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Freehold and Leasehold Reform

Volume 735: debated on Wednesday 5 July 2023

[Mr Virendra Sharma in the Chair]

I beg to move,

That this House has considered freehold and leasehold reform in England.

I will centre my remarks on the issue of management companies and the fees that they charge to people who live on newer housing estates. This is a big and growing issue in my constituency, and I want to talk to the House about some of the practices of management companies that behave in the most appalling way—in respect of not just the services they provide but the fees they charge to homeowners on the estates for which they are responsible. We have a large number of affected people in my constituency, which is perhaps not surprising given that some 7,000 new houses have been built in Dartford over the last 10 years. Management fees are imposed on homeowners, whatever their tenancy, to pay for the upkeep of communal areas and other amenities.

It is hard for me to overstate how big an issue the conduct of management companies is. Since announcing that I secured this debate, I have had email after email from local residents at their wits’ end, who complain about the practices of management companies. Indeed, around 20% or 25% of people who attend my surgeries are there to raise such experiences. Frankly, the stories they have provided about the practices of management companies are shocking.

The central allegation is that developers retain ownership of the land once a house is built and then create a company or use an existing company to sell the land to, so that they have the right to be the estate management company. This happens without any consultation at all with homeowners or anybody else, and without sufficient regulation. Central to my speech is asking the Government to bring in the necessary legislation so that we can deal with this growing problem once and for all. What often happens is that companies are set up or used to implement the work or to liaise with residents, thereby creating several tiers of companies for homeowners to deal with.

Take, for example, the Bridge estate in Dartford. The local councillor, Clement Quaqumey, has raised the plight of local residents who are enduring a nightmare. Because the Bridge community is divided roughly half and half between businesses and residents, the residents end up paying huge amounts of money to receive little more than landscaping services. They have no alternative but to pay the money, as they are committed through the service charge deed they have signed. These contracts are the source of the homeowner’s commitment. People unwittingly signed up to the contracts without fully understanding their implications.

Particularly when it is a seller’s market, people are desperate to buy their dream home and never expect that management companies will hike up their fees with little notice. When that is challenged, however, it soon becomes clear that the homeowners can do little or nothing about it. We simply cannot allow homeowners to continue to be treated in this way.

A constituent contacted me yesterday to say that they are being charged £2,500 a year for an extremely poor service. Such fees are in addition to the council tax that homeowners still have to pay in full. Homeowners understandably resent having to pay council tax and a separate payment for the maintenance of roads, pavements and play parks that can, of course, all be accessed by the general public free of charge. This is a problem that has to be addressed, and soon.

Residents of Ingress Park, another estate in my constituency, have contacted me to say that this beautiful place to live—and it is beautiful—is spoilt by the charges imposed on the homeowners there. The charges make the properties harder to sell and create bureaucracy that strangles the people living there. People complain of the accounts not adding up—and that is if and when they are able to obtain them. Again and again, I receive complaints from residents who ask for accounts to show them what their money is being used for but they are not able to obtain them. Residents have also complained of contractors clocking in late and leaving early, with nothing whatsoever being done to check their behaviour.

One of the worst instances that I have dealt with was in a road called Winston Close, which is in Stone in my constituency. Residents were given just two months’ notice that their annual fee was going to rise from just under £2,000 to just under £6,000, to pay for windows to be replaced. To be fair to the management company, it relented and phased that increase over a longer period of time during which the windows would be replaced, but it still led to huge increases for local residents, as well as a lot of stress and upset. Had the original demand been persisted with, the residents would have had no option whatsoever other than to pay. That clearly illustrates what is wrong with the current system of management fees. The management company can literally treble the amount that homeowners have to pay, with little or no notice, and the residents have no alternative other than to cough up.

A constituent in Castle Hill, which is in the Ebbsfleet Garden City area, also contacted me. He relayed to me that the fee for residents in that area has recently been increased by 30%, yet as a freeholder he does not have access to any dispute-resolution tribunal, so he has just had to take that increase on the chin. That cannot be right and this practice has to end.

I met residents of Bexley Park in my constituency who have managed to secure the agreement of more than 50% of residents that they should remove themselves from their management company and go to another. I am sure Members will agree that it is no mean feat to get over 50% of residents in an area to sign up and say, “We no longer want to use our management company. We want to transfer to a different one.” However, the original management company cleverly said to them, “That’s absolutely fine, but we want hundreds of pounds from you, and every single householder has to pay that money before they are allowed to transfer.” That was an impossible hurdle for those people to overcome, as the management company knew.

We have to make it easy for residents to move to another management company and thereby end the monopoly that such companies enjoy over homeowners. There is currently no competition because residents are stuck with their management company, which has no incentive whatsoever to improve its services or provide value for money.

Another constituent from Stone told me that they had questioned some workmen in their communal area who were there to change four of the fluorescent light fittings. It turned out that they had travelled from Leeds to Kent to do that job and were charging over £400 to do it. It was clear that that lady could do absolutely nothing about the situation. There in front of her was a clear example of the abuse that is meted out to homeowners in some of these newer housing estates, in the form of someone being sent from such a long distance away to carry out a fairly straightforward job and then charging an exorbitant amount of money for it.

Residents on the old Stone House Hospital site in my constituency, which I understand comprises purely leasehold dwellings, contacted me to complain that the freeholder was forever changing and rarely cared about problems on the development.

Another problem with the current system is that there is little or no co-operation between management companies. Two or even more management companies operate on some estates in my constituency, so we end up with a situation in which separate people come to mow the grass, with one at one end of the estate and another at the other, when that job could have been carried out by one individual mowing the whole estate. That lack of co-operation illustrates the poor value for money. The examples instances just go on and on—indeed, I could fill the whole 90 minutes of the debate with issues that have been raised with me about poor value for money, exorbitant fees and the unfair and unjust current system.

I genuinely believe that developers and management companies are taking advantage of how the public conceive of a freehold. Understandably, people believe that a freehold will give them full control over their property, but the reality on these new estates is very different. So-called freeholders are not only being forced to pay the charges, but when it comes to selling the property they have to effectively ask permission from the management companies to do so and have to pay a fee to those management companies for a seller’s information pack. One lady contacted me to say that when she questioned the management company over the contents of her seller’s pack, it responded that each query she raised with them would be charged at £60 plus VAT. Ironically, she was questioning the management company about mistakes it had made in the pack. Such a system of having to ask permission simply causes delay, unnecessary costs and, of course, extra profit for the management company.

