for complex buildings. We will conform to whatever the outcomes of the Government’s consultation are.
Mr Prisk
In a normal housing estate in which you have detached properties, how complex does it have to be?
Jennie Daly
We have already moved away from any sale of leasehold houses where we have had the ability to do so, so that is not likely to be an issue. As I have said, it is not a significant income for Taylor Wimpey.
Mr Prisk
What about Persimmon?
David Jenkinson
I have no problem at all with the £10. A lot of the things that Jason was talking about could be dealt with through a management company anyway. As for the effect on production, it would not have any impact at all.
Mr Prisk
Some of the witnesses who have written to us have come out with a number of other things that would be adverse as such. Mr Honeyman, you have suggested that this might impact on complex, high‑value flats. One can see that, although service charges would resolve much of that. Are there other adverse impacts from such a cap that you can see, as people who work in the sector, that we as a Committee should be aware of?
David Jenkinson
The only thing I would say is that a lot of Government bodies sell land leasehold, because they like to keep some level of control. If there was a £10 cap on that, it would probably get around that issue. We just need to be careful around that point, because it is generally Government bodies that sell land as leasehold.
Jennie Daly
It is true that many local government disposals are on a leasehold basis.
Mr Prisk
Some people have said that freeholders will be driven out of the market. Some of our constituents might be very grateful for that, given the behaviour of some of them to date. Is that your view? Would that drive freeholders out of the market?
Jennie Daly
In terms of those large institutional freeholders, I fail to see what the incentive would be for them to stay in the market, but I understand that representatives of the freeholders are in the next session. That probably would be an appropriate question to ask them.
Mr Prisk
I am sure it will.
Bob Blackman
Coming back to the evidence we have received, we have got a lot of accusations that purchasers of leaseholds were told, at the time of buying their leasehold, they would be offered the freehold at a future time, either within one or two years, at a lower price. They then discovered that the freehold had been sold on without their knowledge and they were not offered the opportunity to buy the freehold. Can I ask this? We got evidence from individuals who bought leasehold properties from your company, Mr Honeyman, who have been told now that their properties have been sold on to Adriatic Land 4 (GR1). There are several examples here of different developments where the freehold has been sold on without the leaseholder’s knowledge and they are now not able to buy the freehold at all. Why is that?
Jason Honeyman
Can I explain how we operate as a business? That may add some colour. We, as a business, are not long-term holders of assets. We sell on the freehold at a point in time when we complete a development.
Bob Blackman
Sorry, can I interrupt you there? Why do you not, at the point that you are selling the freehold, offer it to the leaseholder direct and say, “You now have the opportunity to buy this freehold”?
Jason Honeyman
If I can just explain how we do it, we have never done it that way.
Bob Blackman
I am asking you why you do not do it that way.
Jason Honeyman
Principally, it is because a house does not have the right of pre‑emption to acquire the freehold. We have always relied upon that to put all the ground rents in a portfolio and sell that portfolio on to an institutional investor at the end of the development. That is how we have always operated as a business, certainly in the north-west.
Bob Blackman
You sell the leasehold, you sell off the freeholds to someone else, and then the freeholder comes and says, “No, we are not prepared to sell the freehold to you”, or, “You can buy the freehold. It has now gone up to £50,000”, instead of, as you said at the beginning of your evidence, maybe £3,000 or £4,000 difference.
Jason Honeyman
Yes.
Bob Blackman
Yes, that is the position.
Jason Honeyman
Yes. The purchaser’s rights should not change, whether I am the freeholder or whether an investor is the freeholder. What you are referring to, or certainly what we have experienced through a number of complaints, is where we have sold on the freehold interest and you could have acquired the freehold from us at between £3,000 and £5,000. Where we have sold on our interest to an investor, they have charged a higher rate because the market has gone up at that point. We have gone through a period where the market was there, it has gone up and it has come back down again. I have not heard of a situation, sir, where they have refused to sell the freehold. I have only had experience that the ground rent or the cost of the freehold has increased. As I understand, and you may hear it a little later in the second session, all our purchasers can now acquire the freehold at the original price because the market has now reduced. Does that make sense? I certainly have not heard of people being refused.
