Freehold Management: Service Charges
(1 year ago)
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Richard Fuller (North East Bedfordshire) (Con)
I am grateful to the House for being able to call this debate to draw attention to the problems with the current framework of legislation and regulation covering estate management and service charges that are placed on freeholders. I do so on behalf of the thousands of homeowners in my constituency who are being charged for services that ordinarily might be covered by their council taxes, who frequently are not given easy access to the scale of charges they face and who have inferior rights of legal challenge or redress when something goes wrong. I do so to support the efforts of local councillors, especially Councillor Jim Weir, from Great Denham, in my constituency, who has done so much to draw attention to these issues, and to support the efforts of those in local resident associations, such as Tom Middleton, the chair of the New Cardington residents’ association. He has doggedly pursued estate management companies to get clarity and promote accountability. I also do so on behalf of 30 other Conservative colleagues who cannot be here today but joined me in writing to the Prime Minister to urge action. I want to put on the record my thanks to the Minister for her thoughtfulness in listening to the concerns I have raised with her ahead of this debate. I look forward to her response to some of the points I wish to make.
Let me set out a bit of the background. Freehold service charges can cover the provision of a variety of services on housing estates, such as the upkeep of play areas, communal gardens, unadopted roads and communal parking areas, such as parking courts. The requirement to make a financial contribution is most usually defined in the deed of transfer when the property is first sold by the developer. Alternatively, a liability might arise as a result of an estate rent charge that forms part of a purchase contract. The developer then usually enters a contract with a management company to organise the necessary work on the estate and to recover costs from homeowners. Sometimes the developer will set up a residents’ management company to take ownership of the communal areas. Where that happens, the residents’ management company can appoint a management company to work on its behalf. That may sound a little confusing, as it did to me as I said it. I was surprised to learn that in what one might think would be a single housing development area there can be 10, 20 or 30 individual companies handling small areas, such as little parts of roads or smaller communal areas. For my constituents, that is a confusing issue if they ever want to follow up with an inquiry. I am going to talk about some of those problems in this debate.
Based on my research, what is clear to me is that after the completion of a purchase these costs to homeowners can often increase significantly; that there is no clear or effective accountability; and that these arrangements have created a mini-industry of companies providing services of varying quality and charging often high fees, many of which relate to administration rather than to the services provided themselves. For the homeowner affected by estate management charges, these raise some pertinent issues that I know the Government are considering.
First, the notification to home buyers of their future liability for charges is not made clearly. Secondly, when bills arrive, it is often unclear what the charges relate to or why they are being applied to a particular property. Thirdly, it is often difficult for residents to obtain information about the charges, to challenge their reasonableness or to effect change when the work is being completed inadequately. Fourthly, the regulation or oversight of the practices of the management companies is very weak, creating problems for homeowners and, increasingly, creating reputational damage to many of our major housing developers, which it would be wise to address now.
It is also clear to me that the voice of homeowners is absent at a crucial stage. It is right at the start, while planning approval is going on, when the developer and the local planning authority determine who is responsible for the costs to maintain shared areas in the proposed development. In the room, there is the local authority planning authority and the developer. The people not in the room are the homeowners who will subsequently have to pay those charges. That structure means that the incentives are stacked too heavily for the developer and the local authority to stick the bill to those not represented—the homeowners themselves.
Fiona Bruce (Congleton) (Con)
My hon. Friend is making an excellent speech on an issue that affects many of my constituents. Does he agree that another issue is that, when the local authority is in the room at the start of a development, there should be some way of agreeing a time-bound point at which that local authority takes over, making certain the services or the facilities within some of these developments, otherwise a situation can arise whereby the residents can be responsible, for years sometimes, for covering the costs through service charges that should actually be taken over by the local authority?
Richard Fuller
My hon. Friend, with her great expertise in these and other matters, is absolutely right. This question of the timeframes in which certain common services might be adopted can create a number of concerns. This issue was raised for me by Councillor Phillipa Martin-Moran-Bryant, who has a number of residents affected by this issue. There is also the period of time that it can take for an estate management company to be handed over to the residents themselves. There is a double source of risk of delay, and my hon. Friend is absolutely right that the Government should consider whether there is a reasonableness in terms of the time limit that could be put in place.
