Freehold Estate Fees

Helen Goodman Excerpts

Tuesday 22nd January 2019 Westminster Hall

[Helen Goodman (Bishop Auckland) (Lab)]

I beg to move,

That this House has considered freehold estate fees.

It is a pleasure to see you in the Chair, Mr Hollobone. The residents of Hazelbank in Canney Hill in my constituency first brought this issue to my attention. I am grateful to them and to homeowners in the Burton Woods, Durham Gate, Grangefields, Merrington Park, Middridge Vale and Moorcroft developments who have shared their experiences with me. I also thank Cathy Priestley and Halima Ali from the national Homeowners Rights Network—HorNet—campaign group.

[Catherine McKinnell (Newcastle upon Tyne North) (Lab)]

I congratulate my hon. Friend and north-east colleague on securing this important debate and on her Freehold Properties (Management Charges and Shared Facilities) Bill, which I am pleased to co-sponsor. I am also pleased to add my thanks for the work of my Great Park constituent Cathy Priestley, whom my hon. Friend rightly mentions. I commend Cathy, who has worked tirelessly to raise awareness of these issues. Does my hon. Friend agree with me and Cathy that one of the key concerns for private homeowners in such developments is the sheer lack of transparency about what they are paying for?

[Helen Goodman]

My hon. Friend is absolutely right. The lack of transparency is a significant problem across the country. I did a survey, which I thought would be for people in Bishop Auckland, but I got responses from Ulster to Plymouth, which shows what a massive problem this is.

If offered the choice between a leasehold property and a freehold property, most prospective homebuyers would opt for freehold. Who would not want the permanent and absolute tenure of their property, with all the freedom and security that promises? However, the large property developers—Barratt, Bellway, Persimmon and Taylor Wimpey—sell properties that are not free from hold but come with financial obligations and restrictive covenants administered by property management companies such as Greenbelt, Gateway, FirstPort and Trinity Estates, which take ownership of communal spaces once the developer has moved off the site.

[Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)]

I congratulate my hon. Friend on securing the debate. She mentioned Greenbelt. I have a problem in my constituency that goes back 16 years, when a group of people purchased houses from Bellway. The adjoining land is administered by Greenbelt. Since then, those people have paid fees every year for the very basic administration of that land, but the company has failed to take the remedial measures necessary to prevent the area from becoming a centre for antisocial behaviour. The residents have complained; one went to court but lost their case. Does my hon. Friend agree that there needs to be more transparency when freeholders buy their property from developers? Secondly, does there need to be a cheap adjudication system to ensure that the balance of interest between the freeholders and the companies is far more even than it is at the moment?

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[Helen Goodman]

Yes, of course. There needs to be more transparency and a system of redress, as my hon. Friend says. There also need to be some rules of the game about the standard to which the estates are built in the first instance. The management companies charge residents an inflated annual fee—in exchange, apparently, for tending to grassy areas, shrubs and other facilities on the estate. That is on top of their council tax.

This is a scandal. There has clearly been mis-selling. The public perception of freehold is deliberately exploited by the property companies in their sales materials. Many homebuyers are not made aware of the arrangements for the management of open spaces until the completion of the sale. One of my constituents reported that the first they had heard of their management company, which was Greenbelt, was a threatening late payment letter. They had not received a bill, let alone a welcome pack.

There is no room in the glossy brochure for an outline of the legal arrangements, but there always seems to be plenty of space for images of parks, playgrounds and woodland areas, backed up by verbal assurances from the sales rep that they are planned for the estate. Those promises are then broken and the land is passed or sold on to the maintenance company.

For example, at DurhamGate, a large housing development in Spennymoor in my constituency, the plans promised a “green spine” running through the centre of the site. Several years in, and with the site still under construction, residents are being hit with a full-price fee of £120 a year. Another of my constituents reported receiving a maintenance bill for a parking area that did not exist. The fees charged to residents for the maintenance of their estates are high, rising, uncapped and completely unregulated.

In Bishop Auckland, the annual fee for each household is somewhere between £100 and £200 a year, depending on the site. At first that does not sound too onerous, but when we consider that 278 neighbours on the estate are also paying the fee, it is obviously a grossly excessive £30,000 just for mowing some grass. In other parts of the country, in line with higher house prices, fees can be up to £400 or £600; I have even heard of fees of £800 a year. There is no limit to price increases and residents frequently report an annual leap in the fee. As my hon. Friends have said, there is no transparency and little accountability.

[Justin Madders (Ellesmere Port and Neston) (Lab)]

I thank my hon. Friend for securing the debate. I draw a comparison between the fees that councils ordinarily charge for communal services and the kind of fees she is talking about. Does she agree that if councils were so opaque and unreasonable, they would rightly be held to task by their electorate?

[Helen Goodman]

My hon. Friend makes a very good point. We need more transparency and greater accountability, and I will come on to how we might secure those things. One of the things that homeowners have noted is their frustration that they do not have any control over who the managing agent is. The relationship between the big builders and their favourite management companies and the processes for acquiring these communal spaces are shrouded in mystery. The fees appear to be plucked from thin air. In some cases, a vague “administration” category accounts for up to 70% of the total bill.