Bob Blackman
What is your company’s arrangement with this company, Adriatic Land? Presumably this is a normal company you use.
Jason Honeyman
We only sell to institutional blue chip investment companies. Adriatic, which I know as Long Harbour, is an FCA-regulated investor and an experienced property manager.
Bob Blackman
It is up to them, then, to determine what they do in terms of the freeholds for your previous customers.
Jason Honeyman
It is.
Bob Blackman
Why is it, then, that your company has this policy where you sell it off to a third party and not offer it to the individual leaseholders at the time you are offering the sale?
Jason Honeyman
It is how we have always operated as a business. I am sure that is not the answer you want.
Bob Blackman
I am asking why your customers do not get the chance to exercise the opportunity to buy their freehold. You are selling the freehold out from under them without their knowledge.
Jason Honeyman
Yes, we are.
Bob Blackman
I would regard that as being, quite frankly, a scandal. You are not offering the opportunity for people to buy the property in which they live and have invested a large amount of money. They are suddenly told it is going to be managed by a new freeholder, without having that opportunity. My personal view is that your company should review what you do in terms of business practice. Of course, it is up to you what you do.
Jason Honeyman
Sir, could I just comment upon that? I am not sure I subscribe to it as a scandal. You are offered at the point of sale a freehold and a leasehold, and the law says that you have the right to acquire the freehold after two years of living in it. You are right. You are quite right. You are 100% right that I sell that basket of freeholds to an investor without asking the customer whether they would like to buy it again.
Bob Blackman
Do you think the law should be changed to stop that?
Jason Honeyman
The whole area of first right of refusal is confusing and I would suggest, through the reform process, taking it a step further. I would have a cap on consent fees. I would have a cap on calculation of ground rents. I would have a calculation on the value of the freehold. I would make the whole process more consumer friendly.
Bob Blackman
I agree with you but, in terms of the right of first refusal, should the law be changed in that respect?
Jason Honeyman
It is confusing.
Bob Blackman
Can we have a yes or no?
Jason Honeyman
Yes.
Bob Blackman
You do agree, fine. Can I take from Persimmon and then Taylor Wimpey the view of how you sit, in this particular aspect?
David Jenkinson
Your point is a valid one. We noticed this back in 2014. That is why we took the view not to enter into any further arrangements with these third parties, and we decided to introduce a right to buy to the customers, as I have previously outlined, which is capped at 25 times or the market value, whichever is the lesser.
Bob Blackman
What have you done for the people prior to 2014?
David Jenkinson
We were not aware of that situation at that time, but we had very few complaints before 2014.
Jennie Daly
As part of our evidence to the Committee, and in our response to the Government’s consultation on tackling the leasehold market last year, we did recommend that the inequity in offering the right of first refusal to leasehold houses should be changed. We would be very supportive of that change. We also recommended that the fairness, speed and cost of the enfranchisement process should a freeholder not willingly sell at a fair price be reviewed to benefit customers also.
Bob Blackman
Can I come back to you on one issue? There could be conflicting connections between your company as a housing developer and the investment companies that are buying these freeholds. It has been suggested to us that senior executives and managers of the development companies may also be senior executives or directors of the people that are buying the freeholds. Are there any cross connections?
David Jenkinson
That is definitely not the case in Persimmon at the moment.
Jason Honeyman
It is definitely not the case. When you sell a subsidiary company, within that company there are names of directors and that company is then acquired. That is how the freeholds are sold. I think there was some confusion around there, but we are certainly not linked to any investors in any way, shape or form.
Bob Blackman
We can be clear that none of your listed directors or senior managers are senior managers or directors, or have any financial interest, in the so‑called blue chip companies.
Jason Honeyman
I am 100% certain.
Jennie Daly
I can confirm likewise.
Chair
To follow up with Persimmon, you do not sell houses leasehold now. You are also saying that you are offering, where you have done, the opportunity to buy the freehold. What about flats? You are still selling your flat freeholds on to third parties, are you not?
David Jenkinson
No, we are not. We have not sold any on to third parties since 2014. We are still selling leasehold, but we have not sold any on to third parties.
Chair
You are keeping the freehold of a flat complex as you build it, are you?
