Leasehold and Freehold Reform Bill

Helen Morgan Excerpts

2nd reading
Monday 11th December 2023 Commons Chamber

[Helen Morgan (North Shropshire) (LD)]

I have mentioned before that Liberals have been campaigning to end leasehold since the days of Lloyd George, so I am pleased to see this piece of legislation finally being debated in the dying days of this Parliament. I hope that there is the time left to pass it and see meaningful change for the many leaseholders—leaseholds comprise 20% of the housing stock in England—who are boxed in by exorbitant management charges and uncapped ground rents.

The content of the Bill is welcome, and the Liberal Democrats will not oppose it on Second Reading, but, like other Members, we have significant concerns about the omissions from it. First, the Bill does not actually ban leasehold. Perhaps more importantly, it does not ban the creation of new leasehold flats. I do not grasp the logic of arguing that leasehold is outdated and unsuitable for the modern housing market, while allowing 70%—the vast majority—of leasehold arrangements to go ahead.

The Liberal Democrats support the comments made recently in The Guardian by the shadow Minister, the hon. Member for Greenwich and Woolwich (Matthew Pennycook), that

“commonhold should be the new default tenure”

for all flats, and that it should be easier for leaseholders to collectively purchase their freehold should they wish. I also agree with several other Members that giving leaseholders first refusal when the freehold is sold is a good idea. It seems to me that without those more radical measures, the Bill is less leasehold reform and more leasehold tinkering.

I think that we all agree with the Secretary of State that this is a feudal system that needs radical overhaul, and I am not sure why the Bill does not go further to achieve that. I have been lobbied, and I have some sympathy for the argument that there is a need to ensure that there is a clear line of responsibility, and indeed liability, for building maintenance and safety in large blocks of flats, but most other countries—in fact, all countries other than Australia—have managed to achieve that without reliance on the leasehold model. Indeed, our recent experience regarding the safety of large blocks of flats, with the cladding scandal, suggests that in many instances the leasehold model has demonstrably failed to provide it. We probably all agree on that point.

I am also confused about why the Bill omits to introduce professionalisation in the management of leasehold buildings. The British Property Federation has said that

“the lack of any provision to introduce competency standards or regulation to our sector is a missed opportunity.”

Given the experience of many leaseholders over the cladding scandal, and the welcome professionalisation of the social housing sector, I hope that the Government recognise the importance of ensuring that management is professionalised and will seek to introduce such measures in Committee. I wonder whether the Minister would commit to that in his closing remarks.

In my North Shropshire constituency we do not have a large number of flats, but we have been plagued to some extent by new housing developments in which the housing is freehold but shared areas, services and essential infrastructure are managed by the original developer. As we all know, those are referred to as fleeceholds, and since being elected I have told a number of horror stories regarding such arrangements, both in this Chamber and in Westminster Hall. The provisions in the Bill that allow the right to challenge charges, provide for greater transparency of information, and relate to the quality of work and an associated system of civil penalties, are a welcome step in the right direction, but I wonder whether I could push the Government to go further in that area.

The tenants of such developments pay both their council tax and an estate management charge, yet they often receive a far worse service than those who live in adopted developments and are subject only to council tax. The hon. Member for Dartford (Gareth Johnson) laid out some of the issues in his excellent speech, so I will not go into too much detail, but I urge the Minister to consider ending the practice of shared ownership of public spaces for the vast majority of new developments. They have the commercial substance of a leasehold, and I would like to see a presumption that the shared areas around new developments are almost always adopted by the local authority where the development is standard in nature. Where there is no good reason for that not to happen, homeowners on those developments should have their rights clearly set out so that the matter can be settled quickly in court.

I ask the Minister to consider further the specific circumstances where assets such as sewage pumping equipment or a ground source heat pump are shared by everyone on the estate. I am grateful to him for listening to my concerns prior to the debate. Freeholders using such equipment are dependent on its being installed and maintained to a high standard, but the experience of my constituents is that conveyancing solicitors do not alert buyers to the risks involved in this type of structure, and that the ownership structure can be opaque and almost impossible to challenge. I have one development in which the developer retained the ground source heat pump to be used by the rest of the houses in a separate company. He charges the full cost of running that pump to the residents but keeps the renewable heat incentive payments to himself, making a huge profit in the process. The freeholders’ only route of redress is through the courts. Because of the opaque management structure, it is not clear that they will win, and they do not really have the resources to commit to those legal proceedings.

