Freehold Estate Management Fees

Thursday 13th July 2023 Westminster Hall

[Dr Rupa Huq in the Chair]

15:00

[Helen Morgan (North Shropshire) (LD)]

I beg to move,

That this House has considered freehold estate management fees.

It is a great pleasure to serve with you in the Chair this afternoon, Dr Huq. I am grateful to the Backbench Business Committee for granting this debate and also to the 14 MPs from across the House who enthusiastically wrote to me to support it. I suspect that the fact that they are, unfortunately, not all here is a function of its taking place on a Thursday afternoon. Like me, they have been contacted by constituents whose lives have been blighted by the often scandalous reality of unfair, unregulated estate management fees, and feel obliged to call on the Government to legislate robustly to correct this.

I will begin by outlining the crux of the problem for many freeholders in the UK who are trapped by such arrangements. It is becoming increasingly common in new housing developments for the shared areas that are built to remain unadopted by the local council. Instead, a management company takes responsibility for the shared areas outside the bricks and mortar of the owners’ homes, and the freeholders are required by law to pay annual charges for the upkeep of those areas. That could include anything, from the maintenance of garden areas to roads and footpaths. As I will come on to later in my speech, it can even include the sewerage connections of the properties in the development. Sometimes, the freeholders will also be the joint owners of the shared areas.

The commercial substance of these arrangements is that the freeholders sign up to a leasehold agreement, even if the legal form gives it a different name. It is in the nature of these agreements that the problems begin. A common practice, I found, is for brochures and contracts, or sales staff to refer to estate management charges as

“a small annual charge for grass-cutting or for the upkeep of the play area.”

In some cases, that description of the charges could not be further from the truth.

[Justin Madders (Ellesmere Port and Neston) (Lab)]

I have been pursuing this matter for some time. Indeed, I have described it as the new payment protection insurance, or PPI, because there are so many people who have been signed up to things that they did not know about. The similarities between that and the leasehold scandal are all too familiar. Does the hon. Member feel that there needs to be far greater candour and transparency from developers when they sell their properties?

[Helen Morgan]

I thank the hon. Member for his intervention and I agree with him; that is one part of the solution to this problem.

From day one, homebuyers are being fleeced by the developer, given the reality of the charges they will face, and unfortunately, because they are often first-time buyers, they do not have the experience or knowledge to delve deeper into the charges during the conveyancing process.

These charges are usually uncapped and unregulated, with no means of redress for the buyer, which can be the beginning of a spiral of problems that freeholders in this position face. A common arrangement is that the management company is a zero-profit company that simply passes the cost of maintenance work to the freeholders. However, this work is subcontracted to a profit-making company; and I am sure it will come as no surprise to hear that, in these arrangements, the subcontractor is often connected to the original developer and makes exorbitant profits. The subcontractor does that by ensuring that the cost of the maintenance work is extortionate. To add insult to injury, although the freeholders are paying for the upkeep of the communal area, or the public area, or the roads, or the street lights, they do not receive a reduction in their council tax.

A stakeholder from the Cambridge Centre for Housing And Planning Research said in an interview that the reason why the number of freehold estates with estate rent charge requirements is increasing is that local authorities are not keen to adopt all communal areas and roads on estates. But in actual fact, local authorities are being incentivised to encourage these arrangements, because they raise council tax revenue without incurring any maintenance costs.

I will provide a few examples from my constituency to demonstrate the harm that these arrangements can cause when they have not been established in good faith. I have spoken on many occasions about the Brambles development in Whitchurch in my constituency, and I will mention it again today, because the circumstances are so appalling, and I believe they could and should have been avoided. The Brambles is a development of 14 houses built in 2016 by the developer Sherwood Homes Ltd, on land for which Shropshire Council had already granted planning permission for development. It was a condition of the planning permission that the road, footpath and drainage would all be complete before the houses were occupied. Unfortunately, despite that agreement, these elements were never fully completed, but building completion certificates were issued for the properties and they were subsequently sold and inhabited.

Once a number of the houses had been occupied, the drainage system failed, which led on some days to raw sewage backing up in residents’ gardens. Sherwood Homes Ltd had not taken out the section 104 agreement required in the planning permission, and not only was the arrangement dysfunctional, but the connection to the Welsh Water sewage network was illegal. In addition, neither the road lighting nor footpath was completed.

In December 2019, Sherwood Homes Ltd went bust, and Shropshire Council could not take planning enforcement action against the company. The residents of the Brambles, who were the successors in title to the private company that was established to manage the development, had been the subject of the enforcement process. The truly shocking reality is that they have been required to accept five-figure charges on their properties to rectify the £1 million issue of connecting the drainage to Welsh Water’s network. It is also worth noting that the saga has cost the rest of Shropshire’s taxpayers a considerable amount, because council officers have expended time and effort in attempting to rectify the situation.

Had the residents not been the owners of the shared areas, they would not have been liable. Perhaps if Shropshire Council had been expecting to bear the full costs of the clear-up, it would have taken out an injunction to prevent the final homes from being sold and occupied until the drainage was rectified, or indeed ensured that, in the first place, financial bonds had been in place under the section 104 agreements and the section 106 agreement for the drainage in the road.

That is the worst example, but it is not the only one that has come to my attention. Other cases from my constituency include a developer that is charging residents extortionate fees for the maintenance of a shared ground source heat pump, but has kept the Government’s renewable heat incentive by putting it in a private company. The developer runs the management company and has failed to hold an annual general meeting or provide detailed accounts for the residents.

