Leasehold and Freehold Reform Bill

Helen Morgan Excerpts

2nd reading
Monday 11th December 2023 Commons Chamber

[Helen Morgan (North Shropshire) (LD)]

I have mentioned before that Liberals have been campaigning to end leasehold since the days of Lloyd George, so I am pleased to see this piece of legislation finally being debated in the dying days of this Parliament. I hope that there is the time left to pass it and see meaningful change for the many leaseholders—leaseholds comprise 20% of the housing stock in England—who are boxed in by exorbitant management charges and uncapped ground rents.

The content of the Bill is welcome, and the Liberal Democrats will not oppose it on Second Reading, but, like other Members, we have significant concerns about the omissions from it. First, the Bill does not actually ban leasehold. Perhaps more importantly, it does not ban the creation of new leasehold flats. I do not grasp the logic of arguing that leasehold is outdated and unsuitable for the modern housing market, while allowing 70%—the vast majority—of leasehold arrangements to go ahead.

The Liberal Democrats support the comments made recently in The Guardian by the shadow Minister, the hon. Member for Greenwich and Woolwich (Matthew Pennycook), that

“commonhold should be the new default tenure”

for all flats, and that it should be easier for leaseholders to collectively purchase their freehold should they wish. I also agree with several other Members that giving leaseholders first refusal when the freehold is sold is a good idea. It seems to me that without those more radical measures, the Bill is less leasehold reform and more leasehold tinkering.

I think that we all agree with the Secretary of State that this is a feudal system that needs radical overhaul, and I am not sure why the Bill does not go further to achieve that. I have been lobbied, and I have some sympathy for the argument that there is a need to ensure that there is a clear line of responsibility, and indeed liability, for building maintenance and safety in large blocks of flats, but most other countries—in fact, all countries other than Australia—have managed to achieve that without reliance on the leasehold model. Indeed, our recent experience regarding the safety of large blocks of flats, with the cladding scandal, suggests that in many instances the leasehold model has demonstrably failed to provide it. We probably all agree on that point.

I am also confused about why the Bill omits to introduce professionalisation in the management of leasehold buildings. The British Property Federation has said that

“the lack of any provision to introduce competency standards or regulation to our sector is a missed opportunity.”

Given the experience of many leaseholders over the cladding scandal, and the welcome professionalisation of the social housing sector, I hope that the Government recognise the importance of ensuring that management is professionalised and will seek to introduce such measures in Committee. I wonder whether the Minister would commit to that in his closing remarks.

In my North Shropshire constituency we do not have a large number of flats, but we have been plagued to some extent by new housing developments in which the housing is freehold but shared areas, services and essential infrastructure are managed by the original developer. As we all know, those are referred to as fleeceholds, and since being elected I have told a number of horror stories regarding such arrangements, both in this Chamber and in Westminster Hall. The provisions in the Bill that allow the right to challenge charges, provide for greater transparency of information, and relate to the quality of work and an associated system of civil penalties, are a welcome step in the right direction, but I wonder whether I could push the Government to go further in that area.

The tenants of such developments pay both their council tax and an estate management charge, yet they often receive a far worse service than those who live in adopted developments and are subject only to council tax. The hon. Member for Dartford (Gareth Johnson) laid out some of the issues in his excellent speech, so I will not go into too much detail, but I urge the Minister to consider ending the practice of shared ownership of public spaces for the vast majority of new developments. They have the commercial substance of a leasehold, and I would like to see a presumption that the shared areas around new developments are almost always adopted by the local authority where the development is standard in nature. Where there is no good reason for that not to happen, homeowners on those developments should have their rights clearly set out so that the matter can be settled quickly in court.

I ask the Minister to consider further the specific circumstances where assets such as sewage pumping equipment or a ground source heat pump are shared by everyone on the estate. I am grateful to him for listening to my concerns prior to the debate. Freeholders using such equipment are dependent on its being installed and maintained to a high standard, but the experience of my constituents is that conveyancing solicitors do not alert buyers to the risks involved in this type of structure, and that the ownership structure can be opaque and almost impossible to challenge. I have one development in which the developer retained the ground source heat pump to be used by the rest of the houses in a separate company. He charges the full cost of running that pump to the residents but keeps the renewable heat incentive payments to himself, making a huge profit in the process. The freeholders’ only route of redress is through the courts. Because of the opaque management structure, it is not clear that they will win, and they do not really have the resources to commit to those legal proceedings.

It is not uncommon in rural places such as North Shropshire for a new development to use a shared septic tank rather than be connected to the mains sewer. If the tank has been installed to a poor standard, the costs of rectification are charged to the freeholders once they move in. Those are costs that they would not have anticipated when they bought the property. I would welcome greater clarity over who is responsible for ensuring that such shared assets are fit for purpose before the freehold houses are sold for habitation. Currently, such assets and services are outside the building control regime. That means that if someone gets a completion certificate on their house, which might have been properly constructed, but their sewage system is not fit for purpose, they will still have a valid building control certificate, and will be none the wiser when they buy the property.

I ask the Minister to consider whether further protections can be put in place, such as ensuring that inspections of those assets are included as part of the building control sign-off, ensuring that reserve funds are being collected and appropriately ringfenced through reasonable service charges throughout the life of such assets, and allowing freeholders to take joint ownership of the assets for a nominal fee if they wish to do so. A right to manage would be so welcome for residents trapped in such situations.

Will the Minister also expand on the issue of enforcement? The additional rights afforded to leaseholders and those paying estate management charges will be effective only if there is an affordable way for leaseholders and fleeceholders to ensure that they can be enforced. We all have experience of freeholders simply failing to respond to correspondence, or requiring their tenants to take them to court in a highly unaffordable process, often charging the costs of that court process to leaseholders. Enforcement is therefore not really achievable at the moment, but it is so important to ensure that those revenue streams are effectively squeezed for freeholders.

The Bill is a small step in the right direction, but so much more could be done to end this outdated form of tenure. It was 1909 when Lloyd George described leasehold as “not business, but blackmail”. It is high time that we grasped the nettle and ended it.