Leasehold and Freehold Reform Bill

Debate between Earl of Lytton and Baroness Thornhill

Committee stage
Monday 29th April 2024 Lords Chamber

[Baroness Thornhill (LD)]

I am pleased to say the good news is that we are all on the same page in this regard. The noble Baronesses, Lady Taylor of Stevenage and Lady Finn, have set out the context and the evidence for this. Like the noble Baroness, Lady Taylor, I too had many meetings in my former role about the fact that this issue affected individuals, whether with regard to roads or, in one particular acrimonious case, to playgrounds. So I think we all know which way we are going.

I shall speak to the amendments in my name and make a few general comments about this whole set-up. Amendments 86 and 91 deal with what we now know as the fleecehold issue. As has been said, we all know exactly what that entails. The commercial substance of the arrangement that is eventually arrived at really is a leasehold. Homeowners are often fleeced by the management company, which charges exorbitant fees for maintenance, and may be unable to force directors to hold annual general meetings or provide proper accounts, which I feel should be a basic right. However, leaseholders do not want to publicise the issue because it will reduce their ability to sell the property when they leave, a matter that has not been touched on. You do not want to tell a potential buyer what they are letting themselves in for, which is why the transparency measures in the Bill are important.

Management companies are often non-profit-making, passing on costs of maintenance to owners of homes, but are controlled by the original developer and outsource maintenance work to businesses connected to that developer. There is a body of evidence showing that that leads to increased costs, as local companies could often do the work far more cheaply. A significant problem is that homeowners do not have the resources to take the company to court or force it to hold meetings or to get competitive quotes for required work. In many cases their conveyancing solicitor was recommended by the developer, so the initial advice given was not truly independent.

Amendment 91 would ensure that residents could take ownership of an estate management company if the company had not provided residents with a copy of its annual budget, invited residents to an annual general meeting or acknowledged correspondence from residents. There are existing provisions that allow leaseholders to gain control of their freehold or the right to manage their own lease, but freeholders are assumed not to need that kind of provision. This amendment seeks to address circumstances where freeholders are trapped in a situation where they are being taken advantage of. Crucially, it would allow them to take control of the assets that are vital for the proper enjoyment of their homes.

I say to the Minister that I note the Government are bringing forward the appointment of a substitute manager, which I think is very similar, beginning in Clause 88. However, the householders in that situation would have to prove to a tribunal that the existing management was at fault, which can be difficult. It is the complexities in getting a substitute manager appointed that my amendment highlights. They may be up against the other side’s lawyer, and it is not unusual for KCs to be brought into tribunals in circumstances like this. It is indeed a fault-based policy, and it is a very complex matter to get redress. You cannot just sack the company if you want to take control with your own residents’ management company. Simply put, the amendment is a short cut to being able to take control without such complexities and is less adversarial.

Similarly, Amendment 86 would mean that services or works that would ordinarily be provided by local authorities were not relevant costs for the purpose of estate management charges. I make no apology for saying that this amendment is our statement of principle; we believe it is a matter of principle. The amendment would prevent freeholders being charged twice, first through council tax and then through their management company, for essential services such as roads and pavements. We are aware that there are significant issues as to how and why this situation has arisen, and we urge the Government to look into it further.

Among the other amendments, I single out Amendment 87 from the noble Baroness, Lady Taylor, which seems entirely sensible. It seeks to ensure that householders are not bailing out private developers for shoddy construction or defective homes. It is not right that someone who has paid a premium for their home is then expected to pay maintenance costs to sort out the mess left by the original developer cutting corners or, in some instances, breaching building regulations.

On the other amendments in this group, the Minister is well aware of the thrust and direction that we are all pushing in. I am aware that the business models for development are predicated on whether or not these assets remain the responsibility of the freeholder, the developer or the local authorities. The arguments for this are very varied, ranging from—and I have heard this said—“Local authorities are strapped for cash and we do not want to maintain these amenities” to “Local authorities are asking for impossible standards that are not set centrally and that will add to our costs”, or “Local authorities set standards that mitigate against creating decent workplaces that people want to live in”. A similar example that I had to deal with was there being no trees on the pavements because the local authority felt that they were too difficult to maintain and added cost for looking after both the pavements and the trees. Who wants to live on an estate with no trees?

