Leasehold and Freehold Reform Bill

Baroness Taylor of Stevenage Excerpts

Committee stage
Monday 29th April 2024 Lords Chamber

Moved by

[Baroness Taylor of Stevenage]

64: After Clause 50, insert the following new Clause—
“Power to establish a Right to Manage regime for freeholders on private or mixed-use estatesIn Section 71 of the CLRA 2002, after subsection (2) insert—“(3) The Secretary of State may by regulations make provision to enable freeholder owners of dwellings to exercise a right to manage in a way which corresponds with or is similar to this Part.(4) A statutory instrument containing regulations under subsection (3) may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.””Member's explanatory statement
This new Clause would permit the Secretary of State to establish a Right to Manage regime for freeholders of residential property on private or mixed-use estates.

[Baroness Taylor of Stevenage (Lab)]

My Lords, the amendments in this group concentrate on yet another aspect of the regime that fleeces home owners with unexpected and extortionate charges, but in this case, they are levied on residential freeholders living on private and mixed-tenure estates.

I had one or two such encounters as a councillor. In one case, there was a five-year battle to get an estate through-road adopted as a public highway because the residents were facing extraordinary and unaffordable costs for highway repairs; and in another, a series of children’s play spaces were abandoned by developers as soon as their sales were completed, with no provision made for maintenance, health and safety checks or upgrading to meet the latest safety standards. But it was not until I campaigned for my honourable friend Alistair Strathern, now the excellent MP for Mid Bedfordshire, that I saw the volume of housebuilding that had gone on with the assumption that new residents would be responsible for a wide range of maintenance to highways and public spaces, and other exceptional costs that had clearly not been set out in a transparent way at the time of purchase.

As my honourable friend put it,

“Across the country, homeowners in a state of adoption limbo are being left exposed to exploitative and often unaccountable management companies. Despite their warm words, sadly the Government did not take any of the actions that the Competition and Markets Authority urged them to take in order to end the issue of fleecehold once and for all”.—[Official Report, Commons, 4/3/24; col. 631.]


My honourable friend pointed out that residents of estates across the constituency are trapped in extortive relationships with unaccountable private management companies, while their estates go unadopted.

Of course, this sharp practice is not limited to Bedfordshire. The Conservative MP Neil O’Brien has written of this:

“Across the country many people are moving into new build homes, only to discover something nasty which they didn’t expect.


Often the first they know of it is when a large bill comes through the door, from an obscure company they’ve never heard of.


The bill demands that they pay a large sum for the maintenance of their new estate, and warns them that they could lose their house if they don’t pay up.


These bills can be of a scary size, and the bills often escalate sharply over time.


To add insult to injury, residents often find that the work they are paying for isn’t actually done, and then find that trying to get any redress is impossible: the firm sending the bills is opaque and uncontactable. People are sometimes billed for baffling things”.


Mr O’Brien went on to look at the large numbers of those affected. The estimate is about 20,000 housing estates, so this could affect up to 1.5 million home owners. The Competition and Markets Authority has examined this in great detail, and commented on the fact that

“over the last five years 80% of the freehold properties built by the 11 largest housebuilders … are likely to be subject to such charges”.

Our amendments in this group seek to address the fleecehold issues still outstanding, which we believe the Bill must address to avoid a continuation of this escalating trend, which is simply providing another method of extorting money from hard-pressed home owners, effectively making them leaseholders of the public space on their estates. As my honourable friend the shadow Secretary of State for housing said in the other place,

“Underpinning all those issues of concern is a fundamental absence of adequate regulation or oversight of the practices of estate management companies”.—[Official Report, Commons, 13/7/23; col. 193WH.]


and the fact that residential freeholders currently do not enjoy statutory rights equivalent to those held by leaseholders.

There was cross-party support for the fact that this situation is untenable, so I hope the Minister will be able to respond positively to amendments in this group so that we can make some progress. Our Amendment 64 would give residential freeholders on private and mixed-tenure estates the same right to challenge the reasonableness of estate management companies and their charges as leaseholders have. As Matthew Pennycook said in Committee:

“We also believe that it is right in principle that there is parity between residential leaseholders and freeholders when it comes to the right to manage”.—[Official Report, Commons, Leasehold and Freehold Reform Bill Committee, 30/1/24; col. 436.]


