Freehold Estate Management Fees

Greg Smith Excerpts

Thursday 13th July 2023 Westminster Hall

[Greg Smith (Buckingham) (Con)]

It is a pleasure to serve under your chairmanship, Dr Huq. I congratulate the hon. Member for North Shropshire (Helen Morgan) on securing this debate. It is also a pleasure to follow my hon. Friend the Member for North East Bedfordshire (Richard Fuller). There is almost a temptation to leave it at just, “What he said”, but there are a number of points I wish to make.

Across the 335 square miles of my Buckingham constituency, new estates have been relentlessly built over recent years. My views on the need to build on brownfield land only and to protect agricultural land and our national food security are well known, but where houses have already been built or are being built at the moment, it is crucial that we try to rectify the mistakes of the past, and the issue of service charges and local authority adoption of those housing estates simply must be addressed.

Traditionally, when someone purchased a freehold property, ongoing costs were relating to maintaining their property and paying, rightfully, council tax bills to contribute towards local public services and the maintenance of the public realm—as my hon. Friend the Member for North East Bedfordshire said, the lamp posts, streets, pavements and playgrounds and ensuring that the verges are mown. It is those sorts of things. However, in recent decades, as hon. Members have said, developments have been sold as freehold but now come with often punishing service charges to cover land and facilities that are not passed to local council control and remain in private hands—sometimes that is the developer; sometimes they are sold to a third party.

The concept of a service charge is well established. Service charges were traditionally for flatted developments, which need to share the responsibility for communal spaces within and around those buildings. The properties are normally—traditionally—leasehold properties, and the concept of the service charge is closely linked to services that would never be undertaken by a public body.

To go back into history a little and give some context, the Georgian development of London squares did extend the role of the private developer. Service charges included access to those private squares, those private gardens, and some shared communal spaces in lieu of front gardens. However, a growing trend has been to sell freehold houses with freehold gardens but also with shared, communal external spaces and facilities—car parks and the like—that attract these new service charges. Unlike flats, with tightly defined communal space, or indeed those London squares, which are private and used only by adjoining residents, these recent developments have had the appearance of normal modern housing estates, with open access, and yet the communal assets are paid for by a select number of residents. We are talking about the roads, pavements, verges, play areas, balancing ponds and often, as the hon. Member for North Shropshire said, the sewerage and water supply. No one ever conceived in the past that those would be anything other than local authority managed or water company managed.

It is not obvious what is driving the cause of freeholder service charges. Is it driven by councils simply not being willing to adopt assets that they see a very high cost base in maintaining into the future—I would suggest that that is certainly part of it—or by developers keen to create a specific style or ambience that creates in its own right a unified development that just happens to be open to the general public: is it a sales pitch? Or is it driven by developers pushing to lower standards in the public realm where councils do not want to be landed with the liabilities.

Since before being elected in 2019, I have been contacted by countless residents living on such new build developments and estates. They are exasperated by the developers that have failed to complete what we would believe to be the fundamentals, the basics, of a development. I am referring to roads not completed—the final layer of tarmac not laid—footpaths yet to be laid, landscaping that has been forgotten and, in many cases, mounds of soil fenced off and awaiting redistribution.

We must ask what is causing these issues and what changes we can drive to deliver reform. Often, the problems that I just outlined have been deliberated designed to prevent transfer to another management company. They have been deliberately done to ensure that residents cannot get control themselves and that it remains in the hands of these management companies. The recent, growing concerns about freehold service charges are a result of many of those management companies being sold off to the third parties I mentioned earlier, which see the opportunity to increase charges way beyond the initial nominal amounts, further adding to the problems of freeholders, who, as hon. Members said before me, must still bear 100%—the full amount—of their council tax bill, with not even the slightest hint of a fair discount.

One could say that freeholders might expect service charges if they bought into one of the high-end, exclusive gated developments sold in some parts of the country, which aim at exclusivity and have additional features that standard council tax would never normally pay for. We are talking about things that very few in the country are able to have: private clubhouses, tennis courts, gyms, private leisure facilities, extravagant landscaping and the like. However, we are rarely talking about those developments, as section 106 and community infrastructure levy taxes developers to provide facilities to the council—facilities that are rightly used by the wider community.

That leads me to a philosophical question about the right to retain as private assets that are actually public, and that should be adopted and maintained by council tax payers—and, potentially, other taxpayers, through Government grants. We have not recently had a debate on where the line should be drawn—on encouraging new communities to take responsibility for their new assets, versus new assets being paid for by a new development, but being open to all.