We need to return to this issue on Report, as the noble Baroness, Lady Finn, said—otherwise, we are piling up problems for tomorrow.

[The Earl of Lytton (CB)]

My Lords, the themes that have been touched on by the three noble Baronesses who have spoken to this group are familiar to me as a professional. They all pivot around these common realm assets—if I can call them that—that are left behind or, at any rate, put into some sort of park mode when the rest of the estate has been built out. These are things that have not been adopted and are placed in the care of an estate management company.

Local authorities may have all sorts of good reasons, within their own scope, for not wanting to adopt novel surfacing, additional lighting, planters or special features. But alongside this there are allied issues because, if they do not adopt, the construction cannot be guaranteed to meet adoption standards—by that I mean roads, drains and all the other things that would normally meet standards that are very often laid down in legislation.

This is an open goal for corner-cutting, which goes on. I cannot tell your Lordships how many times I have been asked to advise on the fact that there are defective drains outside the property, somewhere in the common realm—under the road, common parking areas or landscaped areas—and nobody knows what has happened. It can be not only drains and road construction but engineered embankments, landscaping and ponds: these do not necessarily get constructed to the right standards either, but it can be hugely expensive to try to fix them after the event, and that is where the problem is. The question of just parking them in a management company that then charges whatever it likes goes to the heart of standards, responsibility and the funding of the maintenance of them.

The accountability of management companies seems to be in many instances next to zero. The burden on the freeholders, where the costs charged to them reach that magic figure at which lenders start putting their ears back and question whether they want to lend, results in the sort of lock-in that we well know affects leasehold flats subject to remediation.

I very much support this group of amendments, although they probably need to go further in establishing responsibility and funding. That is something of which the Government really need to take notice, because this is an absolute scandal—not just for the fact that it has gained this moniker of “fleecehold” but because it affects people in their own homes and cannot be allowed to persist.

Leasehold and Freehold Reform Bill

Debate between Earl of Lytton and Baroness Thornhill

Committee stage
Monday 22nd April 2024 Lords Chamber

[The Earl of Lytton (CB)]

My Lords, I will speak to this group, as the noble Lord, Lord Truscott, mentioned my name, although I have not yet spoken. He represents one viewpoint and the noble Lords, Lord Thurlow and Lord Sandhurst, and the right reverend Prelate the Bishop of Manchester represent another. They are often portrayed as being mutually exclusive but, in property terms, that is not necessarily the case. Clearly, there are perfectly good managers who look after not only their residential tenants but their commercial tenants, and there are some are rotten managers. Some are good corporates while others are rotten—some are good resident management operations while others are pretty poor—so it is very difficult to make a standard rule for them all.

If one looks at the large urban estates across London, it is evident that there is a clear sense of purpose in trying to preserve the value, appearance and general amenity represented by the running of that estate. That inevitably comes at a cost, but I hope that that helps not only the commercial activities but the amenity of the residents.

Let us look at what happens if things start going wrong and getting fragmented. First, there becomes a distinction, if one is not very careful, between the purposes of long-term management in the view of the residents and the purposes of long-term management in the view of the commercial operator or landlord. Under the purposes of this Bill, if the enfranchisement of a 50% commercial ownership block goes ahead, there will be an enforced leaseback to the original freehold owner. Straightaway, you have an enforced leaseholder, whose business model was not quite hypothecated on that basis, who is none the less obliged to take it on but does not need to have the primary amenity and visual appeal functions that might be relevant to the residents.

I have seen that happen in historic high streets, where ownership has become fragmented in this way. We tend to find that when a shop becomes vacant, and if there are difficulties in the letting market, it will be let to a charity shop, a slot machine operator, a tanning shop, or some other type of operator, because the person who has it needs to move it on quickly. There is not that fat on the bone associated with having the larger estate, nor is there the fat on the bone to take on some assignee, as I have had to deal with in the past, who really runs a rather low-grade sort of business but is well funded. Therefore, you have to work out whether you can afford to fight an appeal, or fight a case, on an assignment of a lease in order to see off that person and their particular trade. If you cannot, there is a general deterioration of the area. It might be a fast-food takeaway that opens late at night; the police might be around every now and again; there might be people congregating there because it is late at night, and that sort of thing affects residents. If one is not careful, things like emptying bins and delivery of incoming goods to a retail operation can start being operated at times that are not that helpful to the interest of residents, who once might have been part of this overall concern. I can see both sides of this, and we have to be careful not to make standard rules about things where the decision is much more nuanced and difficult. It really depends on where one is starting from, the circumstances, and everything else.

