Leasehold and Freehold Reform Bill (First sitting)

Mike Amesbury Excerpts

Committee stage
Tuesday 16th January 2024 Public Bill Committees

[Matthew Pennycook]

Q My second question relates to managing agents. Lots of the freeholders that leaseholders have to deal with are offshore and hard to reach. Managing agents are the first point of contact, and in many cases are the only point of contact. To what extent do you think that the Bill will function effectively without some kind of regulation of managing agents? Should we be looking to introduce that into the Bill?

Mr Martin Boyd: The RoPA—regulation of property agents—report, which the Government undertook some years ago under Lord Best and which proposed statutory regulation of managing agents in this sector and within the estate agency world, has unfortunately not moved forward. There are proposals in the Bill to bring estate agents within codes of practice, but nothing in particular changes on property management. We have a slightly strange position at the moment. In the social sector, there is now an obligation for a property manager to have a proper level of competencies to look after high-rise buildings, or high-risk buildings, as they are still called. In the private sector, though, we have nothing. There are no requirements to have any qualifications to look after and manage the highest of our high-rise buildings in this country. That is simply wrong, so I would support fully a move to the statutory regulation of agents.

[Mike Amesbury (Weaver Vale) (Lab)]

Q Hello Martin, good to see you. Are there any risks in banning new leasehold houses but not flats?

Mr Martin Boyd: Yes, there are risks. Currently, we do not have a viable commonhold system. Even if the Government were to come forward with the full Law Commission proposals, those had not reached the point where they created all the systems necessary to allow the conversion of leasehold flats to commonhold flats. I see no technical reason at the moment why we should not move quite quickly to commonhold on new build for extant stock. I think it will take longer—and, at the end of the day, conversion will be a consequence of consumer demand. People would want to do it. On my side, I would not want us to convert to commonhold, because I could not yet be sure that it would help to add to the value of the properties. It would make our management of the site a lot easier, but I could not guarantee to anyone living there that it would add to the value of their property—and that is what people want to know, before they convert.

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

Q Mr Boyd, I want to pick up something you said in answer to the shadow Minster, when you were talking about the treatment of property managers or managing agents in the private sector. You enumerated a list of three options: a code of conduct, which you said existed in the social sector; legislation or regulation; and also qualification, which I took to be professional qualification. Which of those three is the preferred path, in your view?

Mr Martin Boyd: I do not think the Leasehold Advisory Service would have a specific preferred path. At least two of those are important. I will add a fourth, actually. It is illogical that we do not have a requirement for professional qualifications for those managing particularly complex buildings.

--- Later in debate ---

[Rachel Maclean]

Sorry, I was looking at Mr Spender and I misspoke.

Liam Spender: I quite understand anyone being distracted by Mr O’Kelly. Thank you for the question. In our case to date, the freeholder has put £54,000 of its legal costs through the service charge. It did so in breach of a section 20C order, which is the current restriction that is supposed to prevent landlords from doing so. We complained and got most of that money back, but they have served something called a section 20B notice: they intend to recover the costs in the future if they prevail on appeal, by which point we could be looking at a substantial six-figure sum. This is all to do with us fighting to get back unreasonable service charges.

We are currently owed about £450,000—to give a round number—pending appeal. There is an appeal in April and I am carrying the burden of doing all that work myself. I quite understand why leaseholders without legal training give up and things will fall by the wayside. The system is very much stacked in landlords’ favour.

The cost provisions in the Bill are welcome. As you probably know, they changed the default so that the landlord has to ask for their costs. The issue is what has been created as a just and equitable jurisdiction; the tribunal can do what it thinks is fair in the circumstances. I believe—I think many people who have much more knowledge of this than I do would agree—that what that will mean in practice is probably that the tribunal will be inclined to give landlords their costs if they have won the case, so it will not change anything.

The other problem is that the first-tier tribunal considers itself a no-cost jurisdiction, and that is a generational way of thinking, so that has to be overcome and it has to get into the mindset of awarding costs to leaseholders and against landlords. Provisions could be included in the Bill that would make that that process easier—for example, prescribing a regime of fixed costs as applied to other low-value civil litigation. It is not a magic bullet, but I think that would be better than the current provisions in the Bill.

[Mike Amesbury]

Q Is there anything else you would like in the Bill that is missing at the moment?

Sebastian O’Kelly: We would like to see a commitment to mandatory commonhold for new builds, frankly. How many more times are we going to try to reform the leasehold system? How many goes have we had at this since the 1960s? If you keep having to reform leasehold, is the answer not that it does not work? Why do you want this third-party investor—now, invariably, somebody offshore—hitching a ride on the value of somebody else’s home? It is a nonsense. One Duke of Westminster we can accept—the political continuity of our country maybe allows a freehold such as that—but we will create 1,000 of them with this. It is a nonsense. Bring it to an end and bring us in touch with the rest of the world—that is my statement.

[The Chair]

Right, that is very clear.

--- Later in debate ---

[Rachel Maclean]

Q Do you agree with some of the arguments that are put forward by the freeholders lobby and organisations that abolishing ground rent will destabilise the pensions industry and mean that nurses and care workers and the good people who are toiling very hard in our public services will have their pensions destroyed? What do you say to that?