Moreover, people have no say in the running of the management company or input as to what the priorities should be for an estate. Whatever the management company wants for an estate is done to the residents who live there. There is no way of avoiding the exorbitant fees, no right to challenge and no conceivable way of changing the management company. Quite frankly, it is a licence for those companies to print money. If we do not legislate quickly, we will create a legacy that will stay with the British housing sector for generations to come. We should not allow people to be treated in this way for simply wanting a nice new home to live in.

It is a pleasure to see you in the Chair, Mr Sharma. I state for the record that alongside the hon. Members for Worthing West (Sir Peter Bottomley) and for St Albans (Daisy Cooper), I am co-chair of the all-party parliamentary group on leasehold and commonhold reform. We are ably supported in that endeavour by the Leasehold Knowledge Partnership, which works alongside the National Leasehold Campaign. We have worked over a number of years to get this issue right to the top of the political agenda, I am grateful to the hon. Member for Dartford (Gareth Johnson) for what he has said.

It is coming up to seven years since I first described leasehold as the payment protection insurance of the housebuilding industry. A couple of years ago, I said that estate management fees would be the new PPI because, as we are hearing today, they are clearly replacing leasehold as the new revenue stream to fleece homeowners of money that they should not have to pay. I have yet to hear a convincing argument as to why these companies need to exist on standard estates. They are simply adopting the works that the local authority used to do. When talking to people, it is difficult to imagine any justification for why they should have to pay twice for exactly the same services. That is what they are doing, with the only difference being that if people do not agree with the way council tax bills go, they can vote the council out. There is no such power over the management companies.

Management companies and fees will continue to be an issue: it sounds as though they are becoming more and more widespread, and there are now very few new estates where the model is not being used. Frankly, though, I do not think there is any reason for it to continue. It is beginning to raise some fundamental questions. For example, there is an estate where people pay for litter bins and collections, and they are saying, “Why should people who do not live on this estate get to walk their dogs on it, because they are not paying for cleaning the place up?” We end up in a very bad place if we do not tackle these issues and weed out the exploitation.

I say to those who raise these issues that we can see how knotty some of the legal questions are, and they do need untangling—an estate management company has a number of aspects to it—but despite the legal technicalities we have won the argument that leasehold is not fit for purpose, and that same argument needs to be applied to estate management companies. We also need political will to get the full reforms over the line.

Some might seek to defend the current system of leasehold. Perhaps the promises made by the Secretary of State for Communities and Local Government five and a half years ago have been forgotten; we have had quite a few changes since then. It would be churlish not to acknowledge that there has been some progress in cleaning up the mess, but in terms of legislation to help existing leaseholders, we have had very little action. The noises coming out of Whitehall in recent weeks have been concerning. For all the talk of change and promises made, perhaps nothing will actually happen. We cannot allow this to continue. We must ensure that justice is done.

People’s homes—the biggest single purchase they will ever make in their lives—have been turned into a cash converter, usually for an anonymous freeholder. It is the biggest insult in the history of housing that people pay ground rent. Although it is initially quite a modest fee, in the small print of a lot of these agreements—which are, thankfully, being exposed now—the price of ground rents goes up. With an escalator it can sometimes double after 10 years and then double again after another 10 years. That often means the property becomes unsellable.

The linking of ground rents to the retail price index is also becoming an issue given the rise in inflation, which makes some of the doubling ground rents seem slightly less outrageous than they are. This is now putting people in real hardship. The biggest insult of all is the fact that when people pay the ground rent, they get absolutely nothing in return. It is literally money for nothing and needs to be consigned to the dustbin of history.

The Financial Times recently reported that throughout the history of property the costs of leasehold and freehold homes have generally moved in lockstep, but over the past five years the price of freehold properties has continued to rise, whereas leasehold properties have not kept pace with that rise. No doubt Grenfell has played a part in that as the inadequacies of the regime that tragedy exposed have been laid bare, but the general toxicity of leasehold as a tenure has also made prices stagnate, and the stories of people who are unable to sell their homes because of unreasonable leases has played a part. The message is clearly coming through that leasehold has to be consigned to history.

The scandal has been going on for an awfully long time—for so long that the National Leasehold Campaign is having its activities immortalised in a play called “Fleecehold”, which will be coming to London next month. I hope the Minister will have time away from her duties to catch that. The fact that the campaign has become a piece of theatre shows us how long we have all been fighting for justice.

I absolutely agree that residents need greater power over the management of their homes, and flat owners need new rights to form residents’ associations. We need a simplification of the right to manage, leaseholders need the right to extend their lease to 990 years with zero ground rent at any time, and we need to bring forward the proposed reform of enfranchisement for leaseholders. We also need to deal with marriage value and prescribe rates for calculating the premiums.

We need to crack down on unfair fees and increase contract transparency, and we need to make sure that there is a proper reference document for fees so there is no longer a service charge rip-off. We need to give leaseholders the right to challenge those fees and poor performance from the service companies. We must also end the right of third-party landlords to build on other people’s homes without any consideration, which is another anomaly of the current regime.

We should regulate all managing agents and get rid of the frankly ridiculous situation in which the property manager of a high-rise building does not need to have any relevant qualifications. We should bring forward the statutory protection of all leaseholders’ funds, and give leaseholders the right not to pay if the landlord does not deliver their accounts on time. We should follow the example set by the Competition and Markets Authority and require some developers to reset ground rents to their original term.

We also need to look at shared-ownership properties, which are becoming a bigger issue. The triple whammy of service charges, rent for the bit that is not owned and ground rent is making it impossible for people to sell them.

I expect the Minister will say that the Government remain committed to leasehold reform but, with all due respect, it is not her we need to hear from: we need to hear from the Secretary of State or the Prime Minister himself. We need the Secretary of State to come to the Dispatch Box and tell us without any ambiguity what the Government’s position is. I say that because exactly one month ago the House resolved that the Secretary of State should make an oral statement by 23 June on the Government’s proposals for leasehold reform. Well, we are still waiting for that statement. What does the fact that the Secretary of State cannot even adhere to a motion passed by the House asking him to tell us what the plan actually is tell us about the Government’s commitment to reform?

Has the Secretary of State been gagged by the Prime Minister? There was a newspaper report last month that quoted someone from Downing Street saying that the Secretary of State wanted to be

“a maximalist on leaseholder reform, but we simply haven’t got time to be maximalist right now.”