It is not uncommon in rural places such as North Shropshire for a new development to use a shared septic tank rather than be connected to the mains sewer. If the tank has been installed to a poor standard, the costs of rectification are charged to the freeholders once they move in. Those are costs that they would not have anticipated when they bought the property. I would welcome greater clarity over who is responsible for ensuring that such shared assets are fit for purpose before the freehold houses are sold for habitation. Currently, such assets and services are outside the building control regime. That means that if someone gets a completion certificate on their house, which might have been properly constructed, but their sewage system is not fit for purpose, they will still have a valid building control certificate, and will be none the wiser when they buy the property.

I ask the Minister to consider whether further protections can be put in place, such as ensuring that inspections of those assets are included as part of the building control sign-off, ensuring that reserve funds are being collected and appropriately ringfenced through reasonable service charges throughout the life of such assets, and allowing freeholders to take joint ownership of the assets for a nominal fee if they wish to do so. A right to manage would be so welcome for residents trapped in such situations.

Will the Minister also expand on the issue of enforcement? The additional rights afforded to leaseholders and those paying estate management charges will be effective only if there is an affordable way for leaseholders and fleeceholders to ensure that they can be enforced. We all have experience of freeholders simply failing to respond to correspondence, or requiring their tenants to take them to court in a highly unaffordable process, often charging the costs of that court process to leaseholders. Enforcement is therefore not really achievable at the moment, but it is so important to ensure that those revenue streams are effectively squeezed for freeholders.

The Bill is a small step in the right direction, but so much more could be done to end this outdated form of tenure. It was 1909 when Lloyd George described leasehold as “not business, but blackmail”. It is high time that we grasped the nettle and ended it.

Leasehold and Freehold Reform Bill

Helen Morgan Excerpts

Report stage
Tuesday 27th February 2024 Commons Chamber

[Nickie Aiken (Cities of London and Westminster) (Con)]

I fully support the Government’s wish to overhaul the antiquated and feudal leasehold system in this country and address the imbalance of power between freeholders and leaseholders. I thank the Minister for his ongoing discussions with me about a number of issues I have with the Bill, and for attending the leasehold roundtable that I held recently with my constituents.

I would like the Government to abolish the system completely, but I understand that that will not happen with this Bill. I have therefore tabled an amendment and three new clauses that would improve the Bill further. New clause 12 would reduce the participation threshold required to claim the right to manage from 50% to 35%. That is a massive issue in Cities of London and Westminster. More than 1,300 properties in the City of London and an eye-watering 12,100 in Westminster have owners living abroad or are owned by companies using central London’s golden postcodes as a place to park their cash. That reduces the ability of leaseholders in those blocks to secure the 50% of signatures required to achieve the right to manage, as it is incredibly difficult to contact those overseas leaseholders for a meaningful discussion.

Let me give an example of that type of dilemma in my constituency. Residents in The Quadrangle in the Hyde Park Estate say that leaseholders in their block will struggle to meet the 50% participation threshold. They estimate that at least 40% of leaseholders in their block do not live in the building and are uncontactable. Accepting new clause 12 and lowering the threshold to 35% would give many more leaseholders living in similar blocks the chance to manage their buildings.

I commend the work that has been done on the Bill to support blocks that have shared commercial and residential usage. The Bill proposes to increase the proportion of commercial or non-residential space permitted in an individual block for a right to manage application from 25% to 50%, but I believe we can go even further. I have heard from many residents whose blocks will fail to qualify even after the threshold rises to 50%. For example, residents of 8 Artillery Row in Victoria believe that increasing the threshold to 50% does not go far enough, as the residential element of their block is lower than 50%. That is why amendment 17 is needed, as it would allow residents in a block with up to 75% commercial premises to apply for the right to manage.

New clause 14 is similarly designed to allow more leaseholders to strive for the right to manage, especially those in mixed-use buildings. Simply sharing a broom cupboard with a commercial property can disqualify them from claiming the right to manage. At Cambridge Court in Marylebone, for example, leaseholders striving to manage their block would benefit from the Government’s proposals to increase the non-residential threshold allowed in a building, but they are concerned that their ability to qualify for the right to manage would be undermined by the existence of a single shared car parking space in their building. My new clause 14 would amend the Commonhold and Leasehold Reform Act 2002 by adopting recommendation 5 from the Law Commission’s “Right to Manage” report, which is to allow leaseholders in mixed-use buildings with shared services or underground car parks to exercise the right to manage.