In another example, there appears to be a total disregard of the Companies Act 2006. In this instance, once again the drainage and road are not at an acceptable standard, and the developer claims the management company is dormant, despite having contracted limited maintenance work to a third party. It has not held an AGM, and there is no opportunity for the homeowners to challenge the arrangement. The developer ignores all correspondence, and the homeowners do not have the resources to take him to court.

The problem is not unique to North Shropshire but impacts people across the UK. Indeed, since being granted this debate, I have been contacted by freeholders from across the country who have explained that they are being fleeced by management companies, having initially been told that they would simply have to pay for the upkeep of the grass. These people find themselves in an inescapable position. For many, there is no use turning to their original conveyancing solicitor for assistance, because that solicitor was recommended to them by the developer, which offered a discount if they used that solicitor. In addition, as I have mentioned, many homeowners are first-time buyers, and starting legal proceedings retrospectively is simply out of the question on a cost basis. As a result, freeholders are left with nowhere to turn, paying extortionate fees and with their dreams of a new home shattered.

It is important to note that the cost to the resident is not only financial. A support group called HorNet has explained to me that, on top of the burden of paying the fees, homeowners often come into dispute with other members of the public, who may abuse or damage the very infrastructure, such as the play equipment, that the homeowners are paying such huge annual fees to upkeep.

[Justin Madders]

The hon. Lady raises an interesting point. Constituents have told me that people who walk their dogs on the land for which they are paying an estate management charge should not be allowed to do so, because those people have come from another estate, where they are not paying the charge. This whole model is set up to be divisive and turn communities against each other, is it not?

[Helen Morgan]

The hon. Gentleman is exactly right, and that also raises questions of liability. HorNet describes one example in which it asked the local authority to comment on whether the local authority or the freeholders would be liable if a member of the public was injured on land maintained by the freeholders—for example, by falling off the play equipment used by the public. The council responded that it did not know. There is therefore an additional level of stress for these freeholders, as well as the potentially divisive elements that the hon. Gentleman raises.

As they stand, the agreements are a bit of a legislative desert, and they are a source of incredible stress and risk for residents. Frankly, they are a bit of a money-printing machine for unscrupulous developers that seek to exploit homebuyers. What is frustrating is that the Government have on numerous occasions considered that this area of legislation desperately needs reform, yet we have made no progress to protect freeholders from the situation.

In 2017, the Government launched a consultation to tackle unfair practices in the leasehold market and promised to legislate to ensure that freeholders would be able to access rights equivalent to leaseholders’ to challenge the reasonableness of such charges. In 2018 they launched another consultation, “Implementing reforms to the leasehold system in England”, which promised that the consultation requirements and obligations of the provider of services must be provided also to freeholders and that freeholders would have the ability to challenge the reasonableness of the payments at a first-tier tribunal.

In 2019 came the Government’s second report, “Implementing reforms to the leasehold system in England”, promising equal rights for leaseholders and freeholders when it came to challenging management fees. Those consultations and reports have been encouraging. Some 76% of those asked in 2019 agreed that freeholders should have the right to challenge such fees, but we have seen no progress at all in the legislation.

It is the responsibility of the Government to honour their promises made in 2017, 2018 and 2019. In March this year, when responding to a parliamentary question from the right hon. Member for Elmet and Rothwell (Alec Shelbrooke), the Secretary of State promised to legislate on this issue “when parliamentary time allows”.

I do not think I need to make it any clearer to the Minister that the delay in legislating is directly affecting people stuck in freehold arrangements. It is unnerving to think about how much money they have been forced to pay to scandalous management companies because of those delays. From where we are today there is no end in sight for them. They are chained to these agreements. They cannot dispute the payments legally, nor sell their homes. They are truly trapped.

We have been promised by the Secretary of State that the leasehold reform Bill will be introduced after the King’s Speech. There remains an opportunity to ease the situation, as the Levelling-up and Regeneration Bill passes through the other place. Could local authorities be encouraged to ensure that there is a plan for the adoption of roads, street lights and play areas, and that either section 106 or community infrastructure levy moneys are obtained from developers to ensure that they can be upkept in the future?

Could local authorities be given clear guidance to outline where a shared management company may not be a suitable solution; how planning conditions can be used to ensure that suitable financial bonds are in place for the adoption of drainage and roads and pavements; and how injunctions should be used where a significant failure emerges on a development, such as in the case of the Brambles, which I have outlined? Will the Government bring pressure to bear on the legal sector to ensure that there is no conflict of interest when a homeowner buys a house, and outlaw sweeteners promoting the use of a connected conveyancer?

When the leasehold reform Bill is introduced, will cost-effective legal remedies be made available to homeowners already trapped in these arrangements? For example, can they be released from their obligations if annual general meetings are not held, detailed accounts not laid or competitive quotes not obtained for maintenance work? Or could those arrangements be outlawed altogether?

I know the Government are keen to resolve the issue, so I look forward to hearing the Minister’s response. I very much hope she will commit to working with MPs from across the House to ensure that our concerns are fully addressed in the leasehold reform Bill.

15:12

[Richard Fuller (North East Bedfordshire) (Con)]

It is a pleasure to serve under your chairmanship, Dr Huq. I congratulate the hon. Member for North Shropshire (Helen Morgan) on securing this debate and on highlighting her residents’ concerns about estate management charges. She knows that her and her residents’ concerns are not unique to Shropshire—indeed, they are nationwide. It is perhaps a sign of the momentum that this is about the third debate in recent months that we have had on this issue directly or tangentially.

It is a pleasure to see the Minister in her place. I want to put on the record that I have had a number of interactions with her on this issue over past few months. She has been extraordinarily helpful and understanding about the issues and has kept abreast of everything that is needed.