Fiona Bruce
There is also the situation of some homeowners buying early on in a development and then finding that they are bearing charges for the subsequent development of the site or the maintenance of the site during its development, which, realistically and fairly speaking, should be borne by the developer itself.
Richard Fuller
I am grateful to my hon. Friend for saying that. I know the Minister will be listening, because she has been listening to all the points that I have previously made on these issues.
Just to cap the concerns, at the end of it, a person might want to sell their property. What we find increasingly is that, as they are going through the sales process, they hit a snag, because the estate management company is saying, “You haven’t paid charges.” Sometimes, they are charges that the homeowner was not even aware that they were liable for. This is the reality for many homeowners living in areas with estate management charges: they have no voice, no explanations, no transparency, no redress and, potentially, no ability to move house.
Let me give a couple of specific examples to bring those points to light for the Minister—they will largely be from my constituency, but they occur in many places. I return to Councillor Jim Weir in Great Denham, who conducted a survey to which 300 residents replied, and which identified multiple instances of excessive administrative fees. A number of my local councillors have done the same.
In one scheme, the anticipated maintenance work to be carried out and the charges for electricity comprised 30% of the total charge to the residents, while 70% of the charge was fees, reserves and overheads. In a second scheme in his ward, the anticipated maintenance was 10% of the total charge, with 90% of the charge going on fees, reserves and overheads. In a third scheme, the estate manager had just one job: the management of seven lamp posts. Jim and his team compared the costs charged per lamp post with the standard cost of the local council for doing the same job and found that the management agent is charging twice the standard rate.
When residents challenged the estate management company to see the electricity bills, they were informed that the bills could not be shared electronically and someone would have to visit the offices of the agent 170 miles away if they wanted to inspect them. One good resident said, “I’m up for that,” and that he would go and have a look. He arranged an appointment, which got cancelled and cancelled and cancelled. After more pressure from residents, the company finally admitted they did not have any electricity bills to show. No individual should have to go through that level of turmoil to try to find out something so simple about why they are being charged something in their own area. It is ludicrous.
I have a couple more examples from New Cardington of other issues relating to handovers and conflict of interest. Tom Middleton, the chair of the New Cardington Residents Association, wrote to me:
“Residential management companies (RMC) are set up by developers to look after the various open spaces not placed for adoption. The directors of the RMC are usually senior directors at the developer. This means the managing agent is effectively the developer’s client until handover. This is usually prolonged. Here in New Cardington the RMC was incorporated in July 2010, 13 years later the developers are only NOW starting the handover process. This means for 13 years residents have paid a service to an agent of some description but over which they have had no control.”
My hon. Friend the Member for Wyre Forest (Mark Garnier) has a similar problem in the Silverwoods development in Kidderminster. He cannot be here today, but he wrote to tell me:
“Multiple iterations of the estate management company has resulted in absolute opaqueness in accounting and use of funds generated, whilst failure to enforce planning conditions by Wyre Forest District Council has passed on a financial burden to rectify failures onto residents. This is not good enough.”
There is a further point about conflict of interest that, on balance, I want to make. The Association of Residential Managing Agents has 10 standards in its consumer charter, the seventh of which is, “Avoid conflicts of interest”. Concerns have been raised by the New Cardington Residents Association that their estate management company, RMG, has created a conflict of interest by establishing a wholly owned subsidiary, Osterna Ltd, to conduct annual fire risk assessment processes.
I have kindly been copied in to a letter from RMG that explains its rationale, and I am in no way asserting that there is any wrongdoing here, but it clearly changes the arm’s length nature of an estate management company hiring services if some regular services, such as fire risk assessments, go untendered to related companies. Will the Minister write to companies reminding them of their obligations and calling for greater accountability and transparency?
I will canter quickly through the history of Government reviews. In July 2017, there was a consultation on tackling unfair practices in the leasehold market. In December 2017, the Government said that they would 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. In October 2018, the Government confirmed their intention to
“replicate consultation requirements and obligations on the provider of services to provide information to the freeholder.”