Jo Derbyshire: I think that is project fear. I work in pensions. I work in administration, not investments, but I sit on a lot of pension committees where we talk about the assets that pension schemes hold. They have investment strategies and they protect themselves from over-investing in one asset class. The amount of ground rents held by pension funds in this country would pale into insignificance compared with, for example, the impact of the mini-Budget and what happened with equities shortly after that. This is deliberate scaremongering.

[Mike Amesbury]

Q I have two brief questions. Are there any risks in terms of banning new leasehold houses but not flats? Why do you think this country is an outlier in the world and is so wedded still to this day to the feudal system of leasehold?

Katie Kendrick: You cannot just ban leasehold houses and not flats—70% of leaseholders live in flats, so you are not tackling the problem. You are cherry-picking the easy things, and banning leasehold houses is easy. It is more tricky with flats, but that does not mean it is not achievable. As you have said, it has been achieved everywhere else in the world. We do not need to continue to mask that leasehold system. It is deeply flawed and it ultimately needs to be abolished.

We do understand that there is no magic wand and this is not going to happen tomorrow, but there have been a lot of campaigners, well before us, who have highlighted the issues of leasehold, and yet here we are, still, again, trying to make it a little bit fairer. It does not need to be a little bit fairer—it needs to go. That needs to be the ultimate aim. Everybody needs to work on this. There is something better out there, despite what the other lobbying groups will tell you.

[Richard Fuller]

Q This is a question I will ask a number of witnesses. We do an impact assessment for legislative change to all Bills, sometimes done well and sometimes less so. This has an assessment of the total cost of the Bill, with the best estimate being £2.9 billion. That is quite large for a Bill. A large part of that—about two thirds—is a transfer of the value from freeholders to leaseholders. That is at £1.8 billion, or £1.9 billion. What are your thoughts about that transfer of wealth?

Jo Derbyshire: It is long overdue; bring it on.

--- Later in debate ---

[Andy Carter]

Q A final question from me: on your social media channels, you talk about the leasehold scandal as being very similar to Mr Bates—who is in Committee just over the way—against the Post Office. I mean, is that true? Is it David versus Goliath?

Katie Kendrick: Absolutely. When I watched the programme, I was shouting out loud. The parallels—the similarities—are astounding. The system there was a computer system; the system here is leasehold. People have been ripped off for so many years and paid unnecessary fees, and lots of leaseholders are thousands of pounds out of pocket. And that is because the system—the leasehold system—has allowed that to happen, and it is a scandal of the same magnitude, as far as I am concerned. People have, unfortunately, lost their lives. I have become a bit of an agony aunt for people; my phone never stops because people contact me in tears, and I have stopped people from taking their own lives because of leasehold. It is horrendous—absolutely horrendous—when you are living it and you feel completely trapped. It is when they feel that there is no way out that people look at taking another way out, and it is horrendous.

Cath Williams: And we were both told, weren’t we, by the CEOs of the developers that we bought our houses from, that there was no leasehold scandal?

Katie Kendrick: Yes.

[Mike Amesbury]

Q Can you tell the Committee about what is commonly known as “fleecehold”? Does this Bill in any way deal with aspects such as that?

Katie Kendrick: Our campaign coined the term fleecehold, and it has been used as a bit of an umbrella to describe all of the different ways that we can be ripped off through our homes. It first began because, when we were enfranchising and buying our freeholds, the freeholder was trying to retain all the same permission fees—such as permission to put on a conservatory or to paint the front door—in the transfer document. Ultimately, you could be a freeholder but still have to pay permission fees to the original freeholder.

That is where fleecehold came from, but fleecehold is now used as a much broader phrase because we have estate management charges. The new build estates all have estate management charges attached to them. They have replaced one income stream—leasehold—by creating another asset in the open green spaces. We all have lovely big open spaces and lovely parks, but it is the residents who pay for that. Again, it is a private management company that manages them. You have no transparency over what they are spending.

I can remember somebody ringing me up and saying, “Katie, I have a breakdown of my estate management charges and they are charging me such-and-such for a park, so I rang up and said, ‘You’re charging me.’ ‘Yes, Mr Such-and-Such. You have to pay for the upkeep of your park.’” And he went, “I understand that, but I haven’t got a park.” It is outrageous. It is great that they are going to give people more right to challenge the costs, which they do not currently have with their freeholders. They have fewer rights than leaseholders to challenge at tribunal. But ultimately why have we gone to a private estate model? Why are people paying double council tax? They are paying full council tax the same as anybody else is, yet they now have to pay thousands of pounds in estate management charges. It is a ticking timebomb.

The estates look very nice now, but in the future when the pavements are falling to pieces—I spoke to a police officer and things are not enforceable because they are classed as private. Speeding restrictions? You could have a boy racer running through the estate, but the police cannot enforce anything. The same with double yellow lines and things like that. It is a ticking timebomb, because new build estates are popping up all over the place with private management companies.

Jo Derbyshire: There are some things in the Bill that try to stop things. Typically on fleecehold estates there might be freehold houses, but the estate management charge is secured legally by something called a rent charge. What most people do not understand is that if they withhold their estate management fees, the property can be converted from freehold to leasehold. Again, that cannot be right.