So here we are again. As the hon. Member for North Shropshire said in her opening, the issue has been around for some time. Whether one is a member of the Liberal Democrats—we will wait to hear what the Labour party has to say—or the Government, everyone has a sense that now is the time. We all understand that the power to bring the measures into law does not reside just in the Minister’s Department. It is a matter for the whole of Government to decide. I hope that those who are considering the legislative agenda for the next parliamentary Session take heed of this debate and others, because a large and growing number of people are affected by estate management charges, and homeowners recognise that they have few rights, no rights or inferior rights to challenge the charges placed on them.

Many of my constituents find that they do not understand where the charges come from. Why were they charged a particular amount for the maintenance of lamp posts? Why is it correct that they are being charged for the maintenance of a pond? Why is an estate of 1,500 houses carved into little subsections, each with their own management company? People scratch their heads and then get angry, because they see the charges mounting up but they get no response from the companies and have no forms of challenge. I re-encourage the Minister to engage with the three Rs: rights, reasonableness and redress.

First, it is important that the Government come forward with measures that place the rights of freeholders on at least the same level as those of leaseholders. That means rights to manage or self-manage, rights to complain and other rights as well. Secondly, we need to find a way to ensure that the reasonableness of the charges levied on homeowners is understood. That is difficult to undertake in practice, but measures could be introduced. There could be a code of practice between property management companies that requires a certain amount of transparency.

As I have mentioned to the Minister before, I hope that she will consider the possibility of having a national register of the charges imposed, so that people in one area of the country can see what other residents are being charged for their communal spaces. Transparency is extraordinarily helpful in any market, and I point the Minister to a recent move by the Government on pricing transparency for fuel prices. If it is good to make sure people understand that they are not being ripped off on fuel prices, surely it is also good for homeowners to know that they are not being ripped off on estate management charges.

Since the last debate on this topic, I have been contacted by even more constituents who have had estate management companies speak to their mortgage provider in an attempt to put some restriction on the rights of the homeowner to sell their home. Regardless of whether that is legitimate—maybe it is; I do not know the details of each case—it is clearly a potentially tremendous impediment to somebody seeking to sell their home if they have to go through a process of investigating whether the charges placed on them were legitimate, or if they are not able to complete their transaction in time. We really need to look at the limits on what estate management companies can challenge. If an estate management company has legitimate, unpaid fees, they should be paid—no one is questioning that—but why is it appropriate to go to the mortgage holder and not to pursue the unpaid bills through the civil courts? It seems to me to be perfectly reasonable to separate the two and not combine them into one action.

While I am on the issue of the sale and purchase of homes, will the Minister please look at the role of solicitors in advising on the sale of new homes? Often, estate management charges are for new estates. People often come and talk to the housebuilder selling the houses, and the housebuilder recommends a solicitor to them. What responsibilities does the solicitor have to advise the purchaser about the charges for which they will be liable and what their rights might be if they wish to sell their house? Some clarity and transparency on that would be helpful.

The Minister has indicated previously that she is alert to the issue of redress and understands people’s frustration at the fact that they are not able to find an efficient route to get it. I would be grateful if she could advise us on whether providing adequate redress can be achieved through non-statutory means. Is that feasible or not, and is it preferable or not? My answer is that it is not, but I would be interested in what the Minister has to say on that.

Another issue in my constituency has been the willingness of certainly one of the two local authorities in the past to slough off their responsibilities for what would normally be public services, covered by council tax, on to these new schemes of estate management charges. It really is not on for local authorities to set up a two-tier charging system, where some people in the local authority area pay once for their public services—communal areas, lamp posts, parking facilities, ponds, grass verges being mown—while another group of residents in the same local authority pay their council tax in exactly the same way as everyone else and then is stiffed with another bill for services that other people are getting covered by council tax. This two-tier system is a growing anomaly in local authority areas. We need investigation by the national Government to see what limitations might be prudent for that.

We have heard in past debates—I fear I may hear it again—the phrase “when parliamentary time allows”. Well, I’m up for it. I think other political parties are up for it. I hesitate to put words in the Minister’s mouth, but I think she is up for it as well. Parliament clearly wants to look at this issue. We want progress to be made, so it is important that we should look at it.

I do not often like to talk about specific companies, but in this instance I will. I wonder whether the Minister has had a chance to look at the tribunal decision in May 2023 between FirstPort and the residents of St David’s Square. It is an interesting judgment that was obviously conducted by someone with tremendous legal knowledge, who was able to get through the whole morass of issues and have an effective case. If the news reports are right, £479,000 in overpaid service charges were required to be paid back to the homeowners at St David’s Square, and £55,000 of the money the Government had provided in energy subsidies that had not been passed on had to be paid for. I would like to applaud the decision in that case. I do not know the details, but it seems to me to be on the right track.

It is important that we understand that if we make changes to estate management charges, we should not let companies off the hook for charges that have been imposed unfairly and excessively before the point when the legislation changes. I ask the Minister to ensure not that we pass retrospective legislation, but that legislation that changes the facility with which people can seek redress is open to people, so that they can make claims on historical excessive charges—not just charges subsequent to any legislative change. If the Government are not prepared to put that in legislation, then I would certainly table an amendment to enable my residents, who right now are being charged excessively by estate management companies, to claim that money back.

This is an important debate. It bears repeating that residents across the country, including many in my constituency, are looking to the Government to bring forward the necessary legislative change to make effective what has been promised now for six years. It is time for the Government to take the action required.

