Freehold Estate Management Fees

Richard Fuller Excerpts

Thursday 13th July 2023 Westminster Hall

[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.

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[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.

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[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.