Freehold and Leasehold Reform

Fiona Bruce Excerpts

Wednesday 5th July 2023 Westminster Hall

[Fiona Bruce (Congleton) (Con)]

I appreciate the opportunity to speak, Mr Sharma.

I support many of the comments that have been made, as I think we are all here today because we want to express a sense of deep injustice on behalf of decent, hard-working and responsible constituents. We are all aware that the situation with matters of property has prevailed for far too long without reform and is now an injustice. As we all know, justice delayed is justice denied. I know that the Minister is aware of the situation and has limited powers to influence the parliamentary timetable, but I implore her to go back to the Secretary of State following this debate and communicate to him the sense of injustice, which we are all communicating on behalf of our constituents.

I want to mention some of the multiple assurances on reform that the Government have given over many years, and I will focus particularly on the concern that my hon. Friend the Member for Dartford (Gareth Johnson) highlighted: the need for freehold management reform. I do so on behalf of residents on several estates in my constituency, but I will highlight just one: Bath Vale. I will come on to give some examples of the injustice that residents there have experienced.

We all agree that whereas long leaseholders in England and Wales have a statutory right to challenge at a first-tier tribunal unreasonable service charges and the standard of any work carried out, freeholders do not have the same right. As long ago as July 2017, the Government recognised that in a consultation paper, “Tackling unfair practices in the leasehold market”, saying:

“The contrast between the positions of freeholders and leaseholders can be particularly clear where a developer retains the ownership of communal areas and facilities and the responsibility for their maintenance through a managing agent, or where a developer sells on the ownership of the communal areas and facilities to a private company”,

which often then appoints another management agent. The paper continues:

“In all these cases, even though freeholders may be paying for exactly the same services as leaseholders, they do not have a right to challenge the reasonableness of service charges…which qualifying leaseholders can do.”

In October 2018, the Government published a consultation paper, entitled “Implementing reforms to the leasehold system in England”. Again, the paper announced an intention to

“create a regime for freeholders which provides that maintenance charges must be reasonably incurred and that services provided are of a reasonable standard. We will also replicate consultation requirements and obligations on the provider of services to provide information to the freeholder. Finally we will provide freeholders with the ability to challenge the reasonableness of the charges they are required to pay towards the maintenance of communal areas and facilities at the First-tier Tribunal.”

The outcome of that consultation was published in June 2019, when the Government recommitted to equal rights for freeholders, and to a right to manage for residential freeholders, as part of creating greater parity between leaseholders and residential freeholders.

Time went by, and in August 2022 I wrote to the Minister’s predecessor to highlight the issue on behalf of residents of Bath Vale in Congleton. The difficulties that the residents have had started 12 years previously, when the first properties were built, and they still continue. The residents told me in 2020 that the reserves stood at several thousand pounds lower than what residents expected, and some of the charges were highly questionable—for example, a charge of £1,500 for insurance administration, which was cancelled when the residents challenged it. Similarly, water supplies had been charged for common parts, running into thousands of pounds over several years, even though there are no such water supplies. There were outstanding concerns regarding a road completion that was not adopted by the local authority, and woodland plans had not been implemented —to such a degree that the appearance of the site was affecting residents’ ability to sell.

I wrote that letter on 11 August 2022. I received a reply on 4 January 2023—not from this Minister, I accept, but from a predecessor—once again stating that

“the Government intends to legislate to ensure that freehold homeowners who pay estate rent charges have the right to challenge their reasonableness and to go to the tribunal to appoint a new management company if necessary. We will also consider introducing a Right to Manage for residential freeholders”.

That claim was repeated in a debate that took place on 20 April, and by then my hon. Friend the Member for Redditch (Rachel Maclean) was the Minister. She will remember that my hon. Friend the Member for North East Bedfordshire (Richard Fuller) made an articulate case on this very issue, much as my hon. Friend the Member for Dartford has today. The Minister repeated the Government’s response once again:

“We know that legislation needs to be introduced…We are committed to introducing legislation to plug this gap. We intend to create a new statutory regime”.

I do not need really need to go on, but the Minister said:

“We need to end this fleecehold situation where homeowners who thought they had bought a home to live in…are subject to abuse and find these charges escalating out of all proportion”.—[Official Report, 20 April 2023; Vol. 731, c. 478.]

To close, I will repeat what I said at the start. My question is: when? I urge the Minister please to inject a sense of urgency, which there has clearly not been to date. These are decent, responsible constituents who bought their own homes never expecting to be in this situation. It is unjust. Will the Minister meet me and residents of Bath Vale? She kindly offered a meeting at that debate on 20 April, and I know she was sincere and that her own response to this issue was genuine and heartfelt. Will she now meet me and take back to the Secretary of State that this situation cannot go on and that legislative time must be provided to sort it out?

--- Later in debate ---

[Rachel Maclean]

I thank the right hon. Gentleman for that point and he is absolutely right. He will hear about some of the things we are going to do to make it easier and fairer and not as expensive to challenge, and I shall to set out some more detail now.