15:23

[Greg Smith (Buckingham) (Con)]

It is a pleasure to serve under your chairmanship, Dr Huq. I congratulate the hon. Member for North Shropshire (Helen Morgan) on securing this debate. It is also a pleasure to follow my hon. Friend the Member for North East Bedfordshire (Richard Fuller). There is almost a temptation to leave it at just, “What he said”, but there are a number of points I wish to make.

Across the 335 square miles of my Buckingham constituency, new estates have been relentlessly built over recent years. My views on the need to build on brownfield land only and to protect agricultural land and our national food security are well known, but where houses have already been built or are being built at the moment, it is crucial that we try to rectify the mistakes of the past, and the issue of service charges and local authority adoption of those housing estates simply must be addressed.

Traditionally, when someone purchased a freehold property, ongoing costs were relating to maintaining their property and paying, rightfully, council tax bills to contribute towards local public services and the maintenance of the public realm—as my hon. Friend the Member for North East Bedfordshire said, the lamp posts, streets, pavements and playgrounds and ensuring that the verges are mown. It is those sorts of things. However, in recent decades, as hon. Members have said, developments have been sold as freehold but now come with often punishing service charges to cover land and facilities that are not passed to local council control and remain in private hands—sometimes that is the developer; sometimes they are sold to a third party.

The concept of a service charge is well established. Service charges were traditionally for flatted developments, which need to share the responsibility for communal spaces within and around those buildings. The properties are normally—traditionally—leasehold properties, and the concept of the service charge is closely linked to services that would never be undertaken by a public body.

To go back into history a little and give some context, the Georgian development of London squares did extend the role of the private developer. Service charges included access to those private squares, those private gardens, and some shared communal spaces in lieu of front gardens. However, a growing trend has been to sell freehold houses with freehold gardens but also with shared, communal external spaces and facilities—car parks and the like—that attract these new service charges. Unlike flats, with tightly defined communal space, or indeed those London squares, which are private and used only by adjoining residents, these recent developments have had the appearance of normal modern housing estates, with open access, and yet the communal assets are paid for by a select number of residents. We are talking about the roads, pavements, verges, play areas, balancing ponds and often, as the hon. Member for North Shropshire said, the sewerage and water supply. No one ever conceived in the past that those would be anything other than local authority managed or water company managed.

It is not obvious what is driving the cause of freeholder service charges. Is it driven by councils simply not being willing to adopt assets that they see a very high cost base in maintaining into the future—I would suggest that that is certainly part of it—or by developers keen to create a specific style or ambience that creates in its own right a unified development that just happens to be open to the general public: is it a sales pitch? Or is it driven by developers pushing to lower standards in the public realm where councils do not want to be landed with the liabilities.

Since before being elected in 2019, I have been contacted by countless residents living on such new build developments and estates. They are exasperated by the developers that have failed to complete what we would believe to be the fundamentals, the basics, of a development. I am referring to roads not completed—the final layer of tarmac not laid—footpaths yet to be laid, landscaping that has been forgotten and, in many cases, mounds of soil fenced off and awaiting redistribution.

We must ask what is causing these issues and what changes we can drive to deliver reform. Often, the problems that I just outlined have been deliberated designed to prevent transfer to another management company. They have been deliberately done to ensure that residents cannot get control themselves and that it remains in the hands of these management companies. The recent, growing concerns about freehold service charges are a result of many of those management companies being sold off to the third parties I mentioned earlier, which see the opportunity to increase charges way beyond the initial nominal amounts, further adding to the problems of freeholders, who, as hon. Members said before me, must still bear 100%—the full amount—of their council tax bill, with not even the slightest hint of a fair discount.

One could say that freeholders might expect service charges if they bought into one of the high-end, exclusive gated developments sold in some parts of the country, which aim at exclusivity and have additional features that standard council tax would never normally pay for. We are talking about things that very few in the country are able to have: private clubhouses, tennis courts, gyms, private leisure facilities, extravagant landscaping and the like. However, we are rarely talking about those developments, as section 106 and community infrastructure levy taxes developers to provide facilities to the council—facilities that are rightly used by the wider community.

That leads me to a philosophical question about the right to retain as private assets that are actually public, and that should be adopted and maintained by council tax payers—and, potentially, other taxpayers, through Government grants. We have not recently had a debate on where the line should be drawn—on encouraging new communities to take responsibility for their new assets, versus new assets being paid for by a new development, but being open to all.

Lace Hill in my constituency sits on the edge of Buckingham. It is a development of just over 700 homes. It comprises freehold houses with their own gardens, but residents must pay a service charge for playgrounds, landscaping, a balancing pond, the roads, the pavements and the verges. A casual visitor would imagine that they were regular roads, play areas, pavements and community facilities that the local council looks after, but it simply does not. The estate is also home to a primary school, a secondary school, play equipment and a multi-use games area that the whole town of Buckingham comes to enjoy, but they are wholly paid for—except for the core educational funding, clearly—by the freehold service charges placed on the residents of that relatively new estate.

Worse than that, Lace Hill faces the very issues that I described: there has been a failure by the developer to finish a lot of the features, not least the balancing pond. The area is very close to the Great Ouse river, which regularly floods; that brings a whole new dimension to the debate, which I will not go into now. That failure means that residents are unable to take control of the issue in the way that they should be able to. Also, the management company has sold and resold itself—and sold itself to itself in a different guise—which has led to mass confusion among residents about who they are paying the service charges to, and whom they can hold accountable for services that, for the most part, they have not actually had. I could give countless other examples, but I will not take up the time of the House by doing so; I will just briefly mention another particularly egregious example of this in my constituency: the Kingsbrook development, which sits just to the east of Aylesbury.