Finally, my new clause 15 would correct the unintended consequences of the Building Safety Act 2022. That Act has interfered with the long-standing section 24 regime, which was a vital right for leaseholders. It introduced an accountable person mechanism that expressly banned section 24 managers from being the accountable person. Consequently, specially trained and vetted professional property managers willing to take on difficult sites have been barred from being the accountable person. That makes absolutely no sense, and it stripped leaseholders of an existing right. That could not have been the Government’s intention when they introduced the 2022 Act, which was intended to provide leaseholders with additional statutory protections. So many leaseholders in my constituency and across the country would benefit from applying for a section 24 manager, but they cannot risk it if they are in blocks of 18 metres or higher because of the accountable person regime issue arising from the Building Safety Act. It is imperative that our buildings are safe, that leaseholders are safe, and that the burden does not fall heavily on leaseholders.

I will not press my amendments to a vote, but I hope that the Government will consider what I have spoken about and work with me to introduce the measures in the other place. This is a watershed moment for the Government to prove that they understand the terrible treatment that leaseholders have faced and continue to face by incompetent freeholders, and to address the imbalance between freeholder and leaseholder. I hope that the Bill will deliver real change.

[Helen Morgan (North Shropshire) (LD)]

I rise to speak to new clause 1, which was tabled in my name, and in support of a number of new clauses and amendments tabled by right hon. and hon. Members from both sides of the House.

I tabled new clause 1 because, as was said by the hon. Member for Harborough (Neil O’Brien), who is no longer in his place, fleecehold is a scam. It attempts to deal with the issue whereby a freeholder is trapped in a situation where they pay estate management charges for the areas around their development, be they roads, play areas or open spaces. Critically, the new clause also deals with the shared assets that might be in use to service their homes, such as ground source heat pumps, septic tanks or sewage pumps. I am sure that there are many instances in which the management company does a great job and charges reasonable fees for its work, but my inbox—like those of many hon. Members—contains horrifying examples of the management company, which is usually directly owned by or related to the developer in North Shropshire, failing to do a good job, or to do any sort of job at all.

There is a freeholder in my constituency, for example, who must obtain an information pack from their estate management company in order to sell their house. Despite repeated requests, my constituent has not received that information pack, so their sale has been significantly delayed and is at risk of falling through altogether. The management company is apparently just a shell—it does not respond to correspondence, hold annual general meetings or provide accounts—so the affected residents are powerless and cannot take control of the company and appoint a reliable professional to provide the services that they so desperately need. New clause 1 would allow them, where the management company has gone AWOL and will not respond to anything that they request of it, to take control of the company and do those things themselves.

The new clause also extends to assets, which may be more of a rural problem when it comes to shared estate charges. In one example in my constituency, a developer installed a ground source heat pump to provide all the heating and hot water for a barn conversion development that involved several houses in the same set of barns.

That developer has two separate companies: one is the management company through which he charges the owners of those houses for their electricity bill, and another, totally separate company that was nothing to do with the sale process, which is where he placed the heat pump. As such, he is able to cream off all the renewable heat incentive income for himself; he provides accounts to residents through the management company, but does not provide them with any information about the fundamental asset that is servicing their home. Those residents are unable to benefit from the renewable heat incentive that accrues from that asset, and do not know whether it is being properly maintained and serviced. They are unable to do so themselves—they have no rights in relation to that heat pump.

--- Later in debate ---

[Sir Peter Bottomley]

I draw to the hon. Lady’s attention and that of the Minister the article by Patrick Hosking in The Times today, which deals with estate management companies and estate management charges. I hope that the Government will read what he has written and see what they can do to make things better.

[Helen Morgan]

I thank the hon. Gentleman very much for his intervention.

I will conclude by saying that I support the amendments that would require professionalisation of the industry— that would be very sensible and consistent with other legislation that the House has passed. I also support new clause 5 and amendments 4 and 8, tabled by the shadow Minister, the hon. Member for Greenwich and Woolwich (Matthew Pennycook); new clause 39, tabled by the Chair of the Select Committee, the hon. Member for Sheffield South East (Mr Betts); and new clause 25, tabled by the Father of the House, the hon. Member for Worthing West (Sir Peter Bottomley). The Bill goes some way towards providing the protection that we need, but it needs to go much further to protect freeholders from rogue developers and estate management companies. I urge the Government to take that away and do more.

[Mr Deputy Speaker (Mr Nigel Evans)]

To protect the last six speakers and protect ministerial time as well, there is now a five-minute limit on speeches, which will give the Front Benchers sufficient time to respond.