David Jenkinson
Yes.
Chair
What is the connection, then? We mentioned Adriatic Land. Adriatic Land 2 was originally Persimmon Group (No. 3), so what is your connection?
David Jenkinson
Adriatic was a deal we made in 2013 for the disposal of 470 properties. There has been no contact with Adriatic since 2013.
Chair
You have not sold any freeholds at all as a company.
David Jenkinson
The last one was 2014 of 540 units.
Kevin Hollinrake
You talked about saleability. That is the criterion, whether it makes a property un‑saleable, Mr Jenkinson. You talk about saleability as the criteria you would apply for whether a ground rent is fair. There is also an element of fairness here, which we look at aside from the saleability of a property, on these issues. You said before that over the last 10 years none of you have increased ground rent significantly. That is what you said before in your earlier evidence. That was right, was it not?
Jennie Daly
Yes.
Kevin Hollinrake
Yet if you applied RPI to something 10 years ago that was, say, £300 it would now be £403, so that has increased by 33% on RPI. Why is that? If you are saying they have not increased, how can RPI be fair?
Jason Honeyman
I need to do some work to demonstrate what we were charging 10 years ago, and 10 years before that, before I can answer that. The only index that seems to be acceptable to lenders is RPI, and it is CML compliant. I cannot offer you more than that.
Kevin Hollinrake
What would be acceptable to lenders, you would probably agree, is nil increase. It would be perfectly acceptable to lenders.
Jason Honeyman
Yes, it is about having a CML-compliant lease that the main lenders support, and then you have a marketable lease.
Kevin Hollinrake
There is a difference between leasehold houses and apartments in terms of the stewardship. I accept that. On leasehold houses, there is no justification for a ground rent to increase, is there, other than a profit opportunity for you?
Jason Honeyman
In my limited understanding of it, if you have a long‑term interest in the property that has a 10-year rent review based on RPI, it is perfectly acceptable.
Kevin Hollinrake
To whom?
Jason Honeyman
To the lenders, to the purchasers and for marketability.
Kevin Hollinrake
We are talking about not just the lenders here. We are talking about the people who live in the houses and own them. It is not acceptable to lots of them that there is effectively an increased cost for no purpose. As the Chair said in his first question, there is no purpose to this. It is just an opportunity to create extra revenue from the properties you sell. That is a fact, is it not?
Jason Honeyman
Either we acquire the value at the point of sale and sell it for £200,000, or we sell on the freehold at a later date. You are suggesting that it is bad practice, but it is certainly not the way we operate. We will either collect all the income at the point of sale, or sell a leasehold and sell it on at a later date. That is how we have done it in the past.
Kevin Hollinrake
In terms of the people pre‑2014, Mr Jenkinson, you were saying you might have sold those ground rents on at a multiple and there is nothing you can do about that, because you have just sold them on.
David Jenkinson
We do not have the same level of control. If there was an inherent problem with any of them, I would look at that. Having reviewed the ones we have sold, I am not aware of any that would affect the marketability of the property, but I am quite happy to look at any that do.
Kevin Hollinrake
We speak to various different people who live in the houses you have built and are very unhappy about this. Would it not be the right thing to do to make a commitment to buy those freeholds back and sell them back to those people, even if it is pre‑2014? You must have an ongoing relationship with the people you are working with, Long Harbour or whoever else. You must be able to do that and do the right thing, even though it might cost you money. If those leases have increased unfairly through an RPI charge that is for no purpose, it is going to cost people more and more to buy these leases back, even if they are available to them. You are saying that they are probably not available to them and they cannot get out of these leases because they were sold on to a third party and they cannot do anything about it.
Jennie Daly
There are a few things there. First, the purchasers of properties will have received information that clearly indicated that they were acquiring leasehold properties. They would have been advised by independent conveyancing solicitors as to the terms of the lease.
Chair
We will come on to that one in a minute.