It is very hard to distinguish what counts as a facility that new homeowners may consider it worth paying more than the standard council tax for, because it is over and above the standard communal facility. However, from the way that homes are sold, it would appear that developers and the conveyancing profession have not been open and up front about the risks of some new estates being owned by third parties, and the service charge that would be made. That needs to be drawn more rigorously to the attention of home buyers, so that they are fully aware of what they are entering into, and of the risks of additional costs, increasing in perpetuity. In some circumstances, it would be reasonable for a development to wish to hold some assets privately, as they are over and above what is required by the national planning policy framework—maybe private sports facilities, such as the ones that I mentioned; or a concierge for security, key holding and parcel delivery. However, I suggest that those would be few and far between in the real world.

Some developers set up a residents’ management company, of which freeholders are members, so that they can have a say in the scale and quality of communal works needed or desired, and can influence the service charge fee, but in my experience, and from research in my constituency, that is all too rare. Sadly, freeholders have few controls if the developer retains the management, or sells it to a third party. It appears to too many developers that they can sell the management company as an investment, for it to be run by an uninterested third party. Ironically, as my hon. Friend the Member for North East Bedfordshire mentioned, though leaseholders have access to the first-tier tribunal, the right of freeholders to challenge the reasonableness of the service charge is still not defined in law.

I come on to some of the recent debates, and the delays in solving the problems over the past six years. The Government and the Minister are aware of the issue, and I am grateful for the time that she has taken to talk privately to concerned colleagues. The July 2017 consultation paper, “Tackling unfair practices in the leasehold market”, highlighted the discrepancies and issues for freeholders in section 6, but that is some years ago. The Government rightly announced their intention to legislate in this area. In October 2018, they published a further consultation, and the Government response to it was published in June 2019, but we are still waiting for the legislation; they had committed to equal rights for freeholders and the right to manage for freeholders.

I believe that my hon. Friend the Minister wants to move forward, but there is impatience in the country, and impatience and frustration among my constituents and those of other right hon. and hon. Members. People living in freehold properties are caught up in service charges. We need to move much faster. It is imperative that the issue be resolved.

To summarise my main asks of the Minister, first, freeholders must have the same right as leaseholders to challenge service charge fees. Secondly, freeholders should have the same rights as leaseholders to set up resident management companies. Thirdly, and more fundamentally, should traditional housing estates have service charges? Should they not be better designed and integrated into existing settlements, with ongoing maintenance of communal playgrounds, roads, parks, verges and so on being at council tax payers’ expense? There should almost be a requirement for councils to adopt new developments. Fourthly, we should ensure better management of critical infrastructure, such as access roads and surface water drainage. They should be designed to meet the standards of the local flood authority, be constructed and warranted by the developer, and in time become part of the public drainage system, to ensure that they are managed in perpetuity. Fifthly, in order to avoid there being site-wide service charges, a limited number of properties should be allowed to share responsibility for some areas, such as shared driveways and off-street parking areas.

To conclude, it is simply an absurdity that the majority of developments granted planning permission in the public domain are not automatically adopted by local authorities. Ultimately, we could solve all the problems by making that a requirement.

15:39

[Matthew Pennycook (Greenwich and Woolwich) (Lab)]

It is a pleasure to serve with you in the Chair, Dr Huq. I congratulate the hon. Member for North Shropshire (Helen Morgan) on securing this important debate, and on the well argued remarks with which she opened it. I thank the hon. Members for North East Bedfordshire (Richard Fuller), and for Buckingham (Greg Smith), for participating. In their compelling and thoughtful contributions, they highlighted, among other points, how widespread across the country problems associated with estate charges and fees are.

As in the debate last week on freehold and leasehold reform, hon. Members usefully brought the issue to life by detailing the impact of estate charges on homeowners living in developments in their constituencies. The accounts we have heard today, and many others I have heard from colleagues over recent years, illustrate vividly the abundance of problems associated with new build estate charges and fees; they are well known and well understood. They include excessive or inappropriate charges levied for minimal or even non-existent services; charges imposed for services that should, by right, be covered by council tax; charges that include costly arbitrary administration fees; charges hiked without adequate justification; and charges levied when residential freeholders are in the process of selling their property.

There is often a startling lack of transparency about what services are covered by service charges, estate charges and fees charged to long leaseholders in blocks of flats, but residential freeholders on privately owned and managed estates clearly suffer from inadequate transparency in other unique respects. As was said at the start of the debate, it appears to be fairly common for residential freeholders not to be notified of their future liability for charges early in the house buying process, and many learn of their exposure only at the point of completion. I listened with great interest to the suggestions about solicitors and conveyancers. As the Minister noted in the debate last week, even where notification of future liability is given in good time, many contracts do not specify limits or caps on charges and fees.

As the hon. Member for North East Bedfordshire said, there also appears to be a particular issue with fragmentation on privately owned and managed estates, which further exacerbates the general lack of transparency and potential for abuse in respect of charges and fees. It is not uncommon in blocks of flats, particularly older ones, for ownership and management to become fragmented over time, but on privately owned and managed estates, even relatively new ones, residential freeholders frequently have to navigate scores of management companies, each levying fees for services.

Underpinning all those issues of concern is a fundamental absence of adequate regulation or oversight of the practices of estate management companies. They are deficient in many important respects, which is one reason why fundamental and comprehensive leasehold reform is urgently required. Leaseholders have at least some protections and rights that enable them to challenge the charges and the standard of service they receive, but residential freeholders have no equivalent statutory rights.

