Leaseholders and Freeholders

Justin Madders Excerpts

Wednesday 15th May 2024 Commons Chamber

[Sir Liam Fox]

I am grateful to the hon. Gentleman. I will go on to set out just how horrendous some of those charges are and how it can be very difficult for my constituents to get legal redress. That is no doubt a situation that my hon. Friend the Minister has heard on a number of occasions.

We all understand that communal land must be managed for the benefit of all. No one disputes that, but it needs to be done in a way that is fair and equitable, predictable and transparent. The current position is none of those things.

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

The right hon. Gentleman is absolutely right that many of these arrangements were never made clear to people when they purchased their properties, and too often developers have taken a shortcut to create a secondary income stream, when actually they should be paying a lump sum to the local authority to take over those responsibilities. It is a double whammy for those who are on the end of it, is it not?

[Sir Liam Fox]

I swear there was no collusion here, Madam Deputy Speaker, but the hon. Gentleman takes me very neatly on to an even more horrendous example than the one I have already set out: fixed rent charges.

First, let me set out to the House the history by which property companies can fleece freeholders using this mechanism. Across the country as a whole rent charges are rare, but they do exist in parts of England, such as around Bath, Bristol and Manchester. A real problem can arise when a buyer or their conveyancing solicitor fails to spot their presence in the title deeds. Why? Because rent charges, which were introduced mainly in the late 19th and early 20th centuries, were put in place when landowners wanted to sell land at a reduced cost to a developer. They would sell the land on a freehold basis, but retain a legal interest in the land and charge an annual fee, or rent charge, which is in place for ever.

Historically, the rent charge was typically between £2 and £10, which was quite a lot in those days, but has been regarded as nominal in recent years. While many rent charges have fallen dormant, others have been bought up by property companies, which are now ruthlessly enforcing payment. The rent owner is entitled to recover any sums due, but does not have to send a reminder to the freeholder and, as I understand it, is legally entitled to impose a penalty after 40 days—when the account inevitably falls into arrears—usually by taking out a statutory lease on the home as security. That would then make the property almost impossible to sell unless the freeholder pays thousands to redeem the lease. That is outrageous.

Let me outline the issue in respect of Portishead. In 2011, solicitors acting on behalf of Crest Nicholson, the original landowner of the development, wrote to FirstPort—then known as Consort—advising it that the fixed rent charge should be reduced to £1. Although FirstPort shared that information with some residents and reduced the charge accordingly, it did not do that for all residents and continued to invoice some to the tune of between £100 and £150 per annum. Those residents were later refunded. After trying to renege on that agreement at the end of 2022, FirstPort informed residents in December 2023 that it again intended to start charging £100 to £150 per year for the fixed rent charge.

FirstPort has argued that, because no deed of variation was entered into to confirm the reduction, meaning that the agreement to reduce the fixed rent charge was not legally binding, it can effectively do what it likes. Needless to say, residents who were not advised in 2011 that they needed to enter into a deed of variation, or log the change with the Land Registry, are extremely unhappy. Recently, under pressure from residents, Crest Nicholson and myself, FirstPort agreed to keep the fixed rent charge to £1 per annum, provided that residents entered into a deed of variation.

It is instructive to see what Crest Nicholson has made of this debacle. On 9 February, it told me:

“Crest’s view is that the decision being taken by FirstPort to unilaterally reimpose the fixed rent charge of the properties at Port Marine is not only unfair but the underlying mechanism within the transfer is potentially open to challenge in the courts. This is because the annual charges they are proposing to claim (i.e. between £100 and £150) are not what a court would consider to be nominal amounts, a requirement for a fixed rent charge to be lawful under the Rentcharges Act 1977.”

Interestingly, Crest also told me:

“Many of the residents wrongly believe this money is being paid in exchange for FirstPort performing a service. FirstPort is already able to recover its costs for enforcing covenants from the variable element of the rent charge so FirstPort’s claim that this is its purpose is, at best questionable.”

Following a meeting that we had at the end of March, Crest Nicholson made it clear that it was no longer handing out contracts to FirstPort.

Let me turn to the question of the deed of variation. FirstPort initially quoted residents £300 plus VAT to enter into the deed of variation, offering that price as a discounted rate. In its letter to me on 7 March 2024, it stated that its

“legal fees for entering into any type of Deed of Variation would usually be £500 +VAT.”

In other words, this was a bargain that my constituents should jump at in order not be forced to pay £150 a year. They could pay FirstPort £500 as a one-off payment to prevent that from happening in the future. I think many of us would regard that as extortion. This whole saga has caused constituents a great deal of stress. Despite that, they have indicated that the £150 cost is tolerable—meaning they are willing, but not happy, to enter into the deed of variation and be done with the whole saga. FirstPort has set a deadline of 30 June 2024 for residents to enter into the deed of variation.

So, we have a variable service charge that can be raised and enforced without any clear and transparent links with the services being undertaken. Then, we have the truly horrendous situation in which rent charges, which have no relation whatsoever to any service being provided, can effectively be raised and applied through the threat of making properties unsellable, and the only means of escape is for residents to enter into deeds of variation at a price determined by—guess who—FirstPort. Let me be clear: I regard this as daylight robbery and a historical anomaly that has no place in our modern society. I am sure that FirstPort will not be the only property company up and down our country acting in this way. As the Minister’s Department introduces regulations following the passage of the Levelling-up and Regeneration Act 2023, and as it looks at leasehold reform, I ask my hon. Friend to see how quickly we can redress these wholly unacceptable positions and consign them to the dustbin of history, which is where they belong.