Jennie Daly
Certainly, Taylor Wimpey’s leases were clear and simple. They were aware that they were not buying a freehold property, that it was a leasehold property, and they will have been advised by their independent solicitor of the terms of the rent review. If that is not the case, and I understand issues have been raised, the customers should be going back to their conveyancing solicitors. We have looked at all the relevant information that was available at the time of these sales, and customers have raised some concerns. Where they have done so, we have asked them to present us with any relevant information for review and consideration. To date, we have not received any relevant information to suggest they were unaware of the nature of the property or the tenure they were acquiring.
Chair
That is slightly different to our experience so far, but we will come on to that point.
Mary Robinson
It leads very nicely on to the question I was going to ask. Contrary to that evidence, previous evidence we have received suggested that people did not know about the terms of the lease and did not know there were onerous ground rents potentially involved in them. In fact, what was described to us was a rather cosy relationship between developers, solicitors, conveyancers, mortgage brokers, which could be termed a commercial relationship, with intimation that there were referral fees being paid in exchange for introductions, et cetera. I would be interested in your comments on that. We heard that some buyers were required or induced through offers of discounts, free carpets, a lawn, et cetera, to use conveyancing solicitors recommended by their developers. They seemed to think there was a list and they should go to this list. Why do you think so many leaseholders therefore claim their solicitors failed to inform them of potentially onerous terms to their leases?
Jennie Daly
A solicitor is required to act independently on behalf of their client, whether or not they were identified as part of a panel of solicitors. To assist customers, Taylor Wimpey does, as do many of our competitors, identify solicitors who are familiar with the development, operate locally and are familiar with new home sales. It is entirely a matter for the customer to decide who they wish to use. Even if they are on the panel that we recommend, the first duty of that solicitor is to their client. It is the solicitor’s responsibility to ensure the customer is fully aware of both the ownership structure of the property and the terms of any lease.
Jason Honeyman
We provide a local list of solicitors on each development and often get asked by purchasers for assistance, whether it is flooring contractors, solicitors, curtains and carpets, those types of things. We have a list of solicitors that are local to that development. We would put on that list where we have previously had experience that they are providing a good service to our customers. There are no commercial relationships between Bellway and any solicitor. We have never received any referral fees. That list will change from region to region across the country. If I could just explain the purpose, some conveyancing solicitors are set up to work with new builds, to run volume through their business because they have a lot of conveyancers. Those types of solicitors are used to working on developments such as ours or Taylor Wimpey’s. Some conveyancers are more boutique, or there are just one or two partners in that practice, and would be slower and less helpful. We always find the repetition and the volume guys provide a better price to the purchaser and are more used to that type of land.
Mary Robinson
Could you see or envisage a situation where a solicitor may not be as inclined to give the full gamut of information about the leasehold and its potential pitfalls because they rely on the business they are getting from the developer?
Jason Honeyman
I would suggest the opposite. If you are a north-west solicitor, you are used to selling leaseholds in that fashion and you should be more adept at explaining that to your customers. We train and instruct all our sales advisers to notify purchasers at the point of reservation what type of tenure they are buying. It is set out clearly on the contract documentation. Further, we insist that they seek independent legal advice. I do not always subscribe to the idea that people were unaware of what they were buying. Doubling ground rents is a whole different issue, but I do not think they were unaware, and I certainly have not had complaints in that regard.
Mary Robinson
It is that the solicitor may not have been telling them the details of the ground rents. Could this be a potential problem? Clearly, from the evidence we received, this is something people are raising.
David Jenkinson
The evidence you received is strange compared to our experience. You have to remember there are five clear points of contact when this would have been made out. At the reservation stage, it is clearly made out. They sign a reservation form. We are trained to tell them. When they meet their brokers, this has to be factored into their financial viability before they even apply for a mortgage. They had to know it was a lease. There is no way the solicitor would not tell them that it was a leasehold property and explain the ground rent. When they apply for their mortgage, it has to be filled in on the mortgage application form. Then, finally, the valuer takes account of it, and I have read the CML rules. I am not sure what more we can do. I just cannot reconcile the information you are being told with how they would not know. They may not fully understand the implications of it, but they must have known it was leasehold.
Mary Robinson
Is it the responsibility of the solicitor to point out the implications of a doubling ground rent or that there would be a ground rent?
David Jenkinson
It would be, yes, and the broker, because he would have to factor in the affordability for the mortgage, and the valuer when he comes to value it. All that is taken into account.