No hon. Member in this debate has claimed that the present arrangement is not inequitable, or suggested that there is anything other than a pressing need to give residential freeholders on new build estates greater rights and protections. Indeed, I would go so far as to submit that the House appears to be of one mind on the matter.

[Richard Fuller]

The shadow Minister is making some very good points, but in the spirit of evolving the debate, I want to ask him a question. My hon. Friend the Member for Buckingham (Greg Smith) talked about council tax, and mentioned, as I did, that people are being doubled charge. If there are reforms to be made, would the hon. Gentleman favour giving residents of estates that levy estate management charges the opportunity to hand back responsibility to the local authority in any circumstances?

[Matthew Pennycook]

The hon. Gentleman pre-empts a point that I will come to later. There is an issue with local authority adoption, but if he is not satisfied with my comments, he is more than welcome to intervene on me again.

The question is not, “Should we do anything?” but “Why have no concrete steps been taken over recent years to give residential freeholders the rights and protections they clearly need?” The Government have recognised publicly for at least six years that there is a problem, and that they need to act to address it. As has been said, and as the Minister clearly understands, in their December 2017 response to the “Tackling unfair practices in the leasehold market” consultation, the Government made it clear that they intended to

“legislate to ensure that freeholders who pay charges for the maintenance of communal areas and facilities on a private or mixed use estate can access equivalent rights as leaseholders to challenge the reasonableness of service charges.”

That commitment was repeated in the Government’s June 2019 response to the “Implementing reforms to the leasehold system in England” consultation, and successive Ministers have echoed it numerous times since then in the House.

Indeed, the Minister, who has responsibility for housing and planning, has been clear in several debates this year that the Government intend to create an entirely new statutory regime for residential freeholders based on the rights that leaseholders have. That would ensure that estate management charges must be reasonably incurred, that services provided must be of an acceptable standard, and that there is a right to challenge the reasonableness of charges at the property tribunal.

Given that there are almost certainly over a million residential freeholders across the country whose lives are being blighted because the practices of estate management companies are not adequately regulated, the Opposition urge the Government to find the time, in what remains of this Parliament, to legislate for freeholders’ protection. At a minimum, that legislation should ensure equivalence between the regulation of estate charges and the regulation of leasehold service charges.

This criticism is not directed particularly at the Minister, but it is incredibly frustrating for hon. Members from across the House, and for members of the public who have a stake in a given outcome, to hear Ministers assure us time and again that long overdue legislation will be taken forward “when parliamentary time allows”, especially as the House has frequently risen early in recent months because the Government’s legislative agenda is so light. There is a strong cross-party consensus on the need for urgent legislation to tackle the problem, so let us get on and progress that legislation.

Before I conclude, I will draw three important issues to the Minister’s attention, and I ask her to address them when she responds to the debate. First, on the Opposition Benches we take the view that we need to ensure that residential freeholders can more easily take control of their estate management company or companies. To be clear, that is conceptually distinct from the reform proposals made by the Law Commission in its 2020 report on exercising the right to manage.

There are a number of ways in which residential freeholders could be empowered to take over estate management functions on any given estate, but what is important at this stage is the principle. Could the Minister assure the House that when the Government legislate, it is their intention to provide residential freeholders on privately owned estates with a statutory right to manage?

Secondly, we believe that specific measures are required to protect residential freeholders from being evicted from their home due to a failure to pay estate charges and fees—or rent charges, as they were historically known. The Government committed in 2020 to repealing section 121 of the Law of Property Act 1925, which enables this practice to continue. Can the Minister confirm that the Government remain committed to doing so when they legislate?

Thirdly—this point has been raised by several hon. Members in the debate, and the hon. Member for North East Bedfordshire challenged me on it—we feel strongly that residential freeholders deserve far more certainty about the circumstances in which communal areas and amenities on privately owned estates should be adopted by local authorities, and by water companies in the case of sewage infrastructure, and the timescales within which such adoption should take place.

Let me be clear that we sympathise with local authorities that are reluctant to adopt roads and common services of poor quality. However, some authorities refuse to adopt areas and amenities, most commonly roads, that are built to an acceptable standard unless an excessive fee is paid by the developer. There is a general need to drive up built environment standards across new build estates, so that councils do not have to pick up the long-term cost of repairing and maintaining them. However, we also need further clarity from the Government on if and when local authorities are required to take forward adoption, thereby saving residential freeholders from the type of fees that the hon. Member for North East Bedfordshire referred to in his intervention. Does the Minister agree with us on that point, and if so, can she at least give us a sense of the Government’s thinking about what steps might be taken in that regard? I very much look forward to hearing the Minister’s response to those questions, and to the debate as a whole.

15:44

[The Minister of State, Department for Levelling Up, Housing and Communities (Rachel Maclean)]

It is a great pleasure to respond to this debate and to serve under your chairmanship, Dr Huq.

I start by thanking the hon. Member for North Shropshire (Helen Morgan) for securing this debate on an issue that she feels passionately about. Indeed, many of us feel passionately about it, and it is a testament to the persistence and determination of many colleagues in the House that we are again debating this vital issue.

As the hon. Member did during the recent Opposition day debate, she brought to the House’s attention powerful examples from her area; I think that it is particularly on the Brambles estate in Whitchurch where the current system is not working for homeowners. I am hugely frustrated at the situation that those homeowners find themselves in.

I thank my hon. Friends the Members for North East Bedfordshire (Richard Fuller) and for Buckingham (Greg Smith) for the discussions we have had about this issue and for the attention to detail they have brought to our process of scrutinising and preparing the legislation that we very much hope to introduce soon. I will come on to that shortly.