[Rachel Maclean]

Q I just want to clarify your understanding of something that Mr Gardiner said earlier. I might need to put this to the Minister later, but Mr Gardiner said that if the new provisions on ground rent go through and ground rent goes to peppercorn or zero—I might be misquoting him.

--- Later in debate ---

[Richard Fuller]

Q The other part is that bringing a lot of this together will mean that the first-tier tribunal has a lot more work. Do you think that people may want to get justice, but that it will be denied because the first-tier tribunal is going to be overwhelmed?

Amanda Gourlay: I would not anticipate that the first-tier tribunal would be overwhelmed. At the moment, I find that my hearings go through within a reasonable period of time. That is the best I can say.

[Mike Amesbury]

Q Would commonhold being the default position make your job less complex?

Amanda Gourlay: In the first few years, it would make it more complex, because I would have to learn about it. I have read the Law Commission’s report, and any new scheme is going to involve some bedding down. From what I read and hear about commonhold, it should make matters less litigious. That is what I hear. I have no experience of commonhold directly, however.

[Andy Carter]

Q Having heard from some of our other witnesses, and from the casework that I see in my office, it strikes me that there is a lot of bad practice in the sector. We heard from one of our first witnesses this morning about recurring charges not being disclosed at the point of sale. Does the Bill address that sufficiently? Would it be more sensible to have a clause stating that if recurring charges are not disclosed when the transaction is complete and you purchase the property, they are not paid?

Amanda Gourlay: The difficulty always comes back to what information people are given when they purchase a property, or when they take on the lease of a flat or a house. On the whole, those in the conveyancing industry who behave ethically do their best to inform people. I have very little conveyancing experience, so I am going to hold my fire on that a little. Clearly, if something is important, it should be drawn to a purchaser’s attention. Recurring charges are something I would have anticipated. Anecdotally, I have heard that people will say, “I don’t understand why I am paying a service charge—I own my flat.” “Education” always sounds slightly high-handed, but more information being made available or accessible would be useful.

Leasehold and Freehold Reform Bill (Second sitting)

Mike Amesbury Excerpts

Committee stage
Tuesday 16th January 2024 Public Bill Committees

[Matthew Pennycook]

Q On what is not there, the Government have chosen to include none of the recommendations on commonhold. We very much think that commonhold should be the default tenure going forward. Without enacting all of the 121 recommendations on commonhold, are there any that could be included in the Bill fairly easily, and in a way that would pave the way for commonhold in the future?

Professor Hopkins: During Second Reading, the Secretary of State said that he thinks commonhold is preferable to leasehold, and I concur with that. We concluded that commonhold is a preferable tenure to leasehold. It gives the benefits of freehold ownership to owners of flats—the benefits that owners of houses already enjoy.

Commonhold does of course have a history. It was introduced in the Commonhold and Leasehold Reform Act 2002 and has not taken off. Our recommendations as a whole were designed to provide a legal scheme that would enable commonhold to work more flexibly and in all contexts—to work for complex, mixed-use developments. With commonhold having failed once, there is a risk of partial implementation, meaning that commonhold has a second false start, which would probably be fatal to it. I think that the legal regime for commonhold needs to be looked at as a whole, to ensure that it works properly for the unit owners, developers and lenders who lend mortgages over commonhold. We need the legal regime that works. We need to remove any other blocks on commonhold.

[Mike Amesbury (Weaver Vale) (Lab)]

Q Do you think that it is a missed opportunity not to take those recommendations on commonhold forward?

Professor Hopkins: It is our job at the Law Commission to make recommendations for Government reform and of course we would like to see those recommendations implemented, but ultimately what goes in the Bill is a matter for the Government to decide, not the Law Commission. There is a lot in this Bill that is very positive for leaseholders, albeit the commonhold recommendations are not there.

[Mike Amesbury]

Q Have the Government spoken to you about why they have seemingly rowed back on the direction of travel on commonhold?

Professor Hopkins: Since we published our reports in 2020, we have been supporting the Government as they work through the reports and develop their legislative plans, but I cannot speak for what decisions they have made and what has led them to make those decisions on what is and is not in the Bill.

[Ms Marie Rimmer (St Helens South and Whiston) (Lab)]

Q Good afternoon, professor. You have provided several recommendations to the Government on leasehold enfranchisement. Do you believe that the provisions in the Bill will make it easier and cheaper to buy a freehold or extend a lease?

Professor Hopkins: Yes, they certainly will, and I will draw attention to a number of provisions. First, those that deal with the price that leaseholders will pay will ensure that it is cheaper. For the first time, how that price is calculated is mandated, and it is designed to identify the value of the asset that the leaseholder is receiving. At the moment, the focus is on compensating the freeholder for the asset they are losing. The price will consist of two elements. There will be a sum of money representing the terms and buying out the ground rent, but that will be capped so that onerous ground rents are not taken into account in calculating that sum, and a price representing the reversion, which would be the value today of either a freehold or a 990-year lease that will come into effect at the end of the current lease. In calculating those elements of the price, the deferment and capitalisation rates will be prescribed, so that will remove the current disputes.