I have to say that, given the fact that we are regularly finishing in this place three or four hours early, arguments about there not being enough parliamentary time are not going to wash.

Rather than relying on anonymous briefings to the press, the Government’s position on leasehold ought to come very clearly from the Secretary of State at the Dispatch Box. He should tell us what he is going to do and when he is going to do it by. We have had enough false dawns and jam tomorrow; we need action and we need it now.

I certainly find little to disagree with in the speech made by the hon. Member for Ellesmere Port and Neston (Justin Madders) and I commend my hon. Friend the Member for Dartford (Gareth Johnson) for bringing this issue to the House. The problem is prevalent. Many of my constituents are stuck in this time warp of managing their leasehold property, which they never expected to have to do.

As we have heard, there is cross-party consensus on the need for leasehold reform. I cannot put it better than the Government did themselves:

“The existing residential leasehold system is fundamentally flawed. It has its roots in the feudal system and gives great powers and privileges to landowners. Despite a series of reforms over the last thirty or so years, abuses continue to flourish causing misery and distress to leaseholders.”

Since then, the Government asked the Law Commission to advise on reform and made a manifesto commitment to advance it. They fulfilled the first part of the Law Commission’s recommendations by passing legislation to reform ground rents, but delayed on the second part, on reforming existing leases. Constituents write to me every month to ask when the second part will be introduced. They think the Government are wasting time. Their leases are a wasting asset; losing time means they lose part of their property.

We know that a property-owning democracy gives people security and the power to make choices, control their own lives, build their communities and plan for the future. Leasehold ownership puts limits on that power, and the Government’s delay to reforms is preventing homeowners from making plans for the future. Take the confusion about whether marriage value will be abolished so that leaseholders no longer have to pay a premium to extend a lease that has less than 80 years to run. One of my constituents, Stephen, holds a lease on a property with the National Trust. There are 81 years remaining, and he has to decide whether to pay for a new lease now or wait to see whether the Government will carry out their promise to abolish marriage value.

Another constituent, Amy, owns a leasehold property in London, which she has been trying to sell. She has very sensibly moved to my constituency to start a new life with her partner, but she cannot sell her property because of safety defects that have not been remedied. I will come back to Amy in a minute.

My constituency includes the beautiful Isles of Scilly, which have been exempted from leasehold reform in the past. The off islands and parts of St Mary’s are owned by the Duchy of Cornwall. The Duchy’s leasehold properties were shielded from enfranchisement because of their long historic or particular association with the Crown. Regardless of whether or not those properties should still be exempt from the Government’s reforms, the Duchy is waiting to see what the Government’s plans are before it even extends leases.

One of my constituents has been trying to extend the lease on his property for nearly two years. He runs a business from the property and needs to plan for the future. On each occasion, he has been advised by the Duchy to await leasehold reform. I have met the Duchy to challenge and address the situation. It is also faced by many constituents who are waiting to hear the guidance from Government, as it will have an impact on them.

I have worked with the Duchy and know its intention is to keep islands as a living community. The Duchy is not one of the ground-rent grazers we have heard about. It leases all untenanted land on the islands to the Wildlife Trust at a peppercorn rent of one daffodil a year. Some remnants of feudalism are charming; leasehold is not. Government should push forward with their plans for reform. This afternoon has shown that there is cross-party support.

I want to return to the specifics of Amy’s case. Amy moved from her flat in London three years ago to set up home with her partner, now her husband, in my constituency. She owns 50% of a one-bedroom shared-ownership flat. The housing association is Metropolitan Thames Valley, and the developer Mount Anvil. She put her flat on the market in August 2020, but it quickly became clear that it would not be sold, as it is unmortgageable under the current Royal Institution of Chartered Surveyors guidance. Since then, she and I have been battling to get more information from Metropolitan Thames Valley housing association. It has undertaken inspections that show that cladding is not an issue, but there are missing firebreaks, and concerns about wooden walkways and balconies. Those relate to building regulations from when the housing was first built and are nothing to do with Grenfell Tower. Without those issues being fixed, under current guidance, Amy cannot get an EWS1 and, as such, cannot sell. Her building is under 18 metres, so she does not get the protections that others do.

The Building Safety Act 2022, which we all promoted and voted for, covers a lot of cladding, but is still very murky on other fire-safety defects. Under the new waterfall system, the first person to fix and pay for those issues should be the developer. In this case, that is Mount Anvil. We are told by Metropolitan Thames Valley that Mount Anvil had engaged in conversations but has been less receptive recently. I know from my own work, personally through my office and through Government Departments, that Mount Anvil is not meeting the expected requirements. As a result, potentially 50 properties in that block of flats are not in a state in which they should be and cannot be sold. There is no indication or hint that remediation work will start any time soon.

Amy has been allowed to sub-let her property, simply because it was unaffordable for her not to. She does not want to be a landlord. She pays a lot of tax on it as a result, and 50% of the property is owned by the housing association. The housing association has also added £50 a year to her charges, on a property she does not want to own. She wants to sell and is not being allowed, simply because of delays in leasehold reform. While she has shared ownership, she cannot get another mortgage. She and her husband live in a section 106 affordable home in Porthleven. They would move out of it tomorrow, releasing two affordable homes to other families, if they were in a position to sell the shared-ownership property. She cannot remortgage because of the issues around her property so she has had to extend her mortgage with Nationwide, which has allowed her to do that for significant extra monthly costs. She is paying another £200 a month for her mortgage, another £50 a month for her service charge, and there is no information whatsoever from the housing association or the developers about when they will do the work and there has been zero progress with Mount Anvil. The building is missing firebreaks, which have always been required under building regs.

In August, it will be three years since she tried to sell the property and started this journey. To this point we have not been able to resolve it and in that time she has had to pay a further £5,000 to deal with the lease extension, so she now has a 999-year lease, but, to add insult to injury, the Land Registry has said she will not receive the documents she needs for a further two years, which will make it even more difficult for her to sell her property.

The simple solution is for the Government to deal with Mount Anvil and the housing association and get them to do the work they should be doing, not just for Amy but for the owners of all such properties, as well as to further progress leasehold reform, which we have all been asking for and have been promised.