The Opposition Front-Bench spokesperson, the hon. Member for Greenwich and Woolwich (Matthew Pennycook), correctly highlighted the cross-party support on this issue. He has been supportive and constructive in his tone, both today and other occasions. I welcome that, because it makes the case for all of us to pursue the legislation and to ensure that it is brought to the House swiftly.

There was a broad consensus on the need for change. Let me use this opportunity to assure Members that fairness remains at the heart of our ambition for the housing market. We all know that we need to drive up housing supply so that we have the homes that the country needs, but while doing that, we need to ensure that buyers are getting high-quality and safe housing on modern, beautiful estates—if that is what is being built—that they can enjoy for years to come. Unfortunately, too many homeowners who bought their properties in good faith have not had their expectations met.

In the past, as Members have highlighted, it was typical for councils to adopt local infrastructure and shared spaces, but the system has changed in recent years. I recognise that on more and more estates, it is common for the shared spaces to be owned and managed by another party. The ownership of the land varies between developments. On some estates, it is owned and managed by a resident-led management company, often with the support of a managing agent, which provides expertise and services to the residents in the running of the estate. On other estates, the land is owned and managed by private management companies. Some have connections to the original developers; others are third-party companies.

It is often not down to the homeowners themselves to decide which type of management arrangement is in place on the estate. Commonly, that is set by the developer before any of the houses are sold. Either way, as has been pointed out, homeowners on these estates must pay a charge to cover the upkeep of open green spaces, roads, sewerage, drainage and other shared infrastructure, such as balancing ponds and play areas, which have been highlighted. In such circumstances, we must ensure that homeowners get a fair deal and do not end up in a vulnerable position as a result of these arrangements.

My hon. Friend the Member for Buckingham and the hon. Member for North Shropshire called for local authorities to be compelled to adopt all communal facilities on a new estate. It is worth pausing to consider why that does not happen at the moment. Our current planning arrangements exist to support new developments. When a new development is granted planning permission, the local authority can obtain section 106 planning obligations to secure a commitment from the developer. That means that the local authority does not have to adopt and maintain the land at its own expense. Local authorities no doubt take such financial considerations into account when they make these decisions, but it is up to developers and the local planning authority to agree on specific issues such as timescales for development and appropriate funding arrangements, and it is clear to me that, in a lot of cases that have been brought to our attention, that process is breaking down.

The local authority has powers to ensure that the developer builds and maintains communal facilities to the standards and quality set out in the planning permission. It is worth noting that the maintenance of communal areas, and of roads in particular, can be a significant financial burden. This is why it is right that the decision about adoption should rest with the local authority. The Department for Transport has recently issued guidance on the circumstances in which local authorities should be adopting roads. Again, I note that this can be a fraught area in some situations; I have seen that from my correspondence.

We need transparency. We need a system that consistently delivers clarity to potential purchasers and arms them with information about the arrangements for the maintenance of shared spaces on private estates. That information should be set out as part of the conveyancing process. Many already use the freehold management enquiries form, the FME1, published by the Law Society. I know that the form is used widely across the sector, but I have heard that for some buyers the information was not provided, or perhaps not drawn to their attention, at the point of purchase. That may have been the experience of some of the constituents my hon. Friends and colleagues have spoken about.

If a homeowner is unhappy with the service that they received from their conveyancer or solicitor, and the internal complaints process cannot resolve the issue, the legal ombudsman may be able to help. That needs to happen within six months of the homeowner’s final response from their conveyancer or solicitor. My hon. Friend the Member for North East Bedfordshire highlighted the issues with buying and selling homes, the process for which in England and Wales can be expensive, time-consuming and stressful. For that reason, we committed to improving the process in the levelling-up White Paper.

We have committed to work with industry to ensure that potential buyers have access to the critical information that they need in an accurate and timely format. That will help them to make an informed decision about whether to purchase a property, reducing the likelihood of the sale falling through. Some of that work is already taking place, but the Government are committed to continuing to create a fair and just housing system for everybody.

Too often, once a homeowner has moved into their home, they are asked to pay charges without an effective breakdown of what they cover. This is a matter of basic fairness and justice. Homeowners deserve to know what they are paying for on their estate. As with leaseholders, a lack of transparency, both at the homebuying stage and when people are settled in their property, leaves homeowners in an unfair and often vulnerable position.

[Helen Morgan]

That is the crux of the matter. If rogue management companies acting in bad faith do not provide that information and do not have an AGM, there is no remedy for homeowners to challenge what they are up to, or to take control of the situation. If those basic Companies Act requirements are not being fulfilled, could there be some legislative remedy for homeowners that does not involve them incurring the enormous expense of going to court? For example, could they take on the management of the company if basic Companies Act requirements are not complied with?

[Rachel Maclean]

I thank the hon. Member again for reminding us of this issue. I hope that she will bear with me, as I am coming on to our intended legislative remedy, through which we intend to drive up transparency for homeowners. Better transparency will help people to be better informed about buying a home on a managed estate and empower them to question or challenge the charges when they are billed. Alongside that, they must have better rights to challenge, as the hon. Member just said.

Freeholders on managed estates are currently at a disadvantage compared even with leaseholders, for whom the system is not perfect by a long way, regarding their ability to challenge costs and poor service. Leaseholders already have certain protections and rights that enable them to hold landlords and management companies to account, yet freehold homeowners have no such equivalent, although they may be paying for very similar services. The situation is clearly unfair, and we are committed to introducing legislation to plug the gap.