The price is mandated and the price is cheaper, and there are other things in the Bill that will help, such as the ability of leaseholders to require the landlord to take leasebacks of property when they are exercising a collective enfranchisement so that, for example, they do not have to pay for the expense of commercial units that they do not want responsibility for. There is a lot in there. There is reducing price and also reducing the ability for disputes to arise.

I will also refer to the provisions on costs that will generally ensure that parties pay their own costs in relation to a claim. Leaseholders will not be paying the costs of freeholders.

--- Later in debate ---

[Rachel Maclean]

Q That is really helpful, although it was not quite what I was trying to get at. If you are a freeholder, you may also be an insurer. A lot of big freeholders are insurers, and pension funds and so on, that are underwriting the pensions of many people in the country—in the NHS and so on. The claim that they have made is that in the past some of the leaseholders have bought out their freeholds. I might have slightly misunderstood the situation, but it has been put to me that, now that this flow of insurance is no longer coming to the insurers—or, to put it another way, now that the service charges and so on that are paid by the leaseholder to the freeholder are no longer coming to the insurance industry—that will somehow destabilise the insurers’ balance sheets and make them unable to meet their commitments. Is that something that you recognise, from your industry perspective? I am not talking about the individual leaseholder.

Matt Brewis: I do not believe that the size of the insurance part of the market is significant enough to destabilise any firms. I have not heard that claim before, but I do not think that this part of the market, in the types of firms that we are talking about, is of a size that would cause structural issues.

[Mike Amesbury]

Q In September, Sheldon Mills, an executive director at the FCA, issued a strong statement:

“Insurance firms must now act in leaseholders’ best interests and ensure that their policies provide fair value.”

Now I will give you a live case, which happens to be in a neighbouring constituency to mine. It is called The Decks. They have a remediation day and Taylor Wimpey has accepted responsibility, yet insurance premiums are going up again—poor value and high cost, as I think was cited in the review. New year was going to be a new broom to intervene and shape the market, yet you have got insurance companies like this, and many more up and down the country, laughing at people in this room—key stakeholders such as yourselves. What are you going to do? What powers have you got to intervene? Also, we have discussed insurance. Are clauses 31 to 33 in part 3 sufficient to deal with the issue?

Matt Brewis: Our new rules around ensuring that these products are fair value came into force on 31 December last year. The cost of insurance of multiple-occupancy buildings has increased, and our report of 2022 found that this was not an area where insurers were making significant profits, or super-profits, of any form because of a number of different parts—around fire safety risks, but more to do with some of the structural issues around the quality of the buildings and how they had been constructed. Escape of water was something that was causing significant losses in these buildings.

We found some of the biggest issues around the brokerage charges, which were increasing, and the payaways—payments that insurance brokers were making to property managing agents for services that they were apparently providing for them. So our new rules require them to be very clear what value they are providing and how they are doing that as brokers, as managing agents, and for that to be made clear to the leaseholders. We are undertaking reviews of those with a number of firms. This will provide leaseholders with more information so that they can challenge their freeholders, so that they can challenge the insurers and the brokers at a tribunal if necessary.

Where this Bill goes one step further is that although, as I have explained, we are not responsible for the managing agents or the freeholders, by effectively banning those payments of any commissions, as the Bill does in the clauses that you mention, it will go significantly further than I can with the powers that the FCA has to restrict the payments to other parties and therefore to reduce the cost to leaseholders. In my view, this is in line with the recommendations that we made in that report and results in a better product—a cheaper product—for leaseholders.

[Andy Carter (Warrington South) (Con)]

Q This morning, we heard from the founders of the National Leasehold Campaign about some of the poor practices that their members had told them about. Do you think that provisions in this Bill make it easier for consumers? Do they address the challenge of transparency and the ability to obtain information from freeholders in a way that will be noticeable to owners of leasehold properties?

Matt Brewis: In terms of the provision of information, yes. And it goes alongside the rules that we have introduced that require brokers and insurers to pass information to the freeholder to pass on to the leaseholder. This further tightens up that. It allows for leaseholders to take their freeholders to tribunal to reclaim costs, as necessary, that have been incurred. So this does go further, and I welcome that.

--- Later in debate ---

[Rachel Maclean]

Q Thank you. I will ask a second question, if I may. You mentioned the issue of the pump room. Can you explain very briefly what the issue of the pump room is? Is this for a conversion or an enfranchisement claim? Where is the pump room issue coming into play?

Harry Scoffin: It is for mixed-use buildings that would otherwise benefit from the 25% non-residential premises limit going up to 50%. Let us say that you have an underground car park, a plant room or maybe, more recently, a heat network. Basically, because you are now linked, almost like Siamese twins, with a hotel, for example, or some shops, under the current 2002 Act for right to manage and even the 1993 Act for buying your freehold, you are out. So even though the Law Commission and the Government mean well, saying, “We’re going to liberate mixed-use leaseholders,” for many of those mixed-use leaseholders, where they are completely linked with the commercial, it is game over; you will never be able to qualify. That definitely needs to be revisited because the Government will not get any political benefit from moving, rightly, from 25% up to 50% and even to mandatory leasebacks for when you buy the commercial.