Mary Robinson
Are you satisfied they do that?
David Jenkinson
The code from the Law Society is extremely clear on what they have to do. They have to act independently and look after their interests in all aspects of the transaction. If they have not done that, they have a clear case to go to the Law Society. I know you are going to be speaking to them later. I really struggle with this one, understanding how they would not have known.
Kevin Hollinrake
It is an interesting point. It is one thing knowing. It is another thing understanding the implications, is it not? Earlier, Mr Jenkinson, you said that if something affects something’s saleability that is a problem. You must concede that a ground rent that starts at quite a high level, and then doubles, very definitely affects the saleability of that property.
David Jenkinson
It will have been valued in accordance with the CML rules.
Kevin Hollinrake
I realise that.
David Jenkinson
It would not have got a mortgage. It would not have got a value. I do not know how that could have happened. If they are there, and there are examples Persimmon have done, I am more than happy to look at them, as I keep saying. In terms of understanding, I just cannot see how they would not know it was a lease.
Kevin Hollinrake
I accept that, but you will agree that a ground rent that starts high, say £400 a year, and then doubles every 10 years, renders that property unsaleable. Do you accept that point?
David Jenkinson
I would not say it was rendered unsaleable. It could materially affect the value of a house.
Kevin Hollinrake
You agree therefore that the solicitor who, you are right, has an obligation to look after that client at that point in time—
David Jenkinson
If he has not, there will be recourse through two clear actions: they are referred to the Law Society or they take the normal litigation route.
Kevin Hollinrake
You agree that solicitor—
David Jenkinson
He has to explain to them what the cost is. I think the solicitor would go through it. He would have to explain that, yes.
Kevin Hollinrake
It is clear he has not explained it in such a way that somebody has understood it is going to materially affect the value. Therefore, that solicitor is potential liable, in that position, for not doing their job right in explaining the costs.
David Jenkinson
Potentially, depending upon individual cases. Obviously, I cannot pass comment, but the potential would be there if he had not informed them properly and acted in their interest.
Chair
There are quite a few cases we may well refer on to you. The descriptions to us are of people, who are pretty sensible people, coming in to buy a house. The sales assistant has a customer there. They want to advance it: “Oh, that is the solicitor you go to”, not a list, but that is the one. They pick up the phone, talk to the solicitor and make the arrangements for them, because they are a solicitor who knows the area, knows the scheme, knows you as a developer. That is exactly the point you made, Mr Honeyman. They will get it on. They will do it quickly. That is the description we have had in a lot of cases. Something was going wrong, was it not?
David Jenkinson
Not at all.
Chair
No, so there are no costs.
David Jenkinson
Can I just explain? The real reason Persimmon uses a panel of solicitors is to save the customer money because they only need to review the title once. If you go each individual time, the biggest part of actual cost from a sale is to review the title.
Chair
You are saying, “That is the solicitor to go to because they will do it more cheaply for you”.
David Jenkinson
No, they will save them the cost of doing the title.
Chair
I think there is something you need to look at there. It may well be we pick it up with the Law Society as well.
Helen Hayes
We have heard evidence of a range of very problematic practices around leaseholds, whether it is doubling ground rents or selling on freeholds solely for purposes of investment. We would not be sitting here doing an inquiry if there was not that evidence. You would not be sitting in front of us as witnesses if that was not the case. Each of you today has given us examples of ways in which you are proactively changing your practices, under the pressure of public opinion, in response to those problems. Those problems taken together have been compared, in some of the evidence we have received, to the mis‑selling of PPI. Would you agree with that analogy and do you think there should be a similar compensation scheme for affected leaseholders?
Jennie Daly
I would not agree with that characterisation. This is a legal transaction. As David explained, there are a significant number of touchpoints, with professional advice being sought and rendered on behalf of the customer. As I have indicated before, we accept that the specific lease of concern to Taylor Wimpey did not meet our high standards of customer care. We are working hard to resolve that, on behalf of our customers. We are satisfied that the information available to our customers and the legal advice offered to them was independent. The solicitors, the legal advisers, have a duty of care to their client, not to the developer or the vendor.
