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Leaseholders and Freeholders

Volume 750: debated on Wednesday 15 May 2024

Motion made, and Question proposed, That this House do now adjourn.—(Suzanne Webb.)

I begin by thanking my constituents in Portishead, whose dogged determination not to be treated as supine cash cows has led to this debate, which I am proud to have secured on their behalf. The residents at Port Marine, a beautiful development in Portishead that transformed derelict industrial land into an extremely desirable place to live, bought their properties—some leasehold and some freehold —with an external property management company managing some communal parts. My hon. Friend the Minister will recognise in that tale a situation mirrored up and down the country, with uncertainty about bills and charges at one end of the spectrum and the inability to sell properties that are effectively valued at nothing at the other.

There are two key issues: the variable service charge and the fixed rent charge. I am grateful to Sebastian O’Kelly of the Leasehold Knowledge Partnership, who described the situation thus:

“It is an arrangement cooked up by developers and councils: it means developers have a management company and income stream that they can sell on to management companies such as FirstPort, and the council saves money by not adopting these open spaces. Meanwhile, the often younger buyers of these properties end up paying council tax and the management charges, while older locals often living in more valuable houses pay to the council only.”

The situation is increasingly being described as what it is—namely, a fleecehold.

Residents initially wrote to me about the increase in the variable service charge to levels that they believed were unreasonable. Attempts to gain transparency on the costs go back several years, including a face-to-face meeting between FirstPort and Portishead residents in 2019. The issue affects around 1,000 of my constituents, both freeholders and leaseholders. In effect, residents have complained that the amount they are paying does not match the amount of land being managed by FirstPort or the level of work it undertakes on the Port Marine estate. It has also been difficult to get transparency from FirstPort when residents have requested a breakdown of its costs for managing their properties and land.

On 3 November 2023 I joined constituents representing the Portishead management charge action group, along with two representatives of North Somerset Council and two representatives of FirstPort, for a walk around the Port Marine estate to look at the areas managed by FirstPort and by North Somerset Council respectively. We found that very small areas of the estate are managed by FirstPort, for which it charges at least £440 per annum. That charge seems particularly high and produces around £220,000 of income per year for FirstPort. Ideally, residents would like to see the land managed by North Somerset Council, which looks after large parts of the estate already. Naturally, the council would like to receive a substantial sum from FirstPort to transfer those duties but, with no agreement forthcoming, it is easy to see why my constituents find themselves in something of a trap.

I commend the right hon. Gentleman for rightly bringing this issue to the attention of the House. Does he agree that, although the Leasehold Advisory Service gives free advice for England and Wales—as it should—the advice is not granted in all situations, so when his constituents sought advice, in many cases they would be unsure about where they stood without costly legal advice, and that the Government and the Minister must provide much more clarity across the board?

I am grateful to the hon. Gentleman. I will go on to set out just how horrendous some of those charges are and how it can be very difficult for my constituents to get legal redress. That is no doubt a situation that my hon. Friend the Minister has heard on a number of occasions.

We all understand that communal land must be managed for the benefit of all. No one disputes that, but it needs to be done in a way that is fair and equitable, predictable and transparent. The current position is none of those things.

The right hon. Gentleman is absolutely right that many of these arrangements were never made clear to people when they purchased their properties, and too often developers have taken a shortcut to create a secondary income stream, when actually they should be paying a lump sum to the local authority to take over those responsibilities. It is a double whammy for those who are on the end of it, is it not?

I swear there was no collusion here, Madam Deputy Speaker, but the hon. Gentleman takes me very neatly on to an even more horrendous example than the one I have already set out: fixed rent charges.

First, let me set out to the House the history by which property companies can fleece freeholders using this mechanism. Across the country as a whole rent charges are rare, but they do exist in parts of England, such as around Bath, Bristol and Manchester. A real problem can arise when a buyer or their conveyancing solicitor fails to spot their presence in the title deeds. Why? Because rent charges, which were introduced mainly in the late 19th and early 20th centuries, were put in place when landowners wanted to sell land at a reduced cost to a developer. They would sell the land on a freehold basis, but retain a legal interest in the land and charge an annual fee, or rent charge, which is in place for ever.

Historically, the rent charge was typically between £2 and £10, which was quite a lot in those days, but has been regarded as nominal in recent years. While many rent charges have fallen dormant, others have been bought up by property companies, which are now ruthlessly enforcing payment. The rent owner is entitled to recover any sums due, but does not have to send a reminder to the freeholder and, as I understand it, is legally entitled to impose a penalty after 40 days—when the account inevitably falls into arrears—usually by taking out a statutory lease on the home as security. That would then make the property almost impossible to sell unless the freeholder pays thousands to redeem the lease. That is outrageous.