The quick argument—the Law Commission understood it—is that at the moment, the plant room will normally be managed, yes, by the hotel, but the freeholder for the flats will appoint a managing agent who will also have access to the plant room. We are not changing that position. The only difference is that the managing agent that the freeholder appointed, who has access to the plant room, would now be working directly for people like my mum. So it is not disrupting—we are not going to become hoteliers. We are not going to become shop owners. If we rely on a service and are paying for it—53%, mind—we should have access to it, but the key thing is that we need the right to manage. Without right to manage, or without buying the freehold, you are, literally, perpetually in this abusive relationship with a freeholder who has your cheque book and is spending it how he likes, whether that is reasonable or not. That is a fact.

On the point about section 24, that needs to be revisited so that the manager, where a tribunal deems it appropriate, can be the accountable person. In our building, we have mobilised—ironically, it is over 50% of the leaseholders. We now face going back to them—with their cash, by the way—and saying, “We can’t now get one because of this unintended consequence of the Building Safety Act”. That is a quick bit of drafting— I have spoken to lawyers about it. It would be very easy for you guys and that would help, particularly on cladding developments, where the cladding is not getting done because the freeholders are sitting on their hands. You need an officer of the court who is going to turn around the development and be accountable.

Karolina Zoltaniecka: Can I say something about the right to manage? At the moment, the process is so complex. There are three notices that need to be served. I believe there needs to be only one, to say to the freeholder, “We are taking over the right to manage and this is the date we are going to do it on”, and that is it. There are solicitors who specialise in analysing notices to pick holes in them to prolong the process, so that leaseholders give up, and costs just go up and up. And I completely agree with the forfeiture point from Harry. It is unnecessary and a breach of lease, and especially, arrears can be taken to the county court to recover if the arrears are real.

[Mike Amesbury]

Q Is leasehold ownership home ownership?

Harry Scoffin: No, it is a tenancy scam. You do not own anything. You own the right to sell on a bit of space in a flat you occupy. You do not own, even though you may have paid a freehold price and you thought you owned it—you do not.

[Mike Amesbury]

Q Given that the Bill does not ban new leasehold flats—70% of leaseholds happen to be flats—is leasehold, the feudal system, still alive and kicking?

Harry Scoffin: Completely, because—

[Mike Amesbury]

In England and Wales?

Harry Scoffin: Yes, because people are coining it in and they want to keep it that way. I understand that a political decision was made by No. 10 not to have commonhold in the Bill and not to say even “a share of freehold”. Let us do that. Let us work with the Government to get share of freehold in. That is maybe an English fudge, but at least it gets us halfway to the ideal of commonhold, whenever it comes. I am not going to hold my breath for commonhold, sadly, because we have wasted the last seven years talking about it.

[Mike Amesbury]

Keep going.

Karolina Zoltaniecka: I would not give up on it; it is well worth waiting for.

Harry Scoffin: We need share of freehold in the meantime, at least.

[Richard Fuller]

Q Part 4 of the Bill is called “Regulation of estate management”, which I think is a particular area of interest for you. You said that it all starts at the beginning, when councils and developers decide to do that. Do you think that getting control of that is an essential part of the effective regulation of estate management?

Halima Ali: I do not agree that it is. All it is doing is creating a two-tier system where a set of homeowners, like myself, living on a private estate are dealing with this situation, whereas other homeowners are not. I do not see how regulating it is helping, because overall, the management company still get to set the fee.

Leasehold and Freehold Reform Bill (Third sitting)

Mike Amesbury Excerpts

Committee stage
Thursday 18th January 2024 Public Bill Committees

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

My wife is the joint chief executive of the Law Commission, whose work on leasehold reform we have regularly touched upon.

[Mike Amesbury (Weaver Vale) (Lab)]

I am a member of the all-party parliamentary group on leasehold and commonhold reform.

[Andy Carter (Warrington South) (Con)]

On that basis, I am also a Member of the all-party parliamentary group.

--- Later in debate ---

[The Chair]

I am sure I will have time to come back to you, but I just want to get the first batch of questions in.

[Mike Amesbury]

Q Good morning. Paula, you also said that ground rents have not been tackled by this Bill; could you elaborate? What changes would you like to see?

Ms Paula Higgins: I think that was a statement put out at the time of the King’s Speech, when it was not clear. It sounded like the Government were going to consult on the ground rents, which is what they are doing now; it closed yesterday and we welcome that. I think at that time I was concerned that the King’s Speech said the Government were going to consult on how to limit ground rents. At the moment, there is no justification to have a ground rent payment for nothing; any payments should be as part of the service charge.

I welcome the Bill, and I fully support the ground rent being a peppercorn, if you cannot have the legal challenge. If you cannot have it as a peppercorn, then having it as a set amount makes it clean and clear. What we want is that when people are doing lease extensions, there is a calculator so they do not need to get valuers and have lots of negotiation; there is a lot of cost in that. You want to make it a process that is as simple as possible for people to extend their lease and get rid of their ground rent.

[Mike Amesbury]

That is great. Bob and Sue, do you have anything to add to that?