It is a pleasure to take part in the debate. I thank the hon. Member for Dartford (Gareth Johnson) for securing it, and every one of us could amplify everything he said with very similar experiences from our own communities, even though the areas we live in are often very different geographically.

My constituency is spread between about 40% social rented, 30% owner-occupation and 30% in the private rented sector. The debate is essentially about owner-occupation and leaseholds, but within that 30% very few, or certainly a declining number, are in what I would call traditional freehold properties—where somebody owns the house and land, and their costs are their mortgage, if they have one, and all the relevant bills, but there are no service charges because there is no other involvement.

Any place that is now sold in my constituency as a single-family home inevitably gets bought by a property company and is divided up into a number of flats. Dividing a place up into flats is not of itself wrong, but the quality of the conversion is often a problem as is the resulting ownership issue. In my constituency, people who have bought a flat either in a new development or in a converted property are suffering appalling levels of stress; they believed they were going to have to pay a reasonable ground rent and reasonable service charges and management fees but then find after a very short time living there that they have no control whatsoever over any of those issues.

The system is very badly designed. Indeed, perhaps it was not designed at all, but it is so badly in existence that there is a positive incentive to manage badly, charge extortionately and be abusive towards those who live in these leasehold properties. This has been recounted by the hon. Members for St Ives (Derek Thomas), for Ellesmere Port and Neston (Justin Madders) and for Dartford and I can absolutely relate to it.

Many people have got in touch with me about this and I want to give an example. In a sense, the business model of those who buy into the leasehold sector is appalling and offers incentives in all the wrong directions. There are five examples of that. The company that owns the property sets out charges to the leaseholders in the property and will directly benefit from having unnecessary work done in the building. Totally unnecessary work is created by the management company, and the leaseholder has no say in whether it is done and no say in the contractor who does it, yet they have to pay for it. There is an incentive for the company to choose the most expensive contractor and then charge on for it. Some of these companies are also incredibly litigious and threaten to take flat owners to court to start proceedings for repossession as soon as there is any element of late payment. Remember that many people who buy leasehold flats for the first time are young and have young families. They are in the most expensive and difficult times of their lives, and there is the greatest pressure on them as a result, so the stress levels are huge. The companies consistently use the same small set of suppliers across many of their properties, and those suppliers are also complicit in the running up or invoicing of ridiculously high charges across their whole estate portfolio. When residents try to communicate with the companies, they get fobbed off, blocked, or threatened with legal action and legal letters. The stress levels are appalling.

Let me give an example about electricity:

“In our most recent service charge 3 months ago, we were collectively billed £4k for commons parts electricity”—

the common parts have the amazing total of 10 LED lightbulbs in them, and:

“This was 10x the estimated expense for the period. Upon inspection it became clear that the power provider…chosen for us failed to take a single meter reading for the entire year and ‘estimated’ our bill.”

When the residents highlighted that, the company demanded they pay the total figure anyway. They are now in dispute over it.

There are many examples of excessive charges for minor or often unnecessary works or, as the hon. Member for Dartford pointed out, ludicrous charges for the almost non-existent cleaning of common parts. That can be just running a hoover over the carpet once a month, yet people are told to pay several hundred pounds a year for that kind of thing. It is the same with refuse collection, rubbish collection and so on. There must be some big changes to that.

The last testimony I will give is from somebody who bought a flat that they believed would be affordable. They then discovered that the company was

“proposing decorating works on our building at a cost of £19800. We received a quote of £7600 for exactly the same work from a local contractor. Although we nominated this contractor, as is our right, they have chosen to go ahead with the company that they always use. We can challenge this at tribunal but we would need £8-£10000 upfront costs”.

They have to pay that even to get a hearing. If ever there was an area that needed substantial investigation and reform, it is surely this one. People feel disempowered, angry and frustrated. They cannot sell and cannot move, and they have no idea what charges are coming down the road.

I have dealt with many cases of leaseholders who either bought their place from the local authority under right to buy or who bought it from somebody else who did. They often dispute the capital works charge or service charge. Sometimes they are right and sometimes they are not, but there is a clear process by which they can make that complaint. They can make it to the local authority, which is accountable. It is not always perfect, but there is usually agreement at the end, because there is a degree of accountability. With the companies, there is no accountability whatsoever. Every power lies with the person who has invested money to make a vast return, and the returns that are being made on leasehold properties are enormous.

I hope that the Minister will recognise that the stress that we are expressing—

I see the Minister nodding; I thank her. I hope that she understands that the issue is not isolated to any one part of the country. The whole country is suffering from this, and we urgently need a serious process of leasehold reform that gives people some power over their own lives and in their own homes.

I appreciate the opportunity to speak, Mr Sharma.

I support many of the comments that have been made, as I think we are all here today because we want to express a sense of deep injustice on behalf of decent, hard-working and responsible constituents. We are all aware that the situation with matters of property has prevailed for far too long without reform and is now an injustice. As we all know, justice delayed is justice denied. I know that the Minister is aware of the situation and has limited powers to influence the parliamentary timetable, but I implore her to go back to the Secretary of State following this debate and communicate to him the sense of injustice, which we are all communicating on behalf of our constituents.

I want to mention some of the multiple assurances on reform that the Government have given over many years, and I will focus particularly on the concern that my hon. Friend the Member for Dartford (Gareth Johnson) highlighted: the need for freehold management reform. I do so on behalf of residents on several estates in my constituency, but I will highlight just one: Bath Vale. I will come on to give some examples of the injustice that residents there have experienced.

We all agree that whereas long leaseholders in England and Wales have a statutory right to challenge at a first-tier tribunal unreasonable service charges and the standard of any work carried out, freeholders do not have the same right. As long ago as July 2017, the Government recognised that in a consultation paper, “Tackling unfair practices in the leasehold market”, saying:

“The contrast between the positions of freeholders and leaseholders can be particularly clear where a developer retains the ownership of communal areas and facilities and the responsibility for their maintenance through a managing agent, or where a developer sells on the ownership of the communal areas and facilities to a private company”,

which often then appoints another management agent. The paper continues:

“In all these cases, even though freeholders may be paying for exactly the same services as leaseholders, they do not have a right to challenge the reasonableness of service charges…which qualifying leaseholders can do.”

