Freehold and Leasehold Reform

Gareth Johnson Excerpts

Wednesday 5th July 2023 Westminster Hall

[Gareth Johnson (Dartford) (Con)]

I beg to move,

That this House has considered freehold and leasehold reform in England.

I will centre my remarks on the issue of management companies and the fees that they charge to people who live on newer housing estates. This is a big and growing issue in my constituency, and I want to talk to the House about some of the practices of management companies that behave in the most appalling way—in respect of not just the services they provide but the fees they charge to homeowners on the estates for which they are responsible. We have a large number of affected people in my constituency, which is perhaps not surprising given that some 7,000 new houses have been built in Dartford over the last 10 years. Management fees are imposed on homeowners, whatever their tenancy, to pay for the upkeep of communal areas and other amenities.

It is hard for me to overstate how big an issue the conduct of management companies is. Since announcing that I secured this debate, I have had email after email from local residents at their wits’ end, who complain about the practices of management companies. Indeed, around 20% or 25% of people who attend my surgeries are there to raise such experiences. Frankly, the stories they have provided about the practices of management companies are shocking.

The central allegation is that developers retain ownership of the land once a house is built and then create a company or use an existing company to sell the land to, so that they have the right to be the estate management company. This happens without any consultation at all with homeowners or anybody else, and without sufficient regulation. Central to my speech is asking the Government to bring in the necessary legislation so that we can deal with this growing problem once and for all. What often happens is that companies are set up or used to implement the work or to liaise with residents, thereby creating several tiers of companies for homeowners to deal with.

Take, for example, the Bridge estate in Dartford. The local councillor, Clement Quaqumey, has raised the plight of local residents who are enduring a nightmare. Because the Bridge community is divided roughly half and half between businesses and residents, the residents end up paying huge amounts of money to receive little more than landscaping services. They have no alternative but to pay the money, as they are committed through the service charge deed they have signed. These contracts are the source of the homeowner’s commitment. People unwittingly signed up to the contracts without fully understanding their implications.

Particularly when it is a seller’s market, people are desperate to buy their dream home and never expect that management companies will hike up their fees with little notice. When that is challenged, however, it soon becomes clear that the homeowners can do little or nothing about it. We simply cannot allow homeowners to continue to be treated in this way.

A constituent contacted me yesterday to say that they are being charged £2,500 a year for an extremely poor service. Such fees are in addition to the council tax that homeowners still have to pay in full. Homeowners understandably resent having to pay council tax and a separate payment for the maintenance of roads, pavements and play parks that can, of course, all be accessed by the general public free of charge. This is a problem that has to be addressed, and soon.

Residents of Ingress Park, another estate in my constituency, have contacted me to say that this beautiful place to live—and it is beautiful—is spoilt by the charges imposed on the homeowners there. The charges make the properties harder to sell and create bureaucracy that strangles the people living there. People complain of the accounts not adding up—and that is if and when they are able to obtain them. Again and again, I receive complaints from residents who ask for accounts to show them what their money is being used for but they are not able to obtain them. Residents have also complained of contractors clocking in late and leaving early, with nothing whatsoever being done to check their behaviour.

One of the worst instances that I have dealt with was in a road called Winston Close, which is in Stone in my constituency. Residents were given just two months’ notice that their annual fee was going to rise from just under £2,000 to just under £6,000, to pay for windows to be replaced. To be fair to the management company, it relented and phased that increase over a longer period of time during which the windows would be replaced, but it still led to huge increases for local residents, as well as a lot of stress and upset. Had the original demand been persisted with, the residents would have had no option whatsoever other than to pay. That clearly illustrates what is wrong with the current system of management fees. The management company can literally treble the amount that homeowners have to pay, with little or no notice, and the residents have no alternative other than to cough up.

A constituent in Castle Hill, which is in the Ebbsfleet Garden City area, also contacted me. He relayed to me that the fee for residents in that area has recently been increased by 30%, yet as a freeholder he does not have access to any dispute-resolution tribunal, so he has just had to take that increase on the chin. That cannot be right and this practice has to end.

I met residents of Bexley Park in my constituency who have managed to secure the agreement of more than 50% of residents that they should remove themselves from their management company and go to another. I am sure Members will agree that it is no mean feat to get over 50% of residents in an area to sign up and say, “We no longer want to use our management company. We want to transfer to a different one.” However, the original management company cleverly said to them, “That’s absolutely fine, but we want hundreds of pounds from you, and every single householder has to pay that money before they are allowed to transfer.” That was an impossible hurdle for those people to overcome, as the management company knew.

We have to make it easy for residents to move to another management company and thereby end the monopoly that such companies enjoy over homeowners. There is currently no competition because residents are stuck with their management company, which has no incentive whatsoever to improve its services or provide value for money.

Another constituent from Stone told me that they had questioned some workmen in their communal area who were there to change four of the fluorescent light fittings. It turned out that they had travelled from Leeds to Kent to do that job and were charging over £400 to do it. It was clear that that lady could do absolutely nothing about the situation. There in front of her was a clear example of the abuse that is meted out to homeowners in some of these newer housing estates, in the form of someone being sent from such a long distance away to carry out a fairly straightforward job and then charging an exorbitant amount of money for it.

Residents on the old Stone House Hospital site in my constituency, which I understand comprises purely leasehold dwellings, contacted me to complain that the freeholder was forever changing and rarely cared about problems on the development.