In June 2019, the Government committed to equal rights for freeholders and the right to manage for freeholders. In December 2021, the then Minister told the House:
“The Government also intends to give freeholders on private and mixed tenure estates equivalent rights to leaseholders to challenge the reasonableness of estate rentcharges, as well as a right to apply to the First-tier Tribunal to appoint a new manager to manage the provision of services. In addition, we will ensure that where a freeholder pays a rentcharge, the rentcharge owner is not able to take possession or grant a lease on the property where the rentcharge remains unpaid for a short period of time. We will translate these measures into law when parliamentary time allows.”
May I ask the Minister to confirm, first, that there has been no dilution of those commitments by the Government, and secondly, that it is the Department’s desire to include this long-promised legislative change in the next session of Parliament? I say “Department” because, of course, it is the Prime Minister who has to balance the multiple claims on parliamentary time. That is why I—along with thirty of my colleagues—wrote to the Prime Minister to ask him to include the legislation in the King’s Speech.
The Prime Minister kindly wrote back and included the following comments:
“The Government believes that it should be made clear to potential purchasers what the financial arrangements and their responsibilities are for the upkeep of communal areas. It is also important that we hold these estate management companies more accountable on how they perform and how homeowners’ money is spent.”
He went on:
“These changes will be introduced when Parliamentary time allows, and I will carefully consider your call for it to form part of our legislative session for the next Parliamentary session.”
I put on the record that I am very grateful that the Prime Minister wrote back. I hope that he understands the purpose of this debate and the calls by 30 of my Conservative colleagues, including the contribution from my hon. Friend the Member for Congleton (Fiona Bruce). It is the time for the Prime Minister to take the action that has been promised for so long. We know that the issues preceded his time, but he has a great capacity for understanding problems and finding solutions. We are close—I think the Minister will be clear that the Department is ready to move—and I hope that the Prime Minister will take further consideration and action to help my constituents and those in many other places around the country.
The Minister of State, Department for Levelling Up, Housing and Communities (Rachel Maclean)
It is a great pleasure and privilege to respond to my hon. Friends the Members for North East Bedfordshire (Richard Fuller) and for Congleton (Fiona Bruce) on this vital matter.
I pay huge tribute to hon. Friend the Member for North East Bedfordshire for his persistence on this particular issue and for his convening power in gathering 30 of our colleagues, which is no mean feat, regardless of the issue. He has made an incredibly compelling speech, every word of which the Government—and certainly the Department for Levelling Up—agree with, as I will set out in the time that remains. I also pay tribute to the individuals and groups he has worked with and about whom he has taken time to speak to me. He has explained to me the impact on the lives of his constituents, mentioned Tom Middleton of the residents’ association, and set out the excellent work that Councillor Jim Weir and many other councillors in the area have done. When my hon. Friend told me the story of the seven lampposts, I found it absolutely appalling and shocking that that kind of abusive practice can go on in this day and age. It has to stop, and we are absolutely committed to putting into practice the actions that will bring a stop to it.
I do not need to deliver most of my speech because my hon. Friend has done an excellent job of setting out the landscape of the problem and what needs to happen, so I will skip straight to what we will do to fix this. We know that legislation needs to be introduced. He challenged me on the timetable for that, and I will respond. We are committed to introducing legislation to plug this gap. We intend to create a new statutory regime for freehold homeowners based on the rights that leaseholders have, which would ensure that estate management charges must be reasonably incurred, that services provided are of an acceptable standard and that there is a right to challenge the reasonableness of charges at the property tribunal. We need to end this fleecehold situation where homeowners who thought they had bought a home to live in—their own piece of property, with their own front door—are subject to abuse and find these charges escalating out of all proportion to the services provided.
We will also give a right to change the provider of maintenance services by applying to the tribunal for the appointment of a manager. That can be useful if the homeowner is dissatisfied with the service they are receiving and there is significant failure by the estate management provider to meet its obligations. We will take action to tackle these unreasonable costs and the lack of performance and service delivery by these companies. We will go further in time and will consider how to introduce a right to manage for freehold home- owners once we have considered the complexities of the Law Commission’s report.
I turn to the questions that my hon. Friend asked. He asked whether I would meet him and other concerned colleagues to discuss the detail of these issues. I am aware that we only have a short time today, and he has raised many complex issues. I am happy to meet him to discuss this further. That is important, because this is a big change, and we are tackling many areas of law.