When leaseholders challenge their landlord, we know, as the right hon. Gentleman said, that they are sometimes subject to unjustified legal costs, and we are committed to ensuring that leaseholders are not subject to them and, where appropriate, can claim the legal costs from the landlord, which certainly seems fairer than the current situation. Currently, if set out in the lease, leaseholders might be liable to pay their landlord’s legal costs regardless of the outcome of a dispute—even if they win the case. That is a classic case of heads you win, tails you lose. Also, the circumstances in which a leaseholder can claim their own legal costs from a landlord are currently very limited. That may lead to leaseholders facing higher bills than the charges being challenged in the first place and can deter leaseholders from taking their concerns to the courts or property tribunal, as the right hon. Gentleman says.

Whether on freehold estates or in leasehold or commonhold blocks, we are committed to raising professionalism and standards among all property agents, protecting consumers while defending the reputation of good agents from the actions of rogue operatives. I know that my hon. Friend the Member for Dartford has been working on that issue in his constituency, and I can assure him that I will continue to work with industry—I have regular dialogue with it—on improving best practice across the sector, including on codes of practice for property owners.

Ground rent was particularly highlighted by the hon. Member for Ellesmere Port and Neston, and we are concerned about the escalating costs of ground rents for leaseholders who still pay them. As many will know, we asked the Competition and Markets Authority to investigate the potential mis-selling of homes and unfair terms in the sector and it has been successful in securing commitments benefiting over 20,000 leaseholders, including removing doubling ground rents.

Both enfranchisement and the right to manage help give leaseholders greater control. In most cases managing agents would still be used, but they would be accountable to leaseholders directly, rather than a third-party landlord, ensuring that interests are aligned. For those who want greater control over their homes, many leaseholders find the process for extending their lease or buying their freehold prohibitively expensive, complex or lacking in transparency and we equally understand that many right-to-manage applications fail on technicalities attributed to overly detailed procedure, which is why we asked the Law Commission to look into that. It has since published reports on enfranchisement, valuation and the right to manage.

To reduce the cost of enfranchisement, we are committed to tackling the problems with these existing arrangements at their root. We will abolish marriage value and cap ground rents in enfranchisement calculations, so that leaseholders who currently pay onerous ground rents do not also have to pay an onerous premium to buy their freehold. These changes will result in substantial savings for leaseholders, particularly those with less than 80 years left on their lease. These changes will also make sure that sufficient compensation is paid to landlords to reflect their legitimate property interests.

To make the process simpler and more transparent, we will introduce an online calculator to help leaseholders understand what they will pay to extend their lease or buy it out, and the Government are committed to reforms to improve access to the existing right to manage, whereby leaseholders may take over the management of their block without having to buy the freehold. We want to make the process of exercising the right to manage simpler, quicker and more flexible, and make the operation of it more effective. To that end, we are carefully considering the detail of the Law Commission’s recommendations.

To give homeowners greater control, we want to make sure that the benefits of freehold ownership are extended as far as possible. We remain committed to banning the sale of new leasehold houses so that, where possible, all new houses are provided as freehold from the outset. For flatted developments, we want to reinvigorate commonhold so that it can become a mainstream and widespread freehold alternative to leasehold for both new and existing flats. Again, we are reviewing the Law Commission’s detailed recommendations, which propose legal fixes that will make commonhold a desirable alternative in more and more settings. We have established the Commonhold Council, made up of consumer and housing industry experts, to advise the Government on how to prepare both consumers and the market for the widespread use of commonhold. Furthermore, the Leasehold Reform (Ground Rent) Act 2022 is levelling the playing field for future commonholds as well as benefiting new homeowners. It removes ground rents from new leaseholds, and the associated financial incentives for developers to build leasehold over commonhold, where ground rents were never permitted.

I thank my hon. Friend the Member for Dartford for prompting such a vital debate and everybody for their contributions, and I am pleased that we have been able to discuss these issues properly. We plan to introduce reforms in the King’s Speech, which will take place in the autumn, so the reforms should take place within this Parliament. I recognise that every single Member would like a more detailed timeline, but I will continue to have these discussions, as Members have implored, both with my colleagues in the Department and with those across other channels who are responsible for tabling legislation.

[Fiona Bruce]

Would the Minister be willing to have a discussion with the residents I have referred to in more than one debate? I would be very grateful.

[Rachel Maclean]

Of course. I would be absolutely delighted to meet my hon. Friend’s residents. I implore her to contact my office so that we can arrange that as soon as we can.

I hope this debate has demonstrated to the House, leaseholders and homeowners on freehold estates across the country our continued commitment to reform and to making things better. I am grateful to Members across the House, campaign groups and members of the public for highlighting the difficulties that homeowners face. As I am sure Members can appreciate, this is a significant undertaking, and I look forward to coming to the House with more detail as soon as I am able to.