Sue Phillips: I just want to flag that one of the distinctions between shared owners and leaseholders is that shared owners cannot eliminate a ground rent via statutory lease extension, and that is a huge problem. My understanding is that there may have previously been an expectation in Homes England guidance—although it was not mandated—that shared owners would not be subject to ground rent. There is massive inconsistency in the shared ownership sector on all kinds of aspects, but it includes the imposition of ground rent, the nature of that ground rent, and whether you encounter it at the point it is staircasing to 100%. Ultimately, the key point is that shared owners do not have that resort to lease extension to eliminate ground rent at present.

[Mike Amesbury]

Thank you.

[The Chair]

If anyone has not asked a question and wants to come in, please just indicate. Matt, Barry and Andy want to come back, so I come to you, Matt.

--- Later in debate ---

[The Chair]

Thank you very much. We have 10 minutes left. Mike Amesbury wants to come in, and then I will call Matt and Barry.

[Mike Amesbury]

Q This question is to both witnesses. Are you satisfied with the provisions in the Bill to regulate what is commonly known as the “fleecehold” phenomenon, where what leaseholders pay for communal areas—in the broadest sense—maintenance, service charges and administration charges is uncapped? Is it strong enough at the moment?

Professor Hodges: I do not really think that is a question I can answer, because it is a policy question within which economics and other factors are relevant. Technically, as a regulatory system, I do not see anything wrong with it.

[The Chair]

Professor Steven, do you have anything to add to that?

Professor Steven: I do not.

--- Later in debate ---

[Andy Carter]

Q That leads me on to the regulation of managing agents and the property sector. Is that an area that your members have any views on? Is it something that you would welcome?

Paul Broadhead: Yes, we believe that managing agents should be regulated. We think the fees—where the service charges money is spent—should be made clear to the borrower. I think that, at the very minimum, short of regulation, they should be forced to be a member of an alternative dispute resolution scheme.

[Mike Amesbury]

Q That point is very interrelated to this. A considerable number of leaseholders are excluded from provisions to remediate the buildings. An example is people in buildings that are below 11 metres, or it might be people who have more than three flats. How has the market been responding to that?

Paul Broadhead: There have been well-documented issues about building safety post the Grenfell tragedy. We did see some real difficulty about people being able to get mortgages where there was cladding on the building. Progress has been made there. I think that now, in most cases—particularly above 11 metres, as you suggest—the market is open, because it is clear that there is recourse to either the developer or the Government scheme to fund the work. Our starting position, when this came out with the amended Government guidance note in 2020, was that no leaseholders should be responsible for making good the combustible cladding, if it was now inappropriate, because they have gone into this, they have been advised by their legal advisers, and they should not be forced to put their hand in their pocket.

We are not there yet on properties below 11 metres, because the Government have chosen to exclude them from the support scheme. I have had a number of meetings with consumer groups, looking at cladding and at leasehold, and I think we are on the same page here. We are trying to find a solution from a mortgage-lending perspective, because we want that market to open up, but what seems to be more and more frequently coming out is that the cladding issues and other building safety issues are being conflated. It is really difficult then from a mortgage lender’s perspective, because if the cladding itself does not need replacing because it is safe, but there are other defects in there, there may still be some comeback that leaves leaseholders with quite a large unexpected bill that is at the moment unquantified and would affect the affordability of that borrower, going forward. We continue to meet with these groups and with Government to seek a solution, but it certainly is not operating perfectly.

[Mike Amesbury]

Q Would you welcome amendments to the Bill to try to capture that by regulation, by legislation?

Paul Broadhead: Yes. Anything that makes it clearer and gives lenders confidence and consumers confidence that their building is safe and they are not going to face an unexpected bill has to be welcome.

[Eddie Hughes (Walsall North) (Con)]

Q I am slightly confused. I thought it was now the case that properties did have to be advertised as leasehold or freehold. Has that changed?

Paul Broadhead: Well, often the advert will say that a property is leasehold but that that will be confirmed by the conveyancer, so you do not know 100% whether it is leasehold or what the terms of the lease are.

Leasehold and Freehold Reform Bill (Fourth sitting)

Mike Amesbury Excerpts

Committee stage
Thursday 18th January 2024 Public Bill Committees

[The Chair]

We will come back to you at the end, Andy.

[Mike Amesbury (Weaver Vale) (Lab)]

Q The CMA—including your good selves—has rightfully highlighted concerns around estate management and some of the charges commonly known as fleecehold. You said you were going to assess that information and publish your findings. Have you done that? It would be incredibly useful in shaping the responses in the Bill and perhaps strengthening some of the regulations particularly around park law.

George Lusty: In parallel to this piece of work on leasehold property, the CMA is conducting a market study looking at the house building sector more generally. As part of that, we have looked at the issue of estate charges, the increasing tendency for roads and other facilities not to be adopted, and the framework of consumer protections around charging for those sorts of services and what individual homeowners then need to pick up not being as good as it should.

We published a working paper on that in November. In particular, we called more broadly for greater adoption of those facilities by local authorities and enhanced consumer protection frameworks. That market study will complete its report in February, when we will issue our findings and recommendations across the piece. Neither Simon nor I is directly working on that, but it is connected because leaseholders face similar issues with the service charges that they have to pay in their properties, particularly in leasehold flat blocks.

[Mike Amesbury]

Q Do you have anything else to add, Simon?