My hon. Friend rightly challenged me on the numerous commitments made by Ministers at the Dispatch Box to ensure that these measures are introduced. Clearly, it is beyond my pay grade to pre-empt what the King’s Speech will contain, but my hon. Friend rightly pointed to not only the letter from the Prime Minister but repeated assurances from myself, which I will repeat today, and from the Secretary of State for Levelling Up, Housing and Communities that this issue is top of the list of priorities for our Department. We take it very seriously, and we fully intend to bring forward legislation to implement the changes as soon as parliamentary time allows. That is the plan, and we remain committed to it.
My hon. Friend asked me whether there will be any dilution of the current commitments. The straight answer is no. We remain committed to addressing all the imbalance facing freehold homeowners, and we will legislate so that freehold homeowners have the right to challenge the reasonableness of charges and to go to the tribunal to appoint a new management company.
My hon. Friend asked me when this legislation will be introduced. Of course, we always want to bring in changes that will make a difference to people when this is having an impact on their household budgets. We all share the desire to bring legislation in as soon as possible. As soon as the Bill has completed its passage through Parliament, we will strain every sinew to get these changes on to the statute book, so that people can use them—that is what we all want to see.
My hon. Friend referenced the CMA market study into house building. He will be reassured to know that this study does not in any way dilute the Government’s commitments; in fact, it complements them, and it might suggest other actions for the Government. As he said, there are many aspects of this situation and many problems that we need to fix.
My hon. Friend asked me whether we can write to companies reminding them of their obligations and calling for accountability and transparency. They need to know that change is coming, and I want to reiterate that today from the Dispatch Box. As the Minister responsible for this, I receive many pieces of correspondence from colleagues across the House and people across the country. The changes proposed by the Government are much needed. These estate management companies should be on notice, and I repeat that today. The Government have been very clear that all charges should be reasonable and clearly communicated, and we are wholly committed to strengthening freeholders’ rights on these estates.
Fiona Bruce
I am very encouraged by what the Minister is saying. Actually, some charges, rather than being reasonable, should be not there at all. Let us take play areas as an example. Will the Minister consider whether local authorities should take over a play area if, for example, it has been created as a result of an agreement with the developer? Such play areas are used not just by the residents whose properties the green area fronts but by anyone in the local area, freely. Will the Minister discuss with local authorities and the Local Government Association how to prevent situations where residents are completely unfairly burdened, and ensure that local services are taken over by local authorities where they should be?
Rachel Maclean
I thank my hon. Friend for raising that point, which is one that I am familiar with from my constituency. It is an issue that I am sure we have all faced in one form or another, and it causes considerable frustration, annoyance and anger among local residents who have bought those properties and expect to have those facilities there. They have paid good money for the houses that they have moved into.
I will certainly discuss that issue with my hon. Friend further; there are a number of legal frameworks that we may be able to use to assist with that. I will commit to writing to her with a bit more detail on that point, because I fear that I will not be able to do it justice in the Chamber, but we will introduce secondary legislation on the back of the Bill that we intend to introduce that will bring a considerable advance in the amount of clarity that already exists pertaining to these matters and many others.
To revert to my hon. Friend the Member for North East Bedfordshire and his call for us to write to all the management companies, much as that would appear to be a sensible approach, unfortunately, it would prove rather more difficult in practice. It is very difficult to track down where all these companies are, their addresses, and who actually runs them. What I can certainly commit to do, though, is put information on gov.uk making it very clear to those companies what the obligations on them should be.
With that, Mr Deputy Speaker, I will bring my remarks to a close. I finish by thanking again my hon. Friend the Member for North East Bedfordshire for all the work he has done with his colleagues; my hon. Friend the Member for Congleton (Fiona Bruce) for her really useful contributions; and my hon. Friend the Member for Wyre Forest (Mark Garnier), my neighbour in Worcestershire, who has also contributed to the research. I reiterate that it should always be clear to potential homebuyers what the arrangements are, but we know that very often, it is not; that is the root cause of some of the problems that we have faced. We think it is pure justice that homeowners must have effective ways to get things put right when they have a problem with their housing. That is why we remain wholeheartedly committed to legislating, when parliamentary time allows, to empower those freehold homeowners so that they can better hold the estate management company to account. I thank the whole House for the time it has taken to consider these important matters.
Question put and agreed to.