What do homeowners get in exchange for their fee? Of the 200 people who completed my survey, only one indicated a very good standard of maintenance. That was perhaps an optimistic assessment. The person went on to explain that

“the grass is cut regularly, but…we were promised a play park and village green with a pond. None have materialised.”

Others complained of dead or dying trees, poorly maintained shrubberies, wastelands, fly-tipping, broken or absent street lighting, playgrounds awaiting repair and a general absence of the management company, aside from requests for payment. Specific complaints included how Greenbelt was using a strimmer within a dedicated nature park set up to protect newts; in another case, a community hedgerow project was destroyed.

Homeowners in freehold properties currently have no way to challenge unfair fees or poor service; the power is almost entirely in the hands of the management company. My constituents have faced threats to block the on-sale of their properties, and they have been threatened with bailiffs and court action if they do not adhere to the demands of the management company.

[Mary Glindon (North Tyneside) (Lab)]

I congratulate my hon. Friend, as everyone else has, on securing this really important debate. Something that really frightened me about the case of one of my constituents was that she did not realise that if she defaults on her rent charge, the rent charge owner can repossess her property and enjoy the same rights as if she had never had the transfer of the freehold in the first place. I am sure my hon. Friend will agree that that is petrifying.

[Helen Goodman]

What my hon. Friend says is absolutely right. That is a misuse of the Law of Property Act 1925. That is why we are looking to the Government to make some legal changes. This is not just bad behaviour; this is clearly a deliberate strategy and the company has obviously taken very expensive legal advice in order to develop that strategy. To stop them, we will need some legal change.

I heard from somebody who lives in the west midlands—I do not know whether it was a constituent of my hon. Friend the Member for West Bromwich West (Mr Bailey)—who said that he had had a 17-year battle with Greenbelt and that he was charged legal fees of £25,000. Obviously, the ordinary homeowner cannot afford to shell out on legal fees like that.

Despite their name, property management companies appear to have no interest in actively managing the land they acquire. On the website of London and Economic Properties Ltd, a Wiltshire-based firm that manages the Middridge Vale development in Shildon in my constituency, property is listed under its “investments” section. The company boasts of its

“enviable track record, investing across the property spectrum to deliver profits for shareholders.”

There is no mention of homeowners. It says of the land at Shildon that it

“benefits from grant income from the Forestry Commission as well as a housing levy from the adjacent housing development which…will provide an annual payment in perpetuity of £100 from each of the 278 houses”.

There is no mention of the company’s obligations as the caretaker for the site. Ultimately, that is the problem: these extortionate fees and poor service are the result of a culture that sees housing as an abstract investment, rather than the foundations of our families and communities.

This is a massive scam. The House of Commons Library gave me figures that suggest that perhaps half a million people have been affected by this problem in the last 10 years. That means that somebody or some people are coining in about £100 million a year.

What change is needed? The Government have outlined their commitment to reform the process for those buying a new build home to obtain redress. They intend to bring forward legislation to require all developers to belong to a new homes ombudsman. They have also said that they hope to offer freeholders the same rights as leaseholders to challenge the reasonableness of charges at a property tribunal. Can the Minister say when that will be done? When will he bring forward these measures?

Legislation to improve access to dispute resolution is helpful, but it does not tackle the root problem. The Freehold Properties (Management Charges and Shared Facilities) Bill, which I introduced in November, recommended three changes for homeowners who are already caught in this trap. First, it would cap and regulate estate maintenance fees, to give homeowners financial stability and allow them to buy and sell their homes knowing that costs cannot increase indefinitely. Secondly, it would introduce measures to ensure that shared spaces are maintained to a proper standard, perhaps through something similar to the new homes ombudsman. Thirdly, it would contain provisions for residents if they chose to opt out of their management company and to self-manage, if that was what they wanted to do.

For estates yet to be built, the planning regulations need to be tightened, to require them to be built to an adoptable standard. Local authorities are currently often willing to adopt spaces in exchange for an agreed sum from the developer to cover upkeep for a fixed period. For example, Durham County Council asked for 15 years’ worth. That is a reasonable ask of an industry that can afford to pay its chief executive officer bonuses of £75 million.

Many of these estates were built with support from the Government’s Help to Buy scheme, financed by taxpayers. I would like the Minister to tell us this afternoon that the Government are going to stop providing support to any development using that model. Will the Minister also refer the mis-selling aspect of this to the Financial Conduct Authority to investigate, and to the Law Society, to strike off lawyers who have worked unethically in the interests of property dealers while taking fees and purporting to work for homebuyers?

A situation has arisen whereby the private estates model is rapidly becoming the norm for new developments, with those who have saved hard for their homes bearing an unfair burden and builders treating them as a cash cow. Homeowners do not want sympathy and understanding. They want action, and they would like to see action now. I hope the Minister will be able to make a clear, timetabled commitment this afternoon. I am looking forward to hearing his response.