Our Amendment 87 would prevent developers building to a lower standard. The government amendment would remove estate charge costs that should be borne by local authorities, and then expect private management companies to pay for them themselves, as they can no longer pass the costs on to the occupants. However, this would motivate developers to leave degradation of buildings rather than repairing them. Further, our amendment would put the onus on the developer to ensure high standards are in place from the moment they pass the estate over.

Amendment 93 asks the Government to carry out a review of such non-standard terms and charges included in freehold deeds, including those relating to estate management companies. The alternative is that the Government implement the recommendations so clearly set out in the report of the Competition and Markets Authority.

We support the other amendments in this group tabled by the noble Baroness, Lady Thornhill, which are essentially driving at the same issue of tightening up on those dreadful fleecehold practices. The amendments in the name of the noble Baroness, Lady Finn, relate to the kind of issue I mentioned earlier, when developers sometimes provide public amenities that are not of an adoptable standard. It is not reasonable for leaseholders to be required to make up the difference. The noble Baroness’s second amendment refers to the money-for-nothing culture of leaseholders being charged for services that they do not receive. We would support both of those amendments, and we look forward to hearing from the noble Baroness, Lady Thornhill, and the noble Baroness, Lady Finn, and to hearing the Minister’s reply. I beg to move.

[Baroness Finn (Con)]

My Lords, it is a pleasure to follow the noble Baroness, Lady Taylor. I shall speak to Amendments 87A and 87B, in my name. The first amendment seeks to prohibit future freehold “fleecehold” estates, where freehold home owners can be tied into expensive maintenance costs for public amenities and open space, without recourse. I recognise and welcome the provisions in the Bill that currently provide additional redress for people trapped in fleecehold, but it is important to make sure that no more people become accidental fleeceholders. Fleecehold has become prevalent not because of any policy decision by an elected Government but rather as a way for developers and managing agents to make more money at the expense of unsuspecting home owners. My honourable friend Neil O’Brien has spoken out many times about the fleecehold estate scandal. He has compared it to the Post Office scandal, in that it is an injustice that has ruined so many people’s lives, yet nothing has been done.

The way that the fleecehold system works is now well known. In recent decades, the builder would normally build a new estate, make sure that the roads and other facilities were up to spec and pay a Section 106 charge, and the council would then take over the running of it. Under the fleecehold model, however, the developer agrees to hand over the company to another company, which it may or may not own, to run many parts of the estate, such as roads, open spaces, play areas and even sewers. The developer thus pays less in Section 106 charges and the council abdicates the responsibility to maintain the road and other amenities but not, of course, council tax. The developer and council, in essence, split the profits while the residents and new tenants get the bill. This is not only collusion between the council and the developer but an extremely inefficient way to run things. Many of the people on these estates end up with a huge bill to sort problems that have arisen because the amenities were not sorted properly in the first place.

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[Baroness Taylor of Stevenage (Lab)]

My Lords, I listened carefully to the Minister’s response, and I am grateful to her for going through each amendment in detail. However, having spent many hours in this Chamber debating what is now the Levelling-up and Regeneration Act before this Bill, we hear the same refrain again: things are either too complex to deal with, they are the subject of another Bill or they need further work.

Today’s debate has indicated yet again—and I am sure there will be later debates in a similar vein—that these types of Bills need very effective pre-legislative scrutiny so that the great expertise contained within this Chamber can be used to make the Bill better before it comes to the House. It would mean that we are not faced with being told something should be in another Bill or needs further work. The subject of this Bill has been a manifesto commitment of the Government since 2017, so there has been plenty of time to do the other work before the Bill came before the House. That said, I beg leave to withdraw the amendment.

Amendment 64 withdrawn.

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[Baroness Thornhill (LD)]

We fully understand the passion expressed by the noble Lord, Lord Bailey of Paddington, about criminality and having a last resort. We must think of it in regard to the worst rogue landlord offences, of which there are many, and I am sure several noble Lords have seen things worthy of that description. While we do not entirely go along with the noble Lord, we are interested to understand why the Government are using the Leasehold and Freehold Reform Bill to do away with a long-standing leaseholder right to bring a private prosecution against a landlord who has refused service charge and accounts transparency; it is surely a sign that they are trying to hide something.

