Justin Madders (Ellesmere Port and Bromborough) (Lab)
I congratulate the hon. Member for Reigate (Rebecca Paul) on her excellent speech and on securing the debate. I state for the record that I am a patron of the Leasehold Knowledge Partnership, which does such good work in advising leaseholders.
It was eight years ago that I stood on the Opposition side of the Chamber and described the use of leasehold in new developments as the payment protection insurance of the house building industry. I am pleased to say that the previous Government eventually started to tackle that, and the current Government will hopefully complete that work soon so that we can finally condemn leasehold to the history books.
It was four years ago that I stood on the Opposition side of the Chamber and warned that estate management fees could replacement leasehold as the new PPI of the house building industry—or, as the indomitable women of the National Leasehold Campaign termed it, “fleecehold.” Now that has come to pass; it seems that just about every new development built in this country adopts the same exploitative model, and the public are rightly asking what we are going to do about it. The Minister has amassed great expertise in this area, and I know he is keen to crack on with reform.
There are a number of legal cases ongoing. I am pleased to see that the bogus argument about human rights has been dispatched by the High Court. However, there are a number of others where well-resourced freeholders are trying to preserve the status quo, and not every court is as wise as the High Court was in the human rights case. The Court of Appeal recently found in the Romney House case that where a tenant goes to the first-tier tribunal to challenge a service charge, the tribunal needs only to consider whether the process was reasonable, and not whether the charges themselves were reasonable. That is absurd, and has had the effect of requiring those leaseholders to pay for the refurbishment of a gym that they do not actually own. It is freeholders with their seemingly limitless resources that can challenge and delay actions by leaseholders to preserve their rotten system at every turn, so the sooner we implement the leasehold Act in full the better.
There is a clear warning here as to why we must crack on with tackling estate management fees more broadly. I look forward to the Government’s response to the consultation. When it comes to stopping any more estates being built in this way, and we must end this practice as a matter of urgency, I suggest, as the hon. Member did, that it will actually be much easier to do this than it has been for ending leasehold. I urge the Minister to send a clear instruction to local authorities that estate management arrangements will no longer be accepted in planning applications, and to legislate to ban them on any new developments if necessary. The longer we put off fixing that, the longer it will take to fix this mess.
I fear the Minister will be told that such a move would have an impact on the ambitious house building plans that we rightly have and would damage the housing market more generally, but were we not faced with the same arguments when we tried to abolish leasehold? After all, these developers do not have to pay a community sum to the local authority—indeed, they have an additional lucrative income stream—but despite those new income sources, it does not seem to have had any impact on the price they charge for people to buy their homes in the first place.
The reality is that an estate management company is nothing more than a calculation on a balance sheet. The developers have zero interest in keeping the verges neat and tidy after they have gone. If they can make the bottom line look more attractive by creating the management company, they will, and they keep getting away with it because we let them.
Of course, we must act to protect those already caught in this trap. It is also clear, as we have heard, that many people are not aware of the implications of an estate management company or how much it will cost them when they buy their home. Often, first-time buyers are excited by the prospect of owning a new home, and they place their trust in the system—the lenders, the developers, the lawyers—and the echoes of the leasehold scandal with this are loud. Glitzy sales staff paint a very different picture. They never set out the reality that, in addition to the significant commitment people are making when they buy a home, they are also agreeing to pay an unspecified sum to often unspecified recipients for as long as they stay in that home.
The mis-selling and failure to properly advise has all the hallmarks of the leasehold scandal. We should not be surprised by that because the same actors are involved in that industry as are involved in these rip-offs. An example of some of the novel ways that this financial trap can be described by sales staff came to my attention when constituents on a recently built estate all had the common explanation given to them that this service charge was for a storm drain, but that it would be paid off in a few years so they did not need to worry about it. Well, they are still paying it 15 years later. They are not even sure if there is a storm drain and, even if there is, who is actually responsible for it, and yet the invoices and threatening letters still come.
We also recently met interested parties on another new development where we were trying to clarify who was responsible for maintaining what and who they were accountable to. Because the estate had been developed over several years by different developers, about 10 different organisations were represented at that meeting. It is little wonder that we struggle for transparency with so many people involved.
The fundamental question from the homeowner is: why are we paying twice for the maintenance of open spaces, once through a management fee and once through council tax? We should start from the basic principle that the local council should be doing all the work and that estate management companies are an unnecessary tax on homeowners. How long will it be before we see a concerted campaign for people to get reductions on their council tax on the basis that they are being taxed twice? In the wrong hands, that sort of campaign could pit communities against one another.