Let me outline the issue in respect of Portishead. In 2011, solicitors acting on behalf of Crest Nicholson, the original landowner of the development, wrote to FirstPort—then known as Consort—advising it that the fixed rent charge should be reduced to £1. Although FirstPort shared that information with some residents and reduced the charge accordingly, it did not do that for all residents and continued to invoice some to the tune of between £100 and £150 per annum. Those residents were later refunded. After trying to renege on that agreement at the end of 2022, FirstPort informed residents in December 2023 that it again intended to start charging £100 to £150 per year for the fixed rent charge.

FirstPort has argued that, because no deed of variation was entered into to confirm the reduction, meaning that the agreement to reduce the fixed rent charge was not legally binding, it can effectively do what it likes. Needless to say, residents who were not advised in 2011 that they needed to enter into a deed of variation, or log the change with the Land Registry, are extremely unhappy. Recently, under pressure from residents, Crest Nicholson and myself, FirstPort agreed to keep the fixed rent charge to £1 per annum, provided that residents entered into a deed of variation.

It is instructive to see what Crest Nicholson has made of this debacle. On 9 February, it told me:

“Crest’s view is that the decision being taken by FirstPort to unilaterally reimpose the fixed rent charge of the properties at Port Marine is not only unfair but the underlying mechanism within the transfer is potentially open to challenge in the courts. This is because the annual charges they are proposing to claim (i.e. between £100 and £150) are not what a court would consider to be nominal amounts, a requirement for a fixed rent charge to be lawful under the Rentcharges Act 1977.”

Interestingly, Crest also told me:

“Many of the residents wrongly believe this money is being paid in exchange for FirstPort performing a service. FirstPort is already able to recover its costs for enforcing covenants from the variable element of the rent charge so FirstPort’s claim that this is its purpose is, at best questionable.”

Following a meeting that we had at the end of March, Crest Nicholson made it clear that it was no longer handing out contracts to FirstPort.

Let me turn to the question of the deed of variation. FirstPort initially quoted residents £300 plus VAT to enter into the deed of variation, offering that price as a discounted rate. In its letter to me on 7 March 2024, it stated that its

“legal fees for entering into any type of Deed of Variation would usually be £500 +VAT.”

In other words, this was a bargain that my constituents should jump at in order not be forced to pay £150 a year. They could pay FirstPort £500 as a one-off payment to prevent that from happening in the future. I think many of us would regard that as extortion. This whole saga has caused constituents a great deal of stress. Despite that, they have indicated that the £150 cost is tolerable—meaning they are willing, but not happy, to enter into the deed of variation and be done with the whole saga. FirstPort has set a deadline of 30 June 2024 for residents to enter into the deed of variation.

So, we have a variable service charge that can be raised and enforced without any clear and transparent links with the services being undertaken. Then, we have the truly horrendous situation in which rent charges, which have no relation whatsoever to any service being provided, can effectively be raised and applied through the threat of making properties unsellable, and the only means of escape is for residents to enter into deeds of variation at a price determined by—guess who—FirstPort. Let me be clear: I regard this as daylight robbery and a historical anomaly that has no place in our modern society. I am sure that FirstPort will not be the only property company up and down our country acting in this way. As the Minister’s Department introduces regulations following the passage of the Levelling-up and Regeneration Act 2023, and as it looks at leasehold reform, I ask my hon. Friend to see how quickly we can redress these wholly unacceptable positions and consign them to the dustbin of history, which is where they belong.

It is a great pleasure to respond in this short debate, and to talk about an issue of huge importance to so many colleagues around the House. Over the past few months, as we have talked about leasehold, more and more colleagues have come up to me to highlight the iniquities, problems and challenges that they see in their constituency. I am grateful to my right hon. Friend the Member for North Somerset (Sir Liam Fox) for highlighting the issues that he has experienced, and I am very sorry to hear about Port Marine and the challenges that its residents face. I obviously cannot comment too much on individual cases, but it is absolutely vital that we hear individual examples. I have heard examples from around the country of particularly egregious extortion, and problems with the framework of leasehold. That is one of the reasons why we are bringing forward leasehold reform—because we recognise that there needs to be change.