The Government are bringing forward a new regime for service charges, under which landlords’ failure to comply with the requirement will be subject to damages of no more than £5,000 per leaseholder, which to us feels too low. Why does this policy have to strip leaseholders of a right to pursue a persistently abusive landlord with a private criminal prosecution? If the right was poorly drafted in the first place, surely it should be retained and made effective in the Bill?

We agree to a certain extent with the amendment’s attempt to bring local authorities into scope. As we know from past tragedies, local authorities are often treated far too leniently by leaseholder legislation, receiving exemptions from basic requirements. We broadly agree, but I look forward to the Minister’s response to the amendment.

[Baroness Taylor of Stevenage (Lab)]

My Lords, I thank the noble Lord, Lord Bailey, for his passion on this matter, as the noble Baroness, Lady Thornhill, said. It is appropriate to bring a probing amendment on this, to seek out some clarification from the Government about their intentions. It is clear that service charge accountability sits right at the heart of much of the Bill, and we would not want to do anything against that. It does seem a little odd that part of the Bill’s intention is to remove that right of private prosecution, so I look forward to the Minister’s reply.

The other point raised by the noble Lord was that we are going to have a hiatus when the Bill is passed, because it is not going to come into force until 2025-26. Can the Minister comment on what leaseholders can resort to in that interim period, in order to get matters justified if they have a persistent rogue landlord? Otherwise, we will have a gap where the original provisions are repealed and these ones have not yet come into force.

I agree with the noble Baroness, Lady Thornhill, about council leaseholders. There are other protections in force for council leaseholders. The health and safety Act and its provisions should sit there to protect council leaseholders from any poor landlord practice from councils—I know they have not always done so, but they should.

I am interested to hear the Minister’s response to this very good probing amendment.

[Lord Gascoigne (Con)]

I thank my noble friend Lord Bailey of Paddington for Amendment 76A, which seeks to retain the existing enforcement provisions concerning a landlord’s failure to provide information to leaseholders. I am grateful to other noble Lords who took part in this very brief discussion.

I fully agree with my noble friend that it is important to have effective enforcement measures in place where a landlord fails to provide relevant information to leaseholders. The existing measures, including the statutory offence under existing Section 25 of the Landlord and Tenant Act 1985, have historically proven to be ineffective. Local housing authorities, as the enforcement body, are reluctant to bring prosecutions against landlords, and the cost and complexity of doing so are a significant barrier to leaseholders bringing a private prosecution. That is why we are omitting Section 25 and replacing it with the more effective and proportionate proposals set out in Clause 56 of the Bill. Therefore, I am afraid that we cannot accept the amendment. Not only does it require—

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The costs faced by leaseholders is also the subject of Amendment 103, tabled by the noble Baroness, Lady Taylor of Stevenage, which would impose a cap on the charges that can be passed on to leaseholders as a result of the Building Safety Act. The Act introduced important changes to the regulatory framework, but it has had a knock-on effect on the charges leaseholders face. As my noble friend Lady Pinnock has said time and again, it is the leaseholders, who have done nothing wrong, who are paying the price of this crisis. We welcome amendments that would protect leaseholders from those costs, and we look forward to assurances from the Minister that the Government are taking action to ensure that all leaseholders affected by the building safety crisis get the support they need—sooner rather than later.

[Baroness Taylor of Stevenage (Lab)]

My Lords, I shall speak to our Amendment 103, and comment on others in this group. I thank the noble Earl, Lord Lytton, for his careful and thoughtful consideration of how we might use the Bill to rectify some of the glaring building safety omissions that are an unfortunate legacy of the Building Safety Act. His proposals on building trustees warrant close consideration, especially as he has carefully set out how they might be funded. Taken together with proposals in later amendments for a property regulator, this could deal with a number of the loopholes that have caused an overall descent into property chaos, which has been the subject of much debate in this House, by matching independent local oversight with a national property regulator.

The noble Earl set out in his customary forensic way his justification for the amendments. I respect his professional expertise in this area, and I do not think I need to say any more than to welcome the issues he has covered. As the noble Baroness, Lady Thornhill, said, those could have been subject to pre-legislative scrutiny—but sadly, they were not. As was said earlier today, it is a mark of how your Lordships’ House can contribute to legislation that we have them before us today. It is a shame they could not have been incorporated at an earlier stage, because it is late now to debate such detailed proposals. I look forward to the Minister’s response, and I hope she will, as she always does, take the amendments seriously and tell us what the Government are going to do when they consider them.