Let us not forget that buying a home is the biggest single purchase people will ever make. We need far greater accountability for what developers say and what they build. Housing is of course a critical part of our infrastructure and a fundamental part of a person’s life, but it has been shown time and again that we cannot rely on the market alone to deliver that in a responsible way. Let us get control over these companies, empower homeowners and legislate if necessary so that this rotten, avaricious model becomes history, just like leasehold eventually will.
The Minister for Housing and Planning (Matthew Pennycook)
It is a genuine pleasure to follow that constructive speech by the shadow Secretary of State, the right hon. Member for Braintree (Sir James Cleverly). I congratulate the hon. Member for Reigate (Rebecca Paul) on securing a debate on what is without question a critically important and pressing issue for residential freeholders and leaseholders alike across the country, and one that, as the shadow Secretary of State rightly said, enjoys significant cross-party consensus. In opening the debate, the hon. Lady spoke forcefully and eloquently on behalf of her constituents in Redhill and, in sharing their plight with the House, brought alive the financial and emotional toll that leasehold terms can take on homeowners across the country.
The many excellent contributions that followed from hon. and right hon. Members powerfully reinforced the arguments that the hon. Lady made. The case studies littered across those contributions were shocking but will not have surprised anyone in this House. We all know from the work we do supporting leaseholders and residential freeholders in our constituencies that, for far too many of them, the reality of home ownership has fallen woefully short of the dream. It is precisely because this Government are no longer prepared to accept that situation that we are determined to honour the commitments made in our manifesto and do what is necessary to finally bring the feudal leasehold system to an end in this Parliament.
I do not intend to detain the House for a huge amount of time—I know there is another debate to follow—but in the time I have available I would like to address the main issues that have been raised in the debate, starting with the various problems affecting homeowners on private and mixed-tenure housing estates. But, as ever, I am more than happy to meet any hon. or right hon. Member who has raised an issue that I am unable to cover.
As several hon. Members argued in their contributions, we have seen over recent years a significant shift away from a situation where local authorities and utility companies would generally adopt the respective amenities and public spaces within new residential developments to one where private management arrangements take hold—a so-called fleecehold arrangement. Shared amenities and open spaces are now routinely not adopted and maintained at the public expense, and the maintenance costs fall to residents through an estate rent charge, a fee paid in addition to council tax.
The estate charge also normally covers the management costs of the estate management company, although, as has been evidenced in the debate, residential freeholders frequently complain that these companies deliver little, if anything, beyond what a local authority would usually provide in an area where amenities would have been adopted.
My Department estimates that up to 1.75 million homes in England are located on such private and mixed-tenure estates, although not all are subject to charges. Properties on these estates often have restrictive covenants registered at the Land Registry. They may require homeowners to seek permission, often for a fee, from the management company for actions such as selling or letting their home or altering its appearance. In the worst cases, residents face excessive or unjustified charges levied for minimal services. Those may include fees for services normally provided by local authorities, arbitrary and costly administration fees, unexplained increase in charges and fees imposed during the sale of their home.
Helen Maguire (Epsom and Ewell) (LD)
I just want to add one more case study to the plethora that have already been provided today. I have a resident who has a one-bed flat who saw their charges rise by thousands of pounds in just a few years. That financial burden also makes it even harder to sell their property. Simply too many rogue developers and estate management companies, as alluded to, are exploiting residents and demanding excessive fees for maintaining shared and public spaces in developments. Will the Minister, as many Members have called for, today commit finally to cracking down on these money-grabbing companies, capping unreasonable service and management charges, and urgently abolish ground rents on existing leases?
Matthew Pennycook
If the hon. Lady had been present for the debate, she would have heard extensive exchanges on this subject, but I will set out what the Government intend to do to provide leaseholders and residential freeholders with redress in these areas.
Matthew Pennycook
I won’t. I am more than happy to meet the right hon. Gentleman about this issue, as I do on a regular basis, and pick up these exchanges, but I want to make a bit of progress.
Lastly, the fragmentation of management on many of these estates compounds the problems we experience. Even on relatively new developments, homeowners often have to deal with multiple management companies, each levying fees in ways that reduce transparency and increase the risk of exploitation. In those situations, home- owners understandably often feel misled and trapped.
Matthew Pennycook
No, I will not give way any further. There is another debate to follow and I will not test your patience, Madam Deputy Speaker.
It is worth saying that the Competition and Markets Authority published a study of the house building industry last year. It recommended stronger protections for homeowners and called for the mandatory adoption of certain amenities on new estates and, crucially, common adoptable standards for those amenities. The Government’s response to that report accepted many of its recommendations in principle, but acknowledged that further work is required.