Simon Jones: Only the transparency obligations that I mentioned. The initial transparency obligations about the annual cost of owning a home ought to include, in relation to freehold homes, things such as rent charges. An awful lot of people we spoke to had no idea that there could be annual charges connected to a freehold ownership.

[Mike Amesbury]

Thank you.

--- Later in debate ---

[Eddie Hughes]

You do not have a view. We will not take your professional—

Philip Freedman: I can completely understand that pension funds have invested in part in long-term income that they believed to be secure when they did it—that is, income for 90 years, 990 years or whatever it was going to be. I am told that a number of pension funds and other types of investment entity have invested cautiously, not necessarily buying portfolios where there are hugely escalating ground rents, but either fixed ground rents or modestly increasing ground rents that people would not say were egregious. However, they are still concerned because, in many parts of the country, particularly in the north-east, for example, property prices are so low that even 0.1%—even 1,000th of the price of a flat—would reduce the ground rent. The ground rent might be £100 a year or something, but the cap would result in it being £50 a year or something like that. Obviously, the impact would be great for those portfolios that have hundreds or thousands of these.

[Mike Amesbury]

Q Your organisation has said it is disappointed that the Bill does not deal with the regulation of managing and property agents. Can you elaborate on that? What needs to be included in the Bill?

Philip Freedman: The Law Society has been participating in various working groups following Lord Best’s report, trying to help with the preparation of codes of practice that were intended to sit underneath the regulatory framework for property agents of different types, whether selling agents, managing agents or whatever. We feel that, because tenants often do not know what their rights are, and if they did know what their rights were, they may not want to spend the time or money getting someone to help them enforce their rights, you come back to the people actually doing the management. They need to be proactively willing to be transparent, and to realise that they have duties to the tenants as well as to the landlord. It needs a mindset change in the people who are doing the management. You do not want to rely on tenants having to try and find out what their rights are and then enforcing them. We feel, therefore, that a lot of the changes in the Bill, and other changes that have been talked about, will be better achieved if property managers are regulated, and that the right people with the right tuition being told what their duties are would be improved by regulation.

[The Minister for Housing, Planning and Building Safety (Lee Rowley)]

Q Mr Freedman, in terms of your previous but one comment, to Eddie, on how you were told about the potential impacts on pension funds and the like, can you tell us, either now or separately if you prefer, who told you that? What is the source?

Philip Freedman: It was one of the two partners in the firm I had been speaking to. Also, I have heard that various other bodies, like the British Property Federation, have been looking into these issues, and there has been a certain amount of it in the property press. It is only general awareness; I do not know any specifics.

--- Later in debate ---

[The Chair]

We will now hear oral evidence from Giles Grover from End Our Cladding Scandal. He is coming to us via Zoom. For this session we have until 3.50 pm. If the witness can hear me, can he please introduce himself for the record?

Giles Grover: My name is Giles Grover from the End Our Cladding Scandal campaign, which represents leaseholders in unsafe buildings across the country. I will tell you about the background if you don’t mind. In early 2019 we formed a coalition of leaseholder resident groups across the country. I represent leaseholders in close to around 2,000 buildings. Personally, I have been a leaseholder since 2008. I became a director of the residential management company in my building in 2010. I was first told my home was unsafe in August 2017 and I have been heavily involved in the cladding and building safety scandal since then, where it has particularly been clear that the nature of leasehold law has played an intrinsic part in the delays to our homes being made safe.

[Mike Amesbury]

Q What are the main implications of the Bill for remediating residential buildings? There are some good things in it, Giles. What is missing in it?

Giles Grover: There are some good things for leaseholders in general. There seem to be some better things than there were. Part of the problem is that we still do not have full clarity in terms of what the legislation will look like in its final form, and supporting legislation, so it is quite difficult to comment.

On building safety amendments, I am afraid to say I don’t really know what is in there. I have seen that the Opposition have tabled a couple of amendments—new clauses 27 and 28—as a starting point. However, we have been lobbying the Government, meeting the Government, speaking constantly almost on a daily basis, and having regular meetings pushing for further protective measures to make the Building Safety Act operate as intended; but I cannot really see anything there. I have seen a press release saying, “We will apportion leases,” which is something we raised with the Secretary of State a long time ago. I am talking about enfranchised buildings as well. But as it stands, I am still waiting for the Government to bring forward some building safety amendments that will mean that the homes that are unsafe, many of them unsafe for six and a half years, will be finally fixed at pace—at the pace we need and the pace we deserve.

[Mike Amesbury]

Q There is provision to strengthen accountability in terms of remediation and freeholders and ensure that there is more accountability for liabilities. Are the provisions strong enough at the moment?

Giles Grover: Not yet. Again, I had a look at the 140-page Bill and it did not say anything about developers. It talks a lot about the freeholders, but I cannot see anything that will mean that those freeholders will now crack on with making our buildings safe at pace. I cannot see anything that says what the mechanisms will be to oversee that. I fear that the reality on the ground is that the freeholders are still focused on mitigating their own liabilities. Historically they have taken years, for example, to sign grant funding agreements. They have delayed work starting on site. We are seeing those same things happen with developers now.