In October 2018, the Government published a consultation paper, entitled “Implementing reforms to the leasehold system in England”. Again, the paper announced an intention to

“create a regime for freeholders which provides that maintenance charges must be reasonably incurred and that services provided are of a reasonable standard. We will also replicate consultation requirements and obligations on the provider of services to provide information to the freeholder. Finally we will provide freeholders with the ability to challenge the reasonableness of the charges they are required to pay towards the maintenance of communal areas and facilities at the First-tier Tribunal.”

The outcome of that consultation was published in June 2019, when the Government recommitted to equal rights for freeholders, and to a right to manage for residential freeholders, as part of creating greater parity between leaseholders and residential freeholders.

Time went by, and in August 2022 I wrote to the Minister’s predecessor to highlight the issue on behalf of residents of Bath Vale in Congleton. The difficulties that the residents have had started 12 years previously, when the first properties were built, and they still continue. The residents told me in 2020 that the reserves stood at several thousand pounds lower than what residents expected, and some of the charges were highly questionable—for example, a charge of £1,500 for insurance administration, which was cancelled when the residents challenged it. Similarly, water supplies had been charged for common parts, running into thousands of pounds over several years, even though there are no such water supplies. There were outstanding concerns regarding a road completion that was not adopted by the local authority, and woodland plans had not been implemented —to such a degree that the appearance of the site was affecting residents’ ability to sell.

I wrote that letter on 11 August 2022. I received a reply on 4 January 2023—not from this Minister, I accept, but from a predecessor—once again stating that

“the Government intends to legislate to ensure that freehold homeowners who pay estate rent charges have the right to challenge their reasonableness and to go to the tribunal to appoint a new management company if necessary. We will also consider introducing a Right to Manage for residential freeholders”.

That claim was repeated in a debate that took place on 20 April, and by then my hon. Friend the Member for Redditch (Rachel Maclean) was the Minister. She will remember that my hon. Friend the Member for North East Bedfordshire (Richard Fuller) made an articulate case on this very issue, much as my hon. Friend the Member for Dartford has today. The Minister repeated the Government’s response once again:

“We know that legislation needs to be introduced…We are committed to introducing legislation to plug this gap. We intend to create a new statutory regime”.

I do not need really need to go on, but the Minister said:

“We need to end this fleecehold situation where homeowners who thought they had bought a home to live in…are subject to abuse and find these charges escalating out of all proportion”.—[Official Report, 20 April 2023; Vol. 731, c. 478.]

To close, I will repeat what I said at the start. My question is: when? I urge the Minister please to inject a sense of urgency, which there has clearly not been to date. These are decent, responsible constituents who bought their own homes never expecting to be in this situation. It is unjust. Will the Minister meet me and residents of Bath Vale? She kindly offered a meeting at that debate on 20 April, and I know she was sincere and that her own response to this issue was genuine and heartfelt. Will she now meet me and take back to the Secretary of State that this situation cannot go on and that legislative time must be provided to sort it out?

I thank the hon. Member for Dartford (Gareth Johnson) for leading this important debate on leasehold reform, or fleecehold as it might be for some people—I think everyone who has spoken has said that. As often happens in this House, whatever our political aspirations or affiliations, we have been bought together by this joint issue. It is always a pleasure to follow the hon. Member for Congleton (Fiona Bruce). We have been together twice in one day in Westminster Hall—we were here at 9.30 am and came back for more at 2.30 pm—and we have also had many meetings today on various issues. It has been a busy day for us all.

I have spoken on this issue many times in Westminster Hall and in the Chamber. I have raised the importance of protection for tenants regarding their leases and concerns about rising costs for ground rent. Security of tenure is imperative for our constituents, and we have to do all we can to assist them in these matters. All Members present put forward a clear case on behalf of their constituents, and I want to do the same. I look forward to the response from the shadow Minister, the hon. Member for Greenwich and Woolwich (Matthew Pennycook), whose requests will be as illustrative as ours. I look forward to the Minister’s comments as well. As others have said, she has indicated a willingness to respond in a positive fashion to try to address these issues. Time is of the essence. That is the main point that has been put forward, and I wish to make that point as well.

In the past, colleagues of mine have raised the issue of leasehold reform in Northern Ireland. I will echo their comments and reinforce their importance. More than 4,000 Northern Ireland homeowners bought property under right-to-buy legislation, but they may struggle to resell their homes due to the fact that it is extremely difficult to obtain a mortgage on properties with less than 85 to 90 years left on the leasehold. Many constituents are only now becoming aware that many years of their leasehold have expired, making it extremely less likely that they will be able to sell their home. In addition, banks and building societies will not lend money to cash-buy those types of properties, so the hope that another cash buyer would even consider purchasing these types of homes in the future is slim or, indeed, non-existent. In theory, this will seriously disadvantage those working people and families who aspire to own their own homes but do not have the capital to purchase a home outright.

One of Margaret Thatcher’s policies—she had many policies; I did not agree with them all, by the way—was that people should own their own homes. I always thought that was as it should be; people aspire to own their own home and if we can help them to do so, we should. However, the Northern Ireland Housing Executive has stated that there is currently no statutory provision to help deal with the problem that we are discussing today. From 1 April 1997 to 31 March 1998, 4,111 flats were sold with leases of 125 years or less. That leads me back to my earlier point that people are less likely to purchase such homes because the leasehold and ground rent can be quite debilitating. The Northern Ireland Housing Executive does not hold information for housing associations—they are different organisations, but still control some properties—so the number of people affected will be much higher.

I am aware that this debate is centred on England, but I always like to give a Northern Ireland perspective. Everybody knows that; I think Members expect it to be the case. It is how we illustrate the issues. In this great House, of course, we represent four regions—four nations within one—and it is what brings us together that cements and strengthens our position. This issue is a UK-wide issue and it must be addressed UK-wide. When the Minister responds to the debate, I would be very keen to know her thoughts on where the discussions will go with the responsible organisations in Northern Ireland.

Given that there is no limit on service charges, insurance, ground rent and forfeiture charges, leaseholders have been left open to exploitation by their landlords. Given that there is no such cap, we actively allow leaseholders to be taken advantage of and there is no regulation or protection for them.

I have spoken in the past about the necessity of a fair fee for a fair service. Other Members have also referred to that idea. A Government survey has found that 70% of leaseholders regretted buying a leasehold property. That is a staggering figure—almost three quarters of them regret it. Although in Northern Ireland there is the option to buy out a ground rent, that often comes at a fee that people simply cannot afford to pay.

