George Lusty and Simon Jones gave evidence.

We will now hear oral evidence from our fourth panel. The witnesses are George Lusty, senior director for consumer protection, and Simon Jones, director of leasehold investigation at the Competition and Markets Authority. We have until 2.20 pm for this panel. Will the witnesses please introduce themselves for the record?

George Lusty:

Good afternoon. I am George Lusty. I am the senior director for consumer protection at the Competition and Markets Authority.

Simon Jones:

Afternoon. I am Simon Jones. I am a project director at the CMA and I was responsible for our leasehold investigation.

Thank you.

Chair, may I just declare, for reasons of completeness, that my wife is the joint chief executive of the Law Commission, whose work we continue to cite on a regular basis?Q281

Gentlemen, thank you for coming in to give evidence to us. I have two questions. First, in the 2020 update report on leasehold housing that the CMA published, you recommended reforms to

“the system of redress for leaseholders, to make it simpler and less costly for them to contest permission fees and service charges they think are unreasonable or excessive”.

What are your views on whether you think the Bill achieves that? If not, what needs to be incorporated to ensure that it does?

My second question is on the recommendations you also made on measures to address the assured tenancy trap, whereby leaseholders who pay ground rents in excess of £1,000 in London and £250 across the rest of the country

“risk having their home repossessed for non-payment”.

Again, does the Bill address that? If not, how specifically should we seek to improve it in that respect?

Simon Jones:

I will deal with the second one first. Yes, we think that the proposals in the Bill at the moment will make a big difference. We thought that there were a number of ways to go about helping people: you could have created a duration threshold for leases, as in the current proposal—that works. You could have raised the threshold for rent. That, too, would work, although we would have been less in favour of it, because over time it would be less effective. Or you could have completely removed the provisions from the Housing Act. The approach that the Department has taken seems sensible.

Q Is that both recommendations, or just the second?

Simon Jones:

That is on the second point. There are a number of ways to do it, but the problem was that there was no minimum length of lease that was not subject to the assured tenancy provisions. That just looked like an oversight, frankly, but that is going to be fixed. That seems like a positive step forward to us.

On redress, the problem that everybody told us about is that you can give leaseholders all the rights that you can, but that does not really help them if they cannot exercise them quickly, cheaply and efficiently. One of the problems—as you know, a big complaint people had—was that leases often had provisions that enabled landlords to recover the costs of litigation from the tenant, regardless of whether the landlord won or lost. That was a big problem, but that has been fixed.

Q May I press you on that? I asked a different witness about that this morning. The Government are saying that with low-value claims, the cost can be passed on, but that leaseholders would have to pay either that or a prescribed sum. I wondered, because we are talking about redress, given the challenges of going to the tribunal, will those leaseholders just end up paying the minimum prescribed amount for enfranchisement?

Simon Jones:

I think that the proposal in the Bill is a positive change, but is it really all the change that could be made? This is quite difficult. The tribunal system exists to help leaseholders, but it is still complicated and expensive, and it is not local. Many of the disputes that we have are about costs.

For example, let us say you are a tenant and you have a service charge, but you think it is expensive. You will incur time and expense in trying to challenge it. What you want is probably something that is local, where the panel understands the costs in that area—for painting a stairwell or changing lights, that kind of thing. What we had in mind when we wrote the report was perhaps finding a way to use more local courts to provide more summary-type justice for people, through people who probably know more about what it costs in the local area to do something.

The other problem for consumers is that they do not understand what evidence is required to bring a challenge. I think that came through quite strongly for us. You cannot fix that with legislation, but it is another important point to bear in mind when thinking about how to help consumers help themselves.

Q Is it fair to say that with this legislation, we should look, where possible, to remove instances of where a leaseholder has to go to tribunal at all? In other words, if we said, “No leaseholder should be liable for a non-litigation cost in any circumstances”, on that particular point none of them would have to go to tribunal. Should we look to reduce the scope for tribunal use generally?

Simon Jones:

If the purpose of all this is that the incentive for managing agents or landlords—whoever is responsible—is not to overcharge, then cost rules that encourage them to be more careful with the charges that they make ought to be advantageous.

I remind the Committee that we have only another 10 minutes or so left on this session.

Thank you, Dame Caroline. Simon, the CMA carried out a two-year investigation into mis-selling. Are you satisfied that the Bill contains sufficient provision to address mis-selling and to improve consumer rightsQ ?

George Lusty:

I will take this one. As you say, we have used our consumer law enforcement powers directly. Ultimately, we are prepared to take developers, and in some cases the freehold investors, to court if these problems have not been fixed. Doing that has secured direct outcomes for the affected people we acted on behalf of, including getting those unfair doubling terms taken out of their contracts and giving financial support to make sure that that is reflected in the paperwork.

We need to look at a number of things together. It is about not just what is in this Bill but what the Leasehold Reform (Ground Rent) Act 2022 did in terms of setting the leases for future properties at a peppercorn ground rent, and the proposed ban on leasehold houses. In particular, that takes away a number of the things that were liable to mislead.

There is the separate consultation that closed yesterday on proposals to cap existing ground rents. That is another thing that we are very keen to support, because our action benefited the 20,000 or so householders on whose behalf we took cases, but ultimately we said that only a legislative solution could fix the problem for people with existing leases with problematic ground rent increase mechanisms.