As I said earlier, my interest is in consumer protection. I do not want to see degraded environments; I want to see environments that are lively and looked after and where everybody has confidence in them being managed. Fragmented management very seldom achieves that. The issue is about management being a slightly different issue to ownership. It is a big issue that we need to address, because it will not be dealt with by a local authority. That has no function there. Beyond the planning functions of a change of use, or licensing for some premises that needs it, it has very few powers of control. If overarching control is needed, and there may be an argument that ecclesiastical, heritage or possibly other environments do need it, we should very careful that we are not chucking out that baby with the bathwater and ending up with a slow process of attrition that suits nobody and ends up degrading the value not only of the freeholders, who can look after themselves by and large, but of the area and its appeal, which is ultimately to the detriment of residents. I do not want to go down that road without being clear about what we are doing, and making sure that there is some way we can pick up on processes of deterioration before they take root.

[Baroness Thornhill (LD)]

My Lords, this is my first intervention today—I spoke at Second Reading. I regret that this is yet another Bill that was heralded with robust rhetoric from the Secretary of State which has now come face to face with reality. I regret that some of that reality is from those with vested interests and therefore we are getting a watered-down Bill. We certainly believe on these Benches that it is a missed opportunity.

I turn to the group of amendments on enfranchisement. We on these Benches support the Government in Amendment 16. We need to see as many restrictions as possible on leaseholders’ ability to enfranchise removed by the Bill. After all, they have bought a home and should be able to extend their lease and buy their freeholds in a way that is easy and affordable, to use the Government’s own words.

It is perhaps no surprise that we also support Amendment 17 in the name of the noble Baroness, Lady Taylor, in so far as it would allow the Secretary of State to give more leaseholders rights to collective enfranchisement, and we note the detail of the noble Baroness’s reasons. However, the power cannot and must not be used to narrow the qualifying criteria or to exclude more leaseholders from freehold purchase. We are pleased that it would be subject to the affirmative resolution procedure, as this includes public consultation and the involvement of both Houses.

However, we know that cohorts of leaseholders will still not even qualify to buy their freehold under the Bill. For example, MPs in the Public Bill Committee in January heard from experts and campaigners that there really is a problem with leaseholders in mixed-use buildings—from our debate today, I would say we have a problem with mixed-use buildings that needs to be sorted out. The Government are admirably using the Bill to try to liberate leaseholders in mixed-use blocks by, as we have said, moving the 25% rule on non-residential premises to 50% and introducing mandatory leasebacks on commercial space to slash the cost of collective enfranchisement, but—and I find this strange—they have not lifted the restrictive regulations in the 1993 Act that mean that shared services, such as a plant room, would disqualify leaseholders from buying out their freehold. Apparently, there is even a regulation stipulating that the mere existence of pipes, cables or other fixed installations connecting residential and commercial premises in a mixed-use building would block leaseholders from buying their freedom. That means that many leaseholders who would otherwise stand to benefit from the changes on mixed use will be blocked from securing collective enfranchisement and being in control of their buildings. I ask the Minister whether we can discuss this aspect before Report.

Turning to what I will call the three “tricky” amendments, I noted that the noble Baroness, Lady Taylor, wisely hedged her bets on these. I suspect that it is because, like me, she knows that the intentions of the noble Lords speaking on them are based on good experience and a genuine wish to see the measures agreed, but she worries whether, in fact, they are just another means of putting commercial interests before residential interests and not getting that balance right.

Instinctively, like the noble Lord, Lord Truscott—I was relieved when he made his comments—we oppose these three amendments, because in our view they seek to row back. But I have listened attentively to what has been said and I am completely changing what I was going to say: I genuinely believe that there are some serious areas that need looking at. There is much experience in the Committee, but I am concerned that we have been subject to special pleadings.