Furthermore, land and property service fees and solicitor fees are paid separately, placing an additional burden on leaseholders. There must be more onus on the responsibility that ground rent must be paid. In Northern Ireland, if an individual tries to buy out their ground rent but there is a record of a missed payment, the additional payment can be up to six times the missed amount, which again would be detrimental to the finances of some families. There is something wrong with a system that seems to penalise leaseholders, with all the advantage lying with those who have control of their ground rent, or indeed landlords or owners of land.

I strongly urge the Minister to engage with the Department for Communities back home to see what steps can be taken to address these issues, as they have proven to be prevalent in all of our constituencies, whether in Northern Ireland, England, Scotland or Wales. That means that these crucial issues need to be tackled UK-wide.

It is a pleasure to serve with you in the Chair, Mr Sharma. I declare an interest: my wife is the joint chief executive of the Law Commission, the work of which I will cite later in my remarks.

I congratulate the hon. Member for Dartford (Gareth Johnson) on securing this important debate, and I commend him for the remarks he made in opening it. I thought that he did an admirable job of bringing home to the House the poor service and, indeed, the abuses that many leasehold and resident freeholders on private or mixed-tenure estates routinely face at the hands of their managing agents. He also made a strong case for action to ensure that leaseholders and those residential freeholders are better protected.

I thank all Members who have participated in the debate. We have heard a series of excellent contributions that have highlighted—often in painstaking detail, because Members are engaging with this on a weekly and monthly basis at their surgeries—how, all too often, leaseholders in all parts of the country are treated by developers, freeholders and managing agents not as homeowners or even as valued customers but as a source of profit to be gouged almost as those parties see fit in many cases.

The hon. Member for Dartford focused his remarks on the problems associated with managing agents and estate management companies, and he was right to draw particular attention to them. The Opposition, of course, recognise that there are good managing agents who work hard to ensure that the residents they are responsible for are safe and secure and that the homes they manage are properly looked after. However, as we have repeatedly argued over recent years, the case for doing more to protect leaseholders from poor service and exploitation at the hands of unscrupulous managing agents is as watertight as they come. Relying on incremental improvement and the sharing of best practice within the industry to raise standards is bound to fail.

To bear down on bad practice and improve the lives of leaseholders, the Government need to act. They have a ready-made blueprint for doing so, because in 2018, Ministers tasked a working group chaired by the noble Lord Best with bringing forward detailed recommendations on how a new regulatory framework for property agents should operate. That working group’s final report, which made a series of proportionate and sensible recommendations, was published in July 2019, yet in the intervening 48 months, the Government have done nothing to progress the implementation of those recommendations.

It is not at all clear why that is the case, especially given the fact that there are clearly opportunities to bring forward and progress such legislation, with the paucity of business that the House is dealing with at present. Can the Minister give us a clear answer today to this question: do the Government intend to implement the recommendations set out in the regulation of property agents working group’s final report in what remains of this Parliament? We are looking for a simple yes or no.

Regulating the dysfunctional property agent market alone is not enough. It is the inherent flaws of the leasehold system that ultimately enable substandard managing agents to abuse and exploit leaseholders and residential freeholders. Even if the Government did introduce regulation to raise standards and drive change within the property agent industry, leaseholders would still struggle with punitive and escalating ground rents, unjustified permission and administration fees, unreasonable or extortionate charges and onerous conditions that are often imposed with little or no consultation. As my hon. Friend the Member for Ellesmere Port and Neston (Justin Madders) argued in a powerful speech—I commend him for the dedication he has shown to securing change in this area—what is needed is fundamental and comprehensive reform of the leasehold system to address the historical iniquity on which it rests and to ensure it works in the interests of leaseholders.

However, having ostensibly agreed with us on that point, over recent months it has become clear that the Government are likely to row back on the commitments they previously made in respect of leasehold reform. Let me remind the House what those commitments were. In 2017, the Government asked the Law Commission to suggest improvements to both the leasehold and commonhold systems, and once the recommendations were published in July 2020, they made it clear that they were considering how to implement all of them. In 2022, the Government passed, with our support, the Leasehold Reform (Ground Rent) Act 2022, which set ground rents on newly created leases at zero. Ministers assured us that that legislation was merely the first part of a two-part seminal programme to implement wide-ranging reforms in this Parliament.

In January this year, in an interview with The Sunday Times, the Secretary of State went further and unambiguously announced his intention to abolish the leasehold system in its entirety, raising expectations correspondingly among leaseholders across the country. Not only are leaseholders still waiting for the publication of the leasehold reform part 2 Bill—the hon. Member for Congleton (Fiona Bruce) was right about the need for urgency; leaseholders have been waiting for far too long for change in this area—but credible recent reports have suggested that while we will see a further piece of leasehold legislation in the King’s Speech later this year, it is likely to be a more limited one.

In the Opposition day debate we secured on this subject on 23 May, the Minister claimed that there had been no Government U-turn on leasehold reform, yet she also repeatedly refused to commit to the fundamental and comprehensive reform package that leaseholders had been led to expect was forthcoming, and the statement that the approved motion called on the Government to bring forward by 23 June has not materialised. I will give the Minister another chance today to unambiguously clarify the Government’s position. If she was correct in asserting that there has been no U-turn on leasehold reform, will she give leaseholders across the country a cast-iron guarantee that the Government will legislate to implement all the Law Commission’s recommendations on enfranchisement, commonhold and the right to manage before the end of this Parliament—yes or no? If she will not do so, will she at least assure leaseholders who are watching that a slimmed-down leasehold reform part 2 Bill will still contain the most significant of the Law Commission’s recommendations in relation to the right to manage and commonhold?

I put that question specifically to the Minister because, in the Opposition day debate on 23 May, Ministers reaffirmed their commitment to taking forward a number of measures relating to leasehold enfranchisement, from the abolition of marriage value to a cap on ground rents in enfranchisement calculations, but we heard next to nothing in that debate in the way of a solid commitment regarding the right to manage or commonhold. That is a matter of real concern because reform of both is essential if we are to fundamentally and comprehensively overhaul the current system.

Right-to-manage reforms are necessary to provide a remedy to leaseholders who cannot afford to enfranchise, and commonhold reforms are imperative if we are to have a viable system for regulating blocks of flats apart from leasehold.