Q We heard evidence today and on Tuesday of what appears to be quite widespread mis-selling, particularly in this sector. I know that you spent time in my constituency looking at the Steinbeck Grange case, but you were not able to enforce any outcomes from that. My constituents still do not feel that they have had redress. You mentioned the challenge of evidence: what would you say to my constituents who still feel that they have been mis-sold?

George Lusty:

Ultimately, we were not able to pursue every case that was brought to us. We brought a separate action in which we secured redress from Persimmon in particular, allowing people to buy their freeholds for an agreed amount. Our case decisions ultimately turn on the evidence and whether we think we can successfully achieve an outcome and as broad an impact as we can on the big issue.

Something went badly wrong with the sale of leasehold homes, particularly with the modern concept of leasehold that started in the early noughties. One of the biggest aspects of that was the selling of houses as leasehold when there was no real, legitimate reason to do so. The proposal to include in this legislation a ban on leasehold houses tackles one of the worst instances of mis-selling, and the problem that people were told that leasehold was as good as or effectively freehold when it was not.

Or they were not told at all. That seems to be more the problem: people were not told at all.

George Lusty:

Yes.

Simon Jones:

May I add to George’s observation? One thing that we recommended—Lord Greenhalgh picked this up and worked on it with trading standards—was that there should be greater transparency around tenure and the annual cost of owning a property whenever a property is marketed, so that when you look at it, read the spec and see what the purchase price is, you also see what it will cost you every year to own it. In the end, that is what people are trying to figure out whether they can afford. Lord Greenhalgh picked that up, and work has been done with trading standards to move that forward, but momentum needs to be maintained behind it.

Think about the disadvantages that people have with leasehold. You have to pay rent and ground rent; if the Government cap that, that is probably fixed for your constituents. If there is greater transparency around service charges and a system of redress that probably conditions the ability of people to overcharge, that is a big step forward. More generally, there needs to be greater transparency right at the start of the sales process about what you are buying and how much it will cost you. Those things would make a big difference if they all were to happen to your constituents.

I have one more question if there is time.

We will come back to you at the end, Andy.

The CMA—including your good selves—has rightfully highlighted concerns around estate management and some of the charges commonly known as fleecehold. You said you were going to assess that information and publish your findings. Have you done that? It would be incredibly useful in shaping the responses in the Bill and perhaps strengthening some of the regulations particularly around park law.Q

George Lusty:

In parallel to this piece of work on leasehold property, the CMA is conducting a market study looking at the house building sector more generally. As part of that, we have looked at the issue of estate charges, the increasing tendency for roads and other facilities not to be adopted, and the framework of consumer protections around charging for those sorts of services and what individual homeowners then need to pick up not being as good as it should.

We published a working paper on that in November. In particular, we called more broadly for greater adoption of those facilities by local authorities and enhanced consumer protection frameworks. That market study will complete its report in February, when we will issue our findings and recommendations across the piece. Neither Simon nor I is directly working on that, but it is connected because leaseholders face similar issues with the service charges that they have to pay in their properties, particularly in leasehold flat blocks.

Q Do you have anything else to add, Simon?

Simon Jones:

Only the transparency obligations that I mentioned. The initial transparency obligations about the annual cost of owning a home ought to include, in relation to freehold homes, things such as rent charges. An awful lot of people we spoke to had no idea that there could be annual charges connected to a freehold ownership.

Thank you.

Q I want to follow on from the point made by my colleague, Mike Amesbury, about your November report. When it looked at estate management charges, there was a litany of abuses against residents who own their own home. As Mr Jones has just said, there was no information—or certainly not sufficient information—about obligations at the point of purchase. There was no transparency about the way in which information is provided. There were totally exorbitant charges for provision of basic things such as a bulb to go into a lamp post. There was an inability, or unwillingness, to provide annual reports to people, and limited to no redress for consumers.

I know that you are going to get to your final report in February. This Bill, helpfully in some ways, seeks to plug some of those gaps in the protection of people who own homes, but would it not be better for us to ban the lack of adoption right at the start? Should we not go to the source and find a solution as to why councils and housing estate developers are ripping off my constituents, and I am sure many others, who own their own homes? What can be done about that in this Bill?

George Lusty:

Again, in our November working paper, we pointed to that very issue of there not being enough adoption by local authorities of those facilities. We put forward possible ways for that to be fixed, either through more mandatory adoption of those amenities or through some common adoptable standards that could be followed to inform the types of amenity that were suitable for adoption more broadly. As I say, we have not issued our final recommendations, but we have already said something about the options that might be available if there was a desire to try to tackle that now.

Q My concern is that you are going to finish your report, quite rightly, in the fullness of time—that will be February—and this Committee will not be sitting in February; heaven help us, I hope not. Please could you go away with a piece of homework for tonight to write to the Committee about what ideas from your report so far could be put in the Bill on the adoption matter? I think all of us would find that very helpful.

George Lusty:

indicated assent.

Thank you. A very quick question with a very quick answer, please. Barry Gardiner.

In your leasehold update report 2020, you adumbrated numerous complaints and you said:Q

“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.

Q So this is not a free market as it stands.

Simon Jones:

You have choice about the property you buy, but if you buy a leasehold property—

Order. I do apologise, but that brings us to the end of the time allotted for the Committee to ask questions. I thank our witnesses very much on behalf of the Committee.