Lace Hill in my constituency sits on the edge of Buckingham. It is a development of just over 700 homes. It comprises freehold houses with their own gardens, but residents must pay a service charge for playgrounds, landscaping, a balancing pond, the roads, the pavements and the verges. A casual visitor would imagine that they were regular roads, play areas, pavements and community facilities that the local council looks after, but it simply does not. The estate is also home to a primary school, a secondary school, play equipment and a multi-use games area that the whole town of Buckingham comes to enjoy, but they are wholly paid for—except for the core educational funding, clearly—by the freehold service charges placed on the residents of that relatively new estate.

Worse than that, Lace Hill faces the very issues that I described: there has been a failure by the developer to finish a lot of the features, not least the balancing pond. The area is very close to the Great Ouse river, which regularly floods; that brings a whole new dimension to the debate, which I will not go into now. That failure means that residents are unable to take control of the issue in the way that they should be able to. Also, the management company has sold and resold itself—and sold itself to itself in a different guise—which has led to mass confusion among residents about who they are paying the service charges to, and whom they can hold accountable for services that, for the most part, they have not actually had. I could give countless other examples, but I will not take up the time of the House by doing so; I will just briefly mention another particularly egregious example of this in my constituency: the Kingsbrook development, which sits just to the east of Aylesbury.

It is very hard to distinguish what counts as a facility that new homeowners may consider it worth paying more than the standard council tax for, because it is over and above the standard communal facility. However, from the way that homes are sold, it would appear that developers and the conveyancing profession have not been open and up front about the risks of some new estates being owned by third parties, and the service charge that would be made. That needs to be drawn more rigorously to the attention of home buyers, so that they are fully aware of what they are entering into, and of the risks of additional costs, increasing in perpetuity. In some circumstances, it would be reasonable for a development to wish to hold some assets privately, as they are over and above what is required by the national planning policy framework—maybe private sports facilities, such as the ones that I mentioned; or a concierge for security, key holding and parcel delivery. However, I suggest that those would be few and far between in the real world.

Some developers set up a residents’ management company, of which freeholders are members, so that they can have a say in the scale and quality of communal works needed or desired, and can influence the service charge fee, but in my experience, and from research in my constituency, that is all too rare. Sadly, freeholders have few controls if the developer retains the management, or sells it to a third party. It appears to too many developers that they can sell the management company as an investment, for it to be run by an uninterested third party. Ironically, as my hon. Friend the Member for North East Bedfordshire mentioned, though leaseholders have access to the first-tier tribunal, the right of freeholders to challenge the reasonableness of the service charge is still not defined in law.

I come on to some of the recent debates, and the delays in solving the problems over the past six years. The Government and the Minister are aware of the issue, and I am grateful for the time that she has taken to talk privately to concerned colleagues. The July 2017 consultation paper, “Tackling unfair practices in the leasehold market”, highlighted the discrepancies and issues for freeholders in section 6, but that is some years ago. The Government rightly announced their intention to legislate in this area. In October 2018, they published a further consultation, and the Government response to it was published in June 2019, but we are still waiting for the legislation; they had committed to equal rights for freeholders and the right to manage for freeholders.

I believe that my hon. Friend the Minister wants to move forward, but there is impatience in the country, and impatience and frustration among my constituents and those of other right hon. and hon. Members. People living in freehold properties are caught up in service charges. We need to move much faster. It is imperative that the issue be resolved.

To summarise my main asks of the Minister, first, freeholders must have the same right as leaseholders to challenge service charge fees. Secondly, freeholders should have the same rights as leaseholders to set up resident management companies. Thirdly, and more fundamentally, should traditional housing estates have service charges? Should they not be better designed and integrated into existing settlements, with ongoing maintenance of communal playgrounds, roads, parks, verges and so on being at council tax payers’ expense? There should almost be a requirement for councils to adopt new developments. Fourthly, we should ensure better management of critical infrastructure, such as access roads and surface water drainage. They should be designed to meet the standards of the local flood authority, be constructed and warranted by the developer, and in time become part of the public drainage system, to ensure that they are managed in perpetuity. Fifthly, in order to avoid there being site-wide service charges, a limited number of properties should be allowed to share responsibility for some areas, such as shared driveways and off-street parking areas.

To conclude, it is simply an absurdity that the majority of developments granted planning permission in the public domain are not automatically adopted by local authorities. Ultimately, we could solve all the problems by making that a requirement.