I hope the Minister will not refuse to engage with the questions, because leaseholders across the country deserve answers now on precisely what the Government mean when Ministers state that the Government remain committed to bringing forward further leasehold reforms, not least because, as the hon. Member for St Ives (Derek Thomas) pointed out, so many leaseholders have put transactions and their lives on hold while they have waited, and continue to wait, to find out what the Government ultimately intend to legislate for.

Unless and until leaseholders receive answers and a renewed commitment from the Government to enact all the recommendations of the Law Commission on enfranchisement, commonhold and the right to manage, leaseholders will reasonably conclude that the Government have scaled down their ambition, and that the only way to ensure that the leasehold system is completely overhauled to the lasting benefit of leaseholders, and commonhold reinvigorated to such an extent that it becomes the default and ultimately renders leasehold obsolete, is to vote Labour at the next general election.

It is a great pleasure to respond to this debate and to serve under your chairmanship, Mr Sharma. I thank my hon. Friend the Member for Dartford (Gareth Johnson) for securing today’s debate, in which there is strong parliamentary interest. As many Members have highlighted, I have spoken about these matters many times in this Chamber and the main Chamber, but I am happy to set out in a lot more detail the Government’s position.

I thank the other Members who have contributed, including my hon. Friends the Members for St Ives (Derek Thomas) and for Congleton (Fiona Bruce), the hon. Member for Ellesmere Port and Neston (Justin Madders), the right hon. Member for Islington North (Jeremy Corbyn), and the hon. Member for Strangford (Jim Shannon), who highlighted many of the things that we can learn from working across our United Kingdom. I am grateful to him, as ever.

There is a broad consensus on the case for change. I want to reassure Members that the Government remain committed to creating a fairer housing system that works for everyone. We will introduce further reforms in this Parliament to address the historical imbalance in the leasehold system.

As this debate has shown, the imbalance stems from the unequal power dynamic inherent in leasehold ownership, in a system with landlords often acting in their own interests and leaseholders bound by a lease that can be decades old and not easily changed. As we have heard today, particularly from my hon. Friend the Member for Dartford, freehold owners may also be subject to the will of third party interests.

We have already taken important steps to address the matter, having introduced the Leasehold Reform (Ground Rent) Bill in May 2021—I thank the hon. Member for Greenwich and Woolwich (Matthew Pennycook) for his and his party’s support in passing that Bill. Since coming into force on 30 June 2022, it has prevented landlords in most new leasehold homes from charging any financial ground rents at all. That was a very important first step, but there is more to do to tackle the power imbalance.

We are committed to improving leasehold tenure—by helping existing leaseholders to better understand and challenge their charges or the services they pay for, take control of their homes or buy their freehold—and to providing a freehold alternative from the outset, with improved rights for those that pay estate charges.

As a tenure, residential leasehold is time-limited and control is shared with the landlord. The leaseholder’s decisions about their home, including the charges that they pay for services, are usually made by someone else—the landlord or the managing agent working for the landlord—but paid for by the leaseholders. The landlord might not even live in the building or have the same priorities and motivations in mind. We have heard multiple examples today about how that negatively impacts leaseholders. My hon. Friend the Member for Congleton is completely right to say that those are decent, hard-working people who have done the right thing and deserve to live in their homes in peace and security. It is the largest asset they are likely to buy, so it is wrong that they are being ripped off—if that is a parliamentary term.

High service charges are being levied for carrying out simple requests. Managing agents are not providing a level of service that leaseholders should expect. Urgent repairs are being neglected, crippling costs are levied for buying out or extending a lease and leaseholders are charged exploitative and increasing ground rents in exchange for no services at all. For freehold homeowners who already have an expectation of control over their properties, we understand the concerns raised today and we will act. We will continue our programme of action to remedy those abuses and provide the vision of home ownership that leaseholders should expect, which is greater control over their own home, greater accountability or involvement in key decisions on what they are paying for and, ultimately, a place of safety, comfort and security for them and their family.

The Minister says in her speech that the Government will act to deal with the abuse by management companies and the imposition of fees for freeholders. Does she mean by “act” that legislation can be expected?

I ask my hon. Friends and other Members for a little patience while I proceed through my speech. I want to set out precisely the Government’s commitment to legislation because I know that is the question that everybody wants to be answered and I have limited time in which to do that.

My hon. Friends the Members for Dartford and for Congleton pointed out that freeholders on new estates must pay charges towards the maintenance or upkeep of communal areas. The obligation to pay those charges might be provided by a deed of covenant or through an estate rent charge that forms part of the purchase contract. The Government believe that when buying a home, it should be clear to potential purchasers what the arrangements are for the maintenance of roads and upkeep of open spaces, public or otherwise. That information is most often set out in a freehold management inquiry form, which is published by the Law Society and widely used across the sector. However, I know that that information was not provided to some, or perhaps not drawn to their attention, at the point of purchase. Furthermore, in many cases contracts do not specify, limit or cap those freeholder charges. To compound matters, when people receive an invoice, they are not provided with information about what the charges cover. Much as with leaseholders, that lack of transparency, both at the homebuying stage and when people have settled into their property, leaves homeowners in a vulnerable position and is something that the Government intend to address.

Leaseholders already have certain protections and rights that will enable them to hold management companies to account. Freehold homeowners have no equivalent, even though they might be paying for the same or similar services, as highlighted in the remarks by my hon. Friends. The current situation is unfair. Where they are required to contribute, it is not appropriate that people have limited rights to challenge those costs, and we are committed to introducing legislation to plug that gap. We intend to create a new statutory regime for freehold homeowners based on the rights that leaseholders have, ensuring that estate management charges are reasonably incurred, that services provided are of an acceptable standard and that there is a right to challenge the reasonableness of charges at the property tribunal.

We will also give a right to change the provider of maintenance services by applying to the tribunal for the appointment of a manager. That might be useful if a homeowner is dissatisfied with the service they are receiving or there is a significant failure by the estate management provider in meeting their obligations. We will also consider the option of introducing a right to manage for freehold homeowners. It is not only estate management charges that need to be reasonable; that principle must also apply to administration fees that individual homeowners may face in their dealings with the estate management company.

Turning back to leaseholders, as highlighted by the hon. Member for Ellesmere Port and Neston and the right hon. Member for Islington North, there is a similar situation. Leaseholders complain of unreasonable and excessive service charges and we strongly believe that service charges should be transparent and communicated effectively, with a clear route to challenge or redress if things go wrong. Many landlords and managing agents already demonstrate good practice and provide relevant information, but too many do not and are failing to provide sufficient information or clarity to leaseholders, especially over fees and service charges.