Leasehold can work in some places, and some elements of it can be successful, but as my right hon. Friend has outlined, the problem is that there is too much bad practice in the sector. There are too many distortions within that tenure, too many inefficiencies that can be exploited, and frankly too many rent-seekers in the sector who are trying to exploit those distortions and inefficiencies. I know that Opposition colleagues also feel strongly about this issue, but we Conservatives are nothing if we do not seek to smash monopolies, stop rent-seeking, make markets more perfect and stand up for the little guy. Stories such as the one that my right hon. Friend recounted today highlight the reason why we are reforming leasehold. There is a way to go in making that market more perfect, but that is exactly what we are trying to do.

The Leasehold and Freehold Reform Bill will bring into law many reforms to better protect and empower leaseholders. Existing leaseholders will find it easier and cheaper to extend their lease or buy their freehold. Reforms to the cost regime for enfranchisement and right-to-manage claims will make them more accessible, enabling leaseholders to take control of their building and, therefore, their future.

The issue of rent charges also applies to freeholders; it is not just leaseholders who are the victims. An amendment to the Rentcharges Act 1977 would deal with the problem once and for all, so I encourage my hon. Friend to look at amendments to that Act when we bring forward legislation on this subject. If the Government do not want to bring forward such an amendment to the 1977 Act, I would be more than happy to table one.

My right hon. Friend is absolutely right: there are impacts on both freeholders and leaseholders. Different types of property and tenure are impacted in different ways. Elements of the rent charges regime will be extinguished by the 1977 Act, which he rightly referenced, in 2033; that has been in law since before I was born.[Official Report, 20 May 2024; Vol. 750, c. 7WC.] (Correction) However, there are a number of other issues that need addressing, and the Leasehold and Freehold Reform Bill was introduced to address some of them. A whole range of reforms are necessary across the leasehold sector, and the Bill seeks to address that, but as my right hon. Friend outlined, there are two main issues that this discussion of Port Marine has highlighted: the variable service charge, and the rent charge point, which he just spoke about a little more.

The Bill as it stands will absolutely make progress on variable service charges in a number of ways. It will not fix what has happened in the past, but it absolutely seeks to minimise the chance of it happening again. Unjustified increases in variable service charges are not acceptable. Any service charges must be transparent and communicated effectively, and there should be a clear route for challenging them if things go wrong. The Bill ensures that all leaseholders will receive: key minimum financial and non-financial information regularly, including a standardised service charge demand form; an annual report of charges; the timely provision of service charge accounts; and the right to obtain other relevant information. That is a significant step forward, as I know from discussions with both leaseholders and freeholders in my constituency, and from having spoken with colleagues from all around the House who have similar issues. We are also taking measures on service charges to ensure that leaseholders are not subject to unjustified legal costs. For the first time, they can, when appropriate, claim their costs from landlords if they go through the tribunal process and win. There will be a significant change on variable service charges as and when the Bill passes through both Houses.

On fixed rent charges, the Bill introduces a framework to empower homeowners and to hold estate management companies to account for the service they provide. There will need to be transparency of information. There will be a new legal requirement that estate management charges must be reasonable. For the first time, there will be an ability to challenge excessive costs through the tribunal, and to ensure that estate management companies are held to account. The measures will also cover admin fees, including deeds of variation—my right hon. Friend highlighted that point. As I say, there will for the first time be a right to apply to the tribunal for redress. If there is a strong view, and proof, that the managing agent in charge is doing something inappropriate or is not fulfilling their duty, people can apply to a tribunal to have a substitute manager appointed. That will for the first time provide an opportunity for residents to highlight problems, and remove people who consistently cause problems.

As I said in Committee, we recognised in Committee and from previous debates in the House the strength of feeling among colleagues; that has been shown again by my right hon. Friend in this debate, and by the contributions of other hon. Members. We are considering further whether we can look at this area in more detail. I hope that I can soon say more from the Government Front Bench about that, although I cannot do so tonight.

To conclude, my right hon. Friend is absolutely right to raise the issues in this case and to highlight the key challenges that we see daily to do with when this system does not work. He raised how and when this system is not working for Port Marine. I hope there is restitution, and that a solution comes as soon as possible. I recognise the individual examples of when things are not working, but the Government are taking action, in a very Conservative way, recognising that we have to deal with these monopolies, smash the rent-seekers and remove distortions to make markets more perfect. We must ensure that there will not be another Port Marine in 10, 15 or 20 years’ time. When the Bill goes through, we will significantly improve this market and leasehold, and significantly change rent charges, so that people who want to buy their house and have the benefits of owner-occupation—we want to do all we can to empower people —gain real control over their future. We look forward to colleagues supporting the Bill as it goes through its final stages in the House in the coming weeks.

Question put and agreed to.

House adjourned.