Let me come on to what we intend to do, which I am sure Members are keen to hear. We intend to create a new statutory regime for freehold homeowners based on the rights that leaseholders have. We will give homeowners the right to challenge the reasonableness of the estate management charges at the first-tier tribunal, and the right to change the provider of management services by applying to the tribunal to appoint a new manager. That will be an important power when a homeowner is unhappy with the service that they are receiving and there is a significant failure by the estate management provider in meeting its obligations.

The hon. Member for North Shropshire mentioned existing homeowner rights, which will depend on the ownership of the land and the terms of the transfer. People should seek independent advice on the options available to them. For example, if a management company is not complying with its obligations, homeowners may be able to use contract law and make an application to the county court for an injunction for specific performance. That will require the management company to comply with its obligations.

Resident-led management companies are independent companies to which residents are appointed as directors. Sometimes the articles of association, which set out how the company will run, will specify that homeowners are automatically part of the company and so can vote at the AGM. Homeowners may also be able to call extraordinary general meetings, and they can apply for an injunction for specific performance if the company is not complying with the articles of association of any management agreement. But we know we must do more, which is why we will consider introducing a right to manage for freehold homeowners. That will follow from our consideration of the Law Commission’s report and recommendations on changes to the right to manage for leaseholders.

It is not only estate management charges that need to be reasonable. As I mentioned in last week’s Westminster Hall debate, the principle must also apply to the administration fees that individual homeowners may face in their dealings with estate management companies. Therefore, we will legislate to require that all administration charges must be reasonable, which will mean that they may be challenged at the first-tier tribunal.

I want briefly to mention the Competition and Markets Authority’s house building market study.

[Richard Fuller]

Before the Minister moves on from charges, I wish to make the point that I made earlier, although she may not wish to comment now. If those changes are made, is it the Government’s intention that people who have been charged excessively, or can make the case that they have been, prior to that legislative change will be provided with access to those tribunal options?

[Rachel Maclean]

My hon. Friend’s point is very much in my mind. He is right to make it—he has made it to me multiple times—because it is a very important point. While the legislation is being prepared, I cannot comment specifically on the individual measures that will be in it, but I have no doubt that when we bring it forward, he will probe and challenge every part of it. I very much hope that we can achieve a successful situation at the end of that process.

In February, the Competition and Markets Authority launched a market study on house building, as part of which it will examine the fairness of estate management fees charged for unadopted roads and amenities. It will make recommendations about policy and regulatory changes. My hon. Friend the Member for North East Bedfordshire may be interested to find out about those.

There is also an issue of redress in relation to the fit and finish of residents’ homes on new estates. Invariably, the problems are the result of inadequate quality control. People have encountered unfinished roads, half-built playgrounds and a lack of recourse to resolve those issues, all of which are unacceptable. We have been clear that new housing developments should be finished on time and to a high standard. If things go wrong, homebuyers must be treated promptly and fairly.

There are existing routes to redress, which we are strengthening through the Building Safety Act 2022. We have included a provision for a statutory new homes ombudsman, which will make developers more accountable and make it easier and simpler for new home buyers to seek redress when things go wrong. We are considering the arrangements for the statutory scheme and are working on the next steps, which we will set out in due course. In the meantime, the independent New Homes Quality Board has established the voluntary new homes ombudsman service, which launched last autumn. It can handle complaints from homebuyers about new homes built by developers that have registered, and it is 100% free for homebuyers to use.

Let me turn finally to the most important matter for hon. Members: the timing of these changes. Unfortunately, I do not have much to add to what I have already said, which is that legislation for the next Session will be set out in the King’s Speech. Everybody in the Chamber will have heard the Secretary of State and I say that it is our intention that the King’s Speech will contain a Bill that will address the issues that have rightly been raised. That remains our priority.

Fairness needs to be at the heart of the housing system. The arrangements for the upkeep of open spaces and roads on freehold estates should always be clear to potential homebuyers, and costs charged must be transparent and reasonable. Homeowners need to have access to redress when things go wrong and be empowered to hold their estate management companies to account. That is why we remain committed to legislating as soon as we can. I thank all colleagues for their consistent advocacy and campaigning on this vital issue, which, as has been said, affects a million people around the country.

16:05

[Helen Morgan]

I thank the Minister and the shadow Minister, the hon. Member for Greenwich and Woolwich (Matthew Pennycook), for their comments, and I thank the hon. Members for North East Bedfordshire (Richard Fuller) and for Buckingham (Greg Smith) for coming along for the graveyard shift on a Thursday afternoon. I also thank you, Dr Huq, for chairing the debate.

The Minister’s comments are welcome. I am particularly pleased to hear that freeholders will be given equivalent rights to leaseholders to go to the first-tier tribunal. She has heard today, as I am sure she has in other debates on the subject, that for the people who are trapped in these situations, what should have been their dream purchase—a new build home that comes ready-made, without the need for renovation or extensive work—and something they hoped would be simple has turned into a nightmare. We really cannot have legislation soon enough.

The hon. Member for Buckingham made a really good point about what should be considered standard shared areas that should be adopted by the council, and what might be considered over and above and normally subject to the arrangements we have been discussing. I agree with him and urge the Minister to consider making it mandatory for councils to adopt the things we consider to be standard—the roads, pavements and streetlights, for example. The hon. Member for North East Bedfordshire made some good, practical comments on transparency, which I certainly support. I urge the Minister to take those on board too, and to bring legislation forward as soon as possible.

Question put and agreed to.

Resolved,

That this House has considered freehold estate management fees.

16:07

Sitting adjourned.