Noble Lords would have received the excellent briefing, as I did this morning, from the National Residential Landlords Association. It says that “it is more critical than ever, in the context of the Government’s Leasehold and Freehold Reform Bill” that the building safety remediation scheme “is implemented without further delay to resolve the failings of the Building Safety Act’s leaseholder protections”. The noble Earl, Lord Lytton, said that he is not particular precious about this structure but, if we do not have it, what will the Government put in its place to do that?

We are now seven years on from the dreadful tragedy at Grenfell. It is shameful that so many leaseholders are still living with the fear of fire risks and the unbelievable pressure from the uncertainty around the financial commitments that they will face for their building remediation. It is the most terrible indictment of this Government’s failure to recognise the unconscionable impact on the lives of those affected, let alone the issues raised so many times in this Chamber of those who live in non-qualifying buildings but, nevertheless, have the leasehold sword of Damocles hanging over them.

The noble Baroness, Lady Thornhill, already mentioned the excoriating article in the Times this weekend. Martina Lees gives an incredibly thorough and well-researched account of the impact of the cladding scandal. Her investigation points out that

“15,000 residents have been forced to leave homes due to fire or fire safety defects”,

and that escalated last year with the evacuation of at least 21 buildings. She also says:

“Despite £9.1 billion of government grants being set aside to help fix homes, only £2.1 billion has been spent. The building safety crisis has trapped 700,000 people in dangerous homes and left almost three million owners with flats they cannot sell. Almost all are properties built or refurbished since 2000, with defects such as flammable cladding systems, combustible balconies and faulty fire barriers”.


I am familiar with faulty fire barriers from Vista Tower in Stevenage. She also points to government manipulation of figures, in that they

“cite a total of 4,329 buildings or 248,000 flats over 11 metres high with unsafe cladding. Of these, 23 per cent have been fixed”.

However, as Ms Lees points out,

“previous government data added up to 375,000 flats over 11m, making the number fixed just 8 per cent. The new total excludes more than 1,000 buildings where the developer must pay for repairs but does not know whether work is needed. It also precludes hundreds of blocks that did not get taxpayer help because they had the wrong type of fire risks … or were deemed below 18m … It leaves out up to 7,283 mid-rise buildings that the government had previously estimated to be unsafe”.

I am sure that the Minister will tell us that she does not respond to press stories in the Chamber, but the headline issues raised here are that affected leaseholders continue to endure this misery, with some having to pay rent for properties that they have been evacuated to, on top of the thousands of pounds of service charges that they face. Amendments in this group would at least provide some longer-term solutions to these issues.

My Amendment 103 seeks to recognise that financial pressure and ensure that there is at least a cap on the charges that leaseholders are expected to bear. Our preference going forward would be that developers are held ultimately accountable for any fire or other safety defect remediation in the buildings. In future, we hope that even greater consideration is given to how that might be achieved.

We also support the amendment of the noble Lord, Lord Foster; it is surprising only in that it is not already the case that buildings with electrical defects cannot be sold. If that is the case, surely this should be urgently rectified through the building regulations regime. I hope that we do not have to wait another two years to implement that.

Amendment 101 is in the name of the noble Lord, Lord Young, although he did not speak to it. It seeks to impose a deadline of June 2027 for remediation of fire safety defects. That is not an unreasonable target, as it would mean that an entire decade had passed since the Grenfell tragedy.

The noble Baroness, Lady Fox, made a very powerful case for the unintended consequence of the removal of the Section 24 manager. Her amendment and that of the noble Lord, Lord Bailey, seek to improve accountability. As this is one of the stated aims of the Bill, we look forward to the Minister’s response to their proposals.

[Baroness Scott of Bybrook (Con)]

I thank noble Lords for their various amendments on building safety and for the debate. I will respond to the amendments in turn.