Jason Honeyman
I do not believe we have mis‑sold. All our leases are perfectly marketable and I do not have the problem Jennie has. I do not believe there is a compensation issue or a mis‑selling position there. As we speak, I do not have any claims on my desk about the issue. I give credit to Taylor Wimpey. They have had a problem, they have put their hands up, they have put in a provision and they are trying to fix it.
David Jenkinson
My position is the same as Jason’s. We have had about 15 customers write to us reckoning they could not get a mortgage for the house. Whenever we have offered assistance, we have been able to get them a mortgage and the property has been sold on. We do not believe we have an issue, in the same way as Bellway.
Helen Hayes
Lots of your customers, across all three companies, who have been in touch with us would beg to differ on that. There is a job to do, in terms of following up with that evidence. The evidence you are giving us today simply does not reflect what many of your customers are telling us as a Committee.
Kevin Hollinrake
Do you support the Government’s proposal to restrict the sale of new‑build leasehold houses?
Jennie Daly
Yes, and the Government proposals appear sensible. We welcome the inclusion of an exception for shared-ownership houses, because it is important, given the wider housing debate, that there is access, and a leasehold is required for shared ownership. Another exception is needed, because the definition of a house is not clear, but there are instances where, because of the structural nature of a property, it would be impossible to sell it on a freehold basis. Otherwise, yes, we welcome the Government’s proposals around banning sale of leasehold houses.
Kevin Hollinrake
Are there any different views to that?
Jason Honeyman
No. We certainly stopped selling leaseholds in the summer of 2017. We had three developments where we only owned the leasehold and we had to go back to the local authorities to acquire the freehold so we could forward sell it to the purchasers. I have one development left, sir, in the east of London, Barking Riverside, that I still can only sell on a leasehold basis because I acquired the land from the Greater London Authority on a leasehold basis. Sometimes, these urban developments—Jennie alluded to it—get a little bit complicated. We have houses that sit on top of podium decks with parking underneath. Sometimes, the best form of tenure is a leasehold in that instance.
David Jenkinson
I would agree with Jason, 99% of the time, yes.
Kevin Hollinrake
What about the north-west? Is there any reason other than custom and practice that the north-west had a lot of leasehold homes?
Jennie Daly
I am unaware of the reason, albeit it goes back very many decades.
Jason Honeyman
I spoke to a managing director who runs a business for me, who has worked for me for 18 years. He has lived in Liverpool all his adult life and he owns a leasehold house. I asked him the same question and he said, “Jason, I do not know. We have always done it that way. I own a leasehold house myself and I am quite happy with it”. It is just endemic in that area.
Kevin Hollinrake
Can I just touch on something called fleecehold? It seems there is an increasing occurrence of local authorities granting consent for freehold properties on estates where they are probably not willing to adopt the road. There might be water management issues or a SUDS scheme on that site, for example. Effectively, you are getting private management companies that are not subject to any particular rules, which seem to be able to charge residents of those estates whatever they want. In fact, I have a constituent like that myself, with a property that had been sold by Linden Homes, who came to see me only recently. Are there any thoughts on what on earth is happening and what can be done about that?
Jason Honeyman
No, but I understand the problem. Local authorities are less willing to adopt public areas, roads, sewers, street lamps.
Kevin Hollinrake
Why is that?
Jason Honeyman
They do not want the obligation and cost that goes with it. Often they are left with the developers, who then create a residents’ management company to manage that issue.
Kevin Hollinrake
They are granting planning permission on the cheap, taking the new homes bonus, maybe, and the council tax, but not necessarily the obligations of looking after those properties. Would that be a fair description?
Jason Honeyman
Some of the developments are becoming more complicated. They may not have the skillset. They do not want the responsibility of managing it and it is easier to push it back to the residents or the developer.
David Jenkinson
I would agree with Jason’s comments. Leasehold flats are protected in that way, so you are told all about the management charges. I think you are referring to Helen Goodman’s speech the other day. We have tried to put a contract in place, because the problem is that houses do not have quite the same protections. If we are going to do the transfer the right way, there has to be a certificate to make sure any expenditure can be justified. I think you are on to a fair point, though.