Leasehold: Property Management Companies

Monday 19th February 2024 Lords Chamber

Question

15:08

Asked by

[Lord Kennedy of Southwark]

To ask His Majesty’s Government what plans they have to ensure leaseholders get the best value for money from services provided by management companies appointed by freeholders without their involvement or consent.

[Lord Kennedy of Southwark (Lab Co-op)]

My Lords, I beg leave to ask the Question standing in my name on the Order Paper. I refer the House to the register of interests and the fact that I am a leaseholder.

[The Parliamentary Under-Secretary of State, Department for Levelling Up, Housing & Communities (Baroness Penn) (Con)]

My Lords, I declare my interest as a leaseholder. The Leasehold and Freehold Reform Bill will make long-term changes to improve home ownership for millions of leaseholders in England and Wales. Measures to empower leaseholders and improve their consumer rights, such as better transparency of fees and charges and improved access to the right to manage, will make management companies more accountable to leaseholders who pay for their services.

[Lord Kennedy of Southwark (Lab Co-op)]

Leaseholders are at a complete disadvantage with regard to service charges, and the Bill before the other place does not change that fact, nor do the overoptimistic comments of the right honourable Member for Surrey Heath, which go way beyond what the legislation proposes. When will we get regulation of property agents, following the review by the noble Lord, Lord Best, published in 2019? When will we get proper control over the system whereby leaseholders pay out all the money but have no say in the services provided?

[Baroness Penn (Con)]

I am afraid I have to disagree with the noble Lord’s assessment of the Bill. I can set out a number of ways in which the Bill will improve the position of leaseholders regarding service charges. It will require greater transparency of service charges, so that leaseholders receive key information regularly; we will rebalance the legal costs regime, giving leaseholders greater confidence to challenge their service charges; it will replace the buildings insurance commissions system for managing agents, so that transparent admission fees are in place; and it will increase the non-residential limit from 25% to 50% for buying the freehold or exercising the right to manage, giving leaseholders greater rights in respect of taking over the freehold of their property or managing it themselves.

[Lord Young of Cookham (Con)]

My Lords, my noble friend will know that the law of forfeiture allows a managing agent to take possession of a flat worth, say, £500,000 if there is a debt of more than £350 outstanding. In those circumstances, the freeholder pockets the difference between the value of the flat and the debt. Surely the leasehold Bill should put a stop to that.

[Baroness Penn (Con)]

My Lords, the Government believe that forfeiture is an extreme measure and should be used only as a last resort. In practice, it happens very rarely and is subject to the right to relief. However, any changes to forfeiture would require a careful balancing of the rights and responsibilities of landlords and those of leaseholders. As a first step, we have asked the Law Commission to update its 2006 report on this matter, given the passage of time since then, and to take into account the implications of the reforms currently under way, so that we can consider what action should be taken.

[Baroness Taylor of Stevenage (Lab)]

My Lords, it is not just leaseholders who face these practices. What response can the Minister give to freeholders who face the imposition of private management companies charging extortionate and unregulated yearly fees, instead of having public areas adopted by local authorities? I believe this practice is known as “fleecehold”. Effectively, this means freeholders paying twice for maintenance: once through their council tax and again through fees to private management companies. What measures will the Government take to regulate these practices?

[Baroness Penn (Con)]

My Lords, the Bill aims to grant freehold homeowners on private or mixed-tenure estates the same rights of redress as leaseholders in this area—equivalent rights to transparency on estate charges and the ability to challenge those charges at tribunal. I believe the CMA is also looking into this matter, and we look forward to receiving its final report.

[Baroness Pinnock (LD)]

My Lords, some freeholders, although not all, treat their leaseholders as a cash cow. I have two examples for the Minister. First, there was a ground rent increase—and there is no value at all to the leaseholder in a ground rent—of 113% this year, which was backdated three years, and the sum was demanded to be paid in full in four weeks. Secondly, there was a 23% increase in service charges this year. There is no accountability. Transparency there is, and challenge there can be, but nothing comes of it—and it seems that nothing in the Bill will change that. Can the Minister tell me that it will?

[Baroness Penn (Con)]

I can. The Government have consulted on a range of options to reform existing ground rents, having legislated in 2022 to set all new ground rents at a peppercorn rate. Following the outcome of that consultation, we aim to legislate in the current Bill before Parliament. As I say, not only will we give leaseholders greater rights to transparency on what service charges are charged for, to ensure that they are reasonable, but we are changing the cost regime in the courts so they can challenge those charges where they think they are unreasonable.

[Baroness Butler-Sloss (CB)]

My Lords, I have a friend who is trying to sell their flat in London. The managing agents took so long to respond to the requirement that they consented that the purchasers went away. Will this Bill do any good for that situation?

[Baroness Penn (Con)]

The Bill contains both a time limit and cost limit for the provision of information from freeholders to leaseholders when they are seeking to sell their properties. I do not know the exact circumstances of the case the noble and learned Baroness refers to, but action is being taken in this area.

[Lord Hunt of Kings Heath (Lab)]

My Lords, the Minister will be aware that legislation in 2000 and 2004 abolished leasehold in Scotland. Given noble Lords’ concerns about the current Bill, why on earth can we not be more radical and abolish leasehold in England and Wales?

[Baroness Penn (Con)]

Following previous Questions I looked at the example of Scotland, which we do seek to learn from, but the circumstances there are significantly different. At the time, there were only some 9,000 long leasehold properties in Scotland, compared with around 5 million leasehold properties in England and Wales. The majority of Scottish leases had ground rents of only £2.50 per year, whereas the average ground rent in England is £300 per year. It is more complicated to take reform forward in England, but the Government are committed to doing this. The Leasehold and Freehold Reform Bill will take important steps toward delivering commonhold as an alternative in future.

[Lord Best (CB)]

My Lords, there are some very good things in the Leasehold and Freehold Reform Bill, but the Government have stopped short of instituting a proper regulator of managing agents, which would solve many of these problems and difficulties. Why stop short? Why not do the job properly and have a regulator of property agents?

[Baroness Penn (Con)]

I welcome the work of the noble Lord on this issue, and I know that your Lordships will be looking at it further in Committee. It is already a legal requirement for property agents to belong to one of two government-approved redress schemes. We also welcome ongoing work undertaken by the industry itself to raise professionalism and standards across the sector, which will make property managing agents more accountable to leaseholders. We will keep that and the question of further regulation for the sector under review.

[Lord Kennedy of Southwark (Lab Co-op)]

My Lord, if leaseholders want to change their managing agent, they need 50% plus one of the residents to vote for change. But in many modern blocks of, say, 100 flats, perhaps 40% to 50% are being sublet, and you have no right to know who the people are who need to vote. How can leaseholders who want to change their managing agent exercise their right to change? It is impossible, because they do not have a right to that data.

[Baroness Penn (Con)]

Leaseholders wishing to take forward the right to manage claim will need to obtain the title documents of their building from His Majesty’s Land Registry. Those will contain the names and addresses of leaseholders in the other flats in the building, so it should be possible to contact them. On the voting threshold of 50% plus one, we agree with the Law Commission’s recommendation that these existing requirements should not be changed, because they make sure that a minority of leaseholders cannot impose changes on the majority.