[Several hon. Members rose—]

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[Kit Malthouse]

The right hon. Gentleman raises a valid point. We are also considering whether freeholders should have a right to change the provider of maintenance services by applying to the tribunal for the appointment of a new manager, which might be useful for existing freeholders if they are dissatisfied with the service they receive. The Government intend to introduce legislation to implement the changes as soon as parliamentary time allows. The hon. Member for Croydon Central (Sarah Jones) quite rightly challenged us on when that might be; she will know that we have an exciting and packed legislative timetable at the moment, but our aspiration is that the legislation will be introduced within the next 12 months. I realise that there are many impatient freeholders out there, but we have to deal with the small matter of national destiny before we get on to equally pressing matters on the domestic agenda. I assure her that we will give it our attention as soon as we can.

It is absolutely right that consumers should have fair, quick and easy ways to get things put right when they have problems. In October we announced our intention to introduce legislation to require all developers to belong to a new homes ombudsman. Last year, we consulted on how we could improve redress for residents across all housing sectors, and we will publish our response to that consultation shortly.

It has been argued that local authorities should be compelled to adopt all communal facilities on a new estate. At this point it is worth pausing to consider planning arrangements and how they support new developments. When a new development is granted planning permission, local authorities can use conditions, or a section 106 planning obligation, to secure a commitment from developers to provide and maintain open and communal space. This means that the local authority does not have to adopt or maintain the land at its own expense.

It is up to developers and the local planning authority to agree appropriate funding arrangements as part of those commitments. Conditions and planning obligations cannot, however, currently be used to compel local authorities to do something. The local authority has powers to ensure that developers build and maintain communal facilities to the standards and quality set out in the planning permission. In terms of roads, local highways authorities are responsible for the maintenance of local public roads in England. A decision on whether to adopt a road is a matter for the local highway authority and the Government have no direct role in that process.

It has been suggested that freeholders who pay these charges should receive a rebate in their council tax. We think that argument is misplaced. The amount of council tax due from each of us is not adjusted to reflect the specific level of services we receive as residents of the area. Instead, the level of council tax helps the authority to deliver a broad range of services to the wider community in its area. It is open to local authorities to offer council tax discounts to individuals or groups of taxpayers. This is an entirely local decision.

In the end, all these matters have to be paid for. There is only so much money that can be extracted from a particular housing development. It is therefore at the discretion of local authorities to decide the balance of 106, the cost to them of adopting measures, and where and when maintenance should fall on residents rather than on the local authority.

It should always be clear to potential purchasers what the arrangements are for the upkeep of open space and the maintenance of roads. However, we do not think that requiring local authorities to adopt all communal facilities on new developments is the right approach. It removes local flexibility and, in our view, sends the wrong message to developers about their responsibilities.

I do agree with the hon. Member for Bishop Auckland regarding redress. Consumers must have effective ways to get things put right when they have a problem with their housing. That is why we are committed to legislate, so that freeholders have a right to challenge the reasonableness of any maintenance charges for which they are liable. That is why we will establish a new homes ombudsman to protect the interests of homebuyers and hold developers to account when things go wrong.

The hon. Member for Croydon Central asked four specific questions. First, I am certainly willing to consider the suggestion to use Help to Buy as a lever to improve standards. Secondly, on mis-selling, it is open to any hon. Member to make a reference to the regulatory authorities, whether that be the FCA or the Senior Salaries Review Body. Is the hon. Member for Bishop Auckland still on the Treasury Committee?

[Helen Goodman]

indicated dissent.

[Kit Malthouse]

Well, the hon. Lady knows the FCA well, so if she wants to make a reference, then by all means she should. She asked me about the legislative timetable. Our aspiration is for some time in the next 12 months. The terms of reference have not been decided for Lord Best’s review of leasehold and whether those lessons could be transferred across the field. We will certainly consider that suggestion as part of the process.

In conclusion, it is certainly the case that as a constituency MP I have experience of exactly the issues that have been raised, and I have been in discussion, shall we say, with the developers concerned in my own constituency, so I am well aware of the issues that have been aired this afternoon. I am grateful to the hon. Lady for bringing such focus to the matter. I assure her that we will take action as soon as we can.

[Helen Goodman]

We have had an important and worthwhile debate. I am grateful to all my colleagues for their contributions. I was overwhelmed with offers for sponsorship from across the House when I introduced the ten-minute rule Bill.

I think we are creeping forward—or, rather, the Minister is. There will be legislation—perhaps in 2019, perhaps not. He has accepted that we need a new right of redress. He has not, however, agreed to any system for regulating the fees or ensuring transparency. I think that will be a disappointment to many of my constituents. However, I shall do as he suggests and take it up with the Financial Conduct Authority. That will be the next act in my campaign, to make some progress. It is clear that the issue affects hundreds of thousands of people and we need change fast.

Question put and agreed to.

Resolved,

That this House has considered freehold estate fees.