Another problem with the current system is that there is little or no co-operation between management companies. Two or even more management companies operate on some estates in my constituency, so we end up with a situation in which separate people come to mow the grass, with one at one end of the estate and another at the other, when that job could have been carried out by one individual mowing the whole estate. That lack of co-operation illustrates the poor value for money. The examples instances just go on and on—indeed, I could fill the whole 90 minutes of the debate with issues that have been raised with me about poor value for money, exorbitant fees and the unfair and unjust current system.

I genuinely believe that developers and management companies are taking advantage of how the public conceive of a freehold. Understandably, people believe that a freehold will give them full control over their property, but the reality on these new estates is very different. So-called freeholders are not only being forced to pay the charges, but when it comes to selling the property they have to effectively ask permission from the management companies to do so and have to pay a fee to those management companies for a seller’s information pack. One lady contacted me to say that when she questioned the management company over the contents of her seller’s pack, it responded that each query she raised with them would be charged at £60 plus VAT. Ironically, she was questioning the management company about mistakes it had made in the pack. Such a system of having to ask permission simply causes delay, unnecessary costs and, of course, extra profit for the management company.

Moreover, people have no say in the running of the management company or input as to what the priorities should be for an estate. Whatever the management company wants for an estate is done to the residents who live there. There is no way of avoiding the exorbitant fees, no right to challenge and no conceivable way of changing the management company. Quite frankly, it is a licence for those companies to print money. If we do not legislate quickly, we will create a legacy that will stay with the British housing sector for generations to come. We should not allow people to be treated in this way for simply wanting a nice new home to live in.

--- Later in debate ---

[Gareth Johnson]

The Minister says in her speech that the Government will act to deal with the abuse by management companies and the imposition of fees for freeholders. Does she mean by “act” that legislation can be expected?

[Rachel Maclean]

I ask my hon. Friends and other Members for a little patience while I proceed through my speech. I want to set out precisely the Government’s commitment to legislation because I know that is the question that everybody wants to be answered and I have limited time in which to do that.

My hon. Friends the Members for Dartford and for Congleton pointed out that freeholders on new estates must pay charges towards the maintenance or upkeep of communal areas. The obligation to pay those charges might be provided by a deed of covenant or through an estate rent charge that forms part of the purchase contract. The Government believe that when buying a home, it should be clear to potential purchasers what the arrangements are for the maintenance of roads and upkeep of open spaces, public or otherwise. That information is most often set out in a freehold management inquiry form, which is published by the Law Society and widely used across the sector. However, I know that that information was not provided to some, or perhaps not drawn to their attention, at the point of purchase. Furthermore, in many cases contracts do not specify, limit or cap those freeholder charges. To compound matters, when people receive an invoice, they are not provided with information about what the charges cover. Much as with leaseholders, that lack of transparency, both at the homebuying stage and when people have settled into their property, leaves homeowners in a vulnerable position and is something that the Government intend to address.

Leaseholders already have certain protections and rights that will enable them to hold management companies to account. Freehold homeowners have no equivalent, even though they might be paying for the same or similar services, as highlighted in the remarks by my hon. Friends. The current situation is unfair. Where they are required to contribute, it is not appropriate that people have limited rights to challenge those costs, and we are committed to introducing legislation to plug that gap. We intend to create a new statutory regime for freehold homeowners based on the rights that leaseholders have, ensuring that estate management charges are 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 will also give a right to change the provider of maintenance services by applying to the tribunal for the appointment of a manager. That might be useful if a homeowner is dissatisfied with the service they are receiving or there is a significant failure by the estate management provider in meeting their obligations. We will also consider the option of introducing a right to manage for freehold homeowners. It is not only estate management charges that need to be reasonable; that principle must also apply to administration fees that individual homeowners may face in their dealings with the estate management company.

Turning back to leaseholders, as highlighted by the hon. Member for Ellesmere Port and Neston and the right hon. Member for Islington North, there is a similar situation. Leaseholders complain of unreasonable and excessive service charges and we strongly believe that service charges should be transparent and communicated effectively, with a clear route to challenge or redress if things go wrong. Many landlords and managing agents already demonstrate good practice and provide relevant information, but too many do not and are failing to provide sufficient information or clarity to leaseholders, especially over fees and service charges.

We recognise that the existing statutory requirements do not go far enough to enable leaseholders to identify and challenge unfair costs. That is why we will take action to support and empower leasehold homeowners. We will take action to increase service charge transparency to help leaseholders better understand what they are paying for, make it harder for landlords or managing agents to hide rip-off charges and enable leaseholders to more effectively challenge unreasonable fees or charges. I also want leaseholders to know that they can seek free advice from an organisation funded by the Government, the Leasehold Advisory Service, if they are concerned about charges that they are asked to pay.

--- Later in debate ---

[Gareth Johnson]

I thank all right hon. and hon. Members for their contributions to the debate. The consensus on both sides of this Chamber is that we need to see a transfer of power from management companies to homeowners, so that we can end the poor value that is too often provided by management companies, end the exorbitant fees and, perhaps most importantly of all, give homeowners the power to transfer from one management company to another, which is currently restricted. I am grateful to both the shadow Minister, the hon. Member for Greenwich and Woolwich (Matthew Pennycook), and the Minister for their responses, and I certainly look forward to His Majesty’s speech.

Question put and agreed to.

Resolved,

That this House has considered freehold and leasehold reform in England.