I thank the noble Earl, Lord Lytton, for his amendments relating to a building trustee. Amendment 82C requires some buildings to have a building trustee, while Amendments 82D to 82M cover the process of appointment, duties, rights to information and how these trustees will be funded. The building safety trustee will either replace or complement the functions carried out by the landlord or a managing agent. I fully agree with the view that landlords and managing agents must manage and maintain buildings for which they are responsible and provide a good-quality service to tenants. However, I believe that this proposal would create additional complexity with little relative gain. The proposed mechanisms for funding these trustees increase the risk of pushing more landlords into escheat and it is hard to see how the levy proposals can be delivered. Secondly, we consider that there are better ways to deliver the desired outcome. As I have previously mentioned, we are bringing measures forward in the Bill that will drive up the accountability of landlords and their agents, so we do not agree with the noble Earl’s amendments.

I thank the noble Lord, Lord Foster of Bath, for his amendment, which seeks to improve electrical safety standards in buildings by identifying whether there is an electrical defect prior to sale, and for his continued interest in this very important issue for housing safety. This amendment would require a specified person to acquire an electrical installation condition report or electrical installation certificate prior to marketing the property, unless it is being sold for demolition or a full electrical rewire has been completed in the last five years. This is an important issue; we know that improving electrical safety is paramount to helping prevent fires and making sure that occupants feel safe in their homes.

As the noble Lord said, the Government have already taken firm action in the private rented sector by requiring PRS landlords to acquire an EICR at least every five years and to organise remediation works where necessary. We have also consulted on equivalent electrical safety standards in the social housing sector through our 2022 consultation and call for evidence. Here, we examined proposals to require social landlords to obtain an EICR for their rental tenants at least every five years and then to carry out remedial works within a set timescale. Our call for evidence also explored extending the proposed requirements to owner-occupier leaseholders within social housing blocks, so that the whole block is subject to these increased standards. We are aware of the noble Lord’s concerns about the sector that we have not yet hit—the owner-occupied sector. The Government are still considering responses to the consultation and the call for evidence, and we will update this House in due course.

I thank the noble Baroness, Lady Fox of Buckley, and the noble Lord, Lord Bailey of Paddington, for their Amendments 104 and 105B—I will also speak to Amendment 98, although my noble friend Lord Young of Cookham is not here—relating to changes of the definition of accountable persons under Section 72 of the Building Safety Act 2022 and other changes protecting the position of managers appointed under Section 24 of the Landlord and Tenant Act 1987.

I trust that noble Lords will understand that the Government cannot accept the proposed amendments. First, defining a Section 24 manager as an accountable person would move financial and criminal liabilities away from the existing accountable person to the Section 24 manager. It was the intent of the Building Safety Act that financial and criminal responsibilities for certain aspects of maintaining the building should always remain with the accountable person, and the accountable persons cannot delegate this responsibility to a third party. As drafted, the amendments could also mean that Section 24 managers would not be able to recover funds from the accountable person for the incidents of remediation works. I assure noble Lords that the Government are looking closely at this issue and at options to ensure that Section 24 managers can take forward building safety duties and get funding, where needed, from the accountable persons.

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[Baroness Thornhill (LD)]

In the interests of time, I shall be very brief. I agree with much that has been said by the noble Baroness, Lady Fox, and, of course, by the noble Lord, Lord Best, who has, as always, put his finger right on the key issues with his considerable expertise. We look forward to the task force report he mentioned. Successive Governments have, quite rightly, promoted downsizing: the freeing up of a house for families who desperately need a larger family property. However, we have not done anything like enough to investigate the state of retirement housing in this country and certainly not yet got policies right.

Many of the problems in the retirement housing sector have already been mentioned: high service charges and management fees actually hit elderly residents hardest. They are also suffering withdrawal or reduction of the in-house resident manager, who is frequently now off-site. Their property is more difficult to sell because prospective buyers are obviously a smaller target group, but mainly because of the so-called exit fees or event fees charged when the house is sold. So people can find themselves in a position where a retiree’s heirs are locked in to paying for the flat years after their parent has died, because they simply cannot sell it. Ultimately, all this is related to the iniquities of leasehold tenure, which should and must be abolished.

[Baroness Taylor of Stevenage (Lab)]

My Lords, I agree with the noble Baroness, Lady Thornhill, that this will not finally be resolved until we get rid of this leasehold regime. Some of the most heart-rending cases I dealt with as a councillor were from older leaseholders, often on fixed incomes and subject to the most extraordinary hikes in service charges, ground rents and all sorts of other charges that were imposed on them. I have cited cases in previous debates in your Lordships’ House. The experience of the 90 year-old cited by my noble friend Lord Khan earlier today was from Hitchin in my local area.