We recognise that the existing statutory requirements do not go far enough to enable leaseholders to identify and challenge unfair costs. That is why we will take action to support and empower leasehold homeowners. We will take action to increase service charge transparency to help leaseholders better understand what they are paying for, make it harder for landlords or managing agents to hide rip-off charges and enable leaseholders to more effectively challenge unreasonable fees or charges. I also want leaseholders to know that they can seek free advice from an organisation funded by the Government, the Leasehold Advisory Service, if they are concerned about charges that they are asked to pay.

That sounds like a very promising development. Is the Minister aware that there is sometimes a problem with the ability to challenge because of legal processes or the enormous costs involved, so some people, such as the residents I was referring to, do not have the power to make a challenge even though that would be very justified?

I thank the right hon. Gentleman for that point and he is absolutely right. He will hear about some of the things we are going to do to make it easier and fairer and not as expensive to challenge, and I shall to set out some more detail now.

When leaseholders challenge their landlord, we know, as the right hon. Gentleman said, that they are sometimes subject to unjustified legal costs, and we are committed to ensuring that leaseholders are not subject to them and, where appropriate, can claim the legal costs from the landlord, which certainly seems fairer than the current situation. Currently, if set out in the lease, leaseholders might be liable to pay their landlord’s legal costs regardless of the outcome of a dispute—even if they win the case. That is a classic case of heads you win, tails you lose. Also, the circumstances in which a leaseholder can claim their own legal costs from a landlord are currently very limited. That may lead to leaseholders facing higher bills than the charges being challenged in the first place and can deter leaseholders from taking their concerns to the courts or property tribunal, as the right hon. Gentleman says.

Whether on freehold estates or in leasehold or commonhold blocks, we are committed to raising professionalism and standards among all property agents, protecting consumers while defending the reputation of good agents from the actions of rogue operatives. I know that my hon. Friend the Member for Dartford has been working on that issue in his constituency, and I can assure him that I will continue to work with industry—I have regular dialogue with it—on improving best practice across the sector, including on codes of practice for property owners.

Ground rent was particularly highlighted by the hon. Member for Ellesmere Port and Neston, and we are concerned about the escalating costs of ground rents for leaseholders who still pay them. As many will know, we asked the Competition and Markets Authority to investigate the potential mis-selling of homes and unfair terms in the sector and it has been successful in securing commitments benefiting over 20,000 leaseholders, including removing doubling ground rents.

Both enfranchisement and the right to manage help give leaseholders greater control. In most cases managing agents would still be used, but they would be accountable to leaseholders directly, rather than a third-party landlord, ensuring that interests are aligned. For those who want greater control over their homes, many leaseholders find the process for extending their lease or buying their freehold prohibitively expensive, complex or lacking in transparency and we equally understand that many right-to-manage applications fail on technicalities attributed to overly detailed procedure, which is why we asked the Law Commission to look into that. It has since published reports on enfranchisement, valuation and the right to manage.

To reduce the cost of enfranchisement, we are committed to tackling the problems with these existing arrangements at their root. We will abolish marriage value and cap ground rents in enfranchisement calculations, so that leaseholders who currently pay onerous ground rents do not also have to pay an onerous premium to buy their freehold. These changes will result in substantial savings for leaseholders, particularly those with less than 80 years left on their lease. These changes will also make sure that sufficient compensation is paid to landlords to reflect their legitimate property interests.

To make the process simpler and more transparent, we will introduce an online calculator to help leaseholders understand what they will pay to extend their lease or buy it out, and the Government are committed to reforms to improve access to the existing right to manage, whereby leaseholders may take over the management of their block without having to buy the freehold. We want to make the process of exercising the right to manage simpler, quicker and more flexible, and make the operation of it more effective. To that end, we are carefully considering the detail of the Law Commission’s recommendations.

To give homeowners greater control, we want to make sure that the benefits of freehold ownership are extended as far as possible. We remain committed to banning the sale of new leasehold houses so that, where possible, all new houses are provided as freehold from the outset. For flatted developments, we want to reinvigorate commonhold so that it can become a mainstream and widespread freehold alternative to leasehold for both new and existing flats. Again, we are reviewing the Law Commission’s detailed recommendations, which propose legal fixes that will make commonhold a desirable alternative in more and more settings. We have established the Commonhold Council, made up of consumer and housing industry experts, to advise the Government on how to prepare both consumers and the market for the widespread use of commonhold. Furthermore, the Leasehold Reform (Ground Rent) Act 2022 is levelling the playing field for future commonholds as well as benefiting new homeowners. It removes ground rents from new leaseholds, and the associated financial incentives for developers to build leasehold over commonhold, where ground rents were never permitted.

I thank my hon. Friend the Member for Dartford for prompting such a vital debate and everybody for their contributions, and I am pleased that we have been able to discuss these issues properly. We plan to introduce reforms in the King’s Speech, which will take place in the autumn, so the reforms should take place within this Parliament. I recognise that every single Member would like a more detailed timeline, but I will continue to have these discussions, as Members have implored, both with my colleagues in the Department and with those across other channels who are responsible for tabling legislation.

Would the Minister be willing to have a discussion with the residents I have referred to in more than one debate? I would be very grateful.

Of course. I would be absolutely delighted to meet my hon. Friend’s residents. I implore her to contact my office so that we can arrange that as soon as we can.

I hope this debate has demonstrated to the House, leaseholders and homeowners on freehold estates across the country our continued commitment to reform and to making things better. I am grateful to Members across the House, campaign groups and members of the public for highlighting the difficulties that homeowners face. As I am sure Members can appreciate, this is a significant undertaking, and I look forward to coming to the House with more detail as soon as I am able to.

I thank all right hon. and hon. Members for their contributions to the debate. The consensus on both sides of this Chamber is that we need to see a transfer of power from management companies to homeowners, so that we can end the poor value that is too often provided by management companies, end the exorbitant fees and, perhaps most importantly of all, give homeowners the power to transfer from one management company to another, which is currently restricted. I am grateful to both the shadow Minister, the hon. Member for Greenwich and Woolwich (Matthew Pennycook), and the Minister for their responses, and I certainly look forward to His Majesty’s speech.

Question put and agreed to.


That this House has considered freehold and leasehold reform in England.

Sitting suspended.