I reiterate the Government’s firm commitment to end the injustice of fleecehold entirely. As I set out in my written ministerial statement of November 2024, we will consult this year on legislative and policy options to reduce the prevalence of private estate management arrangements, which are the root cause of the problems experienced by many residential freeholders.
On that point, I say to the hon. Member for Exmouth and Exeter East (David Reed)—I congratulate him on the birth of his child—that I must gently push back on his assertion that we do not need to consult. Through the consultation responses that we are receiving on issues such as service charge protections, we are gathering a huge amount of information that will allow us to implement these changes effectively, to the lasting benefit of leaseholders.
It is also vital that homebuyers understand what will happen to the estate that they are moving into. The Government are currently consulting on guidance to support estate agents with their legal responsibility to provide potential buyers with relevant material information during property transactions, as well as consulting on what should be considered material information for buyers. The Government also want to empower home- owners who are already living on estates under these arrangements. In September this year, the Law Commission published its 14th programme of law reform, which included a project on the management of housing estates. It will consider how residents could be given greater control over the management of their housing estates. My Department is proud to be the sponsoring Department for the project.
In the short term, it is imperative that we protect residential freeholders on privately managed estates from unfair charges. As hon. Members will be aware, the Leasehold and Freehold Reform Act 2024 contains provision for a new regulatory framework, broadly mirroring the rights already enjoyed by leaseholders and designed to give residential freeholders new consumer protections. We intend to consult again this year on how to implement those new protections to ensure that the framework is effective, but I want to assure hon. Members that I am determined to bring them into force as quickly as possible.
Many hon. Members mentioned service charges in a wider sense, and it is right that they champion the cause of leaseholders in their constituencies. As I have made clear on many occasions in this House, this Government recognise the considerable financial strain that rising service charges place on leaseholders and tenants. I reiterate the Government’s firm view that overcharging through service charges is completely unacceptable. In July this year we consulted on the measures in the Leasehold and Freehold Reform Act 2024 that are designed to drive up the transparency of service charges. We also consulted on proposals to introduce a fairer litigation costs regime, helping leaseholders to challenge service charges and protecting them from disproportionate legal expenses. The consultation included proposals on mandating reserve funds and reforming the major works process. As I have said, we have received a huge amount of useful feedback from the consultation, which closed on 26 September. I assure hon. Members that the stories I have heard today will inform my thinking on how the Government respond in due course.
On that point, let me say briefly that I would welcome correspondence from my hon. Friends the Members for Kensington and Bayswater (Joe Powell), for Stoke-on-Trent Central (Gareth Snell) and for Stafford (Leigh Ingham) with some further details about why judgments of the tribunal are not being enforced in the cases that they raised.
Before I conclude my remarks, I must address the legitimate concerns that have been raised in respect of the performance of managing agents, both on freehold estates and in leasehold blocks. We know that there are good managing agents who work hard to ensure that the residents they are responsible for are safe and secure, and that homes are properly looked after, but we also know that far too many leaseholders suffer from poor practice at the hands of unscrupulous managing agents.
I heard so many references to FirstPort during the debate that while I was sitting on the Front Bench I asked my private office to send a request to its managing director asking that he come and meet me so that I can convey some of the concerns that have been raised. Managing agents play a key role in the maintenance of multi-occupancy buildings and freehold estates, and their importance will only increase as we transition toward commonhold, so it is essential that we strengthen their regulation to drive up the standard of their service.
As hon. Members will know, the previous Government committed to regulate the property agent sector in 2018. They asked a working group, chaired by Lord Best, to advise them on how to do it. Yet they failed to respond to the group’s final report, published in July 2019. This Government have engaged seriously and constructively with the findings set out in that report, and we have already taken forward a number of its recommendations. In the recent consultation on strengthening leaseholder protections from charges and services, which I referenced earlier, we consulted on powers to appoint a manager or replace a managing agent, as well as on mandatory professional qualifications for managing agents in England, but that is not the final step in this process, and we will set out our full position on regulation of estate, letting and managing agents in due course.
To conclude, I am grateful to the hon. Member for Reigate for giving the House an opportunity to debate these important matters, I thank all Members who have participated in the debate today for sharing their concerns and insights, and—I say this genuinely—I very much look forward to further engagement with right hon. and hon. Members as the Government continue to implement the reforms to the leasehold system that are already in statute, and to progress the wider set of reforms necessary to end the feudal leasehold system for good in this Parliament, and not least the ambitious draft commonhold and leasehold reform Bill, which we will publish before the end of the year.