On a wider point, the Building Safety Act came into play on 28 June 2022. We are now looking at amendments that will make it operate as intended. So I think there needs to be a raft of amendments from the Government. Some of the stuff we have been talking about in terms of their ongoing policy thinking, but ultimately one of the simple things is that we still have too many leaseholders ruled out of protection. We still have too much uncertainty on the ground. So in the King’s Speech, the paragraph that talks about making it operate as intended has a heck of a lot of heavy lifting to do. I need to see the detail before I can say whether it will work or not. I fear, based on my experience, that it is unlikely to be the case.

[Mike Amesbury]

Q One final question. Do you think there should be an amendment to extend the scope of the Building Safety Act, because of the interplay with leaseholders? There are literally hundreds of thousands now excluded from the Act, including buildings below 11 metres and where there might be more than three properties.

Giles Grover: As I said, the new clauses that have been tabled would go some way toward ensuring that those non-qualifying leaseholds for more than three properties are treated the same as qualifying leaseholders. The buildings that the Government currently deem irrelevant because they are under 11 metres would be made relevant.

It is worth just setting the scene. I gave evidence to the Public Bill Committee on the Building Safety Bill in September 2021, and there was a lot of talk of, “We’ll do this, and we’ll do that. We’ll definitely protect you.” We then saw a raft of legislation come out from 14 February 2022. The problem is that it is all very high level and complicated. Some people might get some protection and some people might not. We are all the innocent victims of this scandal. It shocks me that despite the Secretary of State saying on 10 January 2022 that we are shouldering a desperately unfair burden and that industry will pay, two years later I am still talking to Public Bill Committees about what more needs to be done. It is all too slow.

[Andy Carter]

Q I am very conscious that you are a different type of witness to the others we have been hearing from today and we are talking about the cladding scandal. It is very helpful to get your insight on this. I would like to pick up on the questions that Mike has asked you. It would be very helpful if you could be as specific as you can. What is missing from the Bill that you think is a real priority for people who are in a position where they are in a leasehold property and cannot sell because of issues relating to cladding and remediation?

Giles Grover: There are quite a few things missing. The first thing to say is that what you should really do is say that there are no more non-qualifying leaseholders or people who are being arbitrarily ruled out of help. You could do that as an amendment to the Bill. From some of the ongoing campaigning and lobbying that we have done, particularly with the Levelling-Up and Regeneration Act 2023, we fully recognise that the Government do not necessarily want to protect everyone. The problem is that they have spent far too long apportioning liability and talking in theoretical terms. There are still too many ordinary people that are not protected.

Going into the specifics, if there is not the willingness to say, “Okay, we will protect all the victims of this scandal”—which you really should be doing—what we need to do is say, “How can we better protect the ordinary people who still aren’t protected but who the Government say that they want to protect and should protect?”. That goes back to the conversations being had with the Department and the amendments that have been tabled about extending property protection to the first three properties of all leaseholders, because that would mean that everyone is treated fairly, and about apportioning ownership, which the Government have said they will do in this Bill, to make sure that the marriage penalty, as it is known, will be done away with.

There is one other point about the distinction of where it is in perpetuity for non-qualifying leaseholders. It is very worrying. For the non-qualifying leaseholders we speak to, it is literally hanging over their necks for the rest of their lives. Even if the building gets remediated and even if it is assessed as safe, they are still treated as non-qualifying leaseholders. One element I forgot to mention is that there is a potential portfolio-size amendment that was tabled to the Levelling-Up and Regeneration Act that we hope the Department is looking at closely.

Again, all leaseholders should be protected. If there is not the will for that, which there really should be, we need to do more to make sure that the protections as they are protect more people. I could go into a lot more detail, but I do not know how much you want.

Leasehold and Freehold Reform Bill (Fifth sitting)

Mike Amesbury Excerpts

Committee stage
Tuesday 23rd January 2024 Public Bill Committees

[Barry Gardiner (Brent North) (Lab)]

I rise to support amendment 1. My hon. Friend the Member for Greenwich and Woolwich made an excellent speech in favour of it, and he is right to distinguish between this clause, dealing with enfranchisement, and later clauses on which we will look at the issues from the point of view of right to manage. Given the amount of reference to the Secretary of State in the Bill and that so much is left to him to decide afterwards, it is reasonable to ask the Minister why that has not been applied to this clause—otherwise, it looks as if the Government have considered the matter and ruled out any change in this area, which, as my hon. Friend suggests, is reasonable.

[Mike Amesbury (Weaver Vale) (Lab)]

I, too, rise to support this very generous amendment from my hon. Friend the shadow Minister. It is pragmatic, and it would power up the Secretary of State, whoever that might be, to ensure that leaseholders are able to take control in hopefully larger numbers through extended enfranchisement. I hope the Minister will give the amendment very strong consideration.

[Rachel Maclean]

May I throw the general issue of collective enfranchisement into the mix? The Minister may wish to come back on it at a later point if it suits him better. Many people in this situation have raised with me the sheer practicalities and difficulties of doing a collective enfranchisement. When people live in a huge block of flats with vast numbers of flats, they do not necessarily know who the other people are and certainly do not have their contact details. That, in and of itself, presents a barrier and an obstacle for some of these claims. We have heard evidence from groups affected by this situation—most notably the Free Leaseholders group, but there are many others—who have made this point repeatedly.