Freehold Estate Fees

Justin Madders Excerpts

Tuesday 22nd January 2019 Westminster Hall

[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.

--- Later in debate ---

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

It is a pleasure to serve under your chairmanship once again, Mr Hollobone. I am delighted to follow my constituency neighbour, my hon. Friend the Member for Alyn and Deeside (Mark Tami). We may be on separate sides of national boundaries, but our constituents clearly have many issues in common, not least the terrible way that exploitation has seeped into what should be a well-regulated and secure investment.

I congratulate my hon. Friend the Member for Bishop Auckland (Helen Goodman) on securing the debate and on her work to address these issues through her private Member’s Bill. Hon. Members will be aware that I have also introduced my own Bill, to usher in a fairer, more streamlined and transparent system to enable the purchase of freeholds by leaseholders. On many occasions, both in this Chamber and the main Chamber, I have listed the abuses perpetrated by freeholders in the current feudal system. My hon. Friend the Member for Bishop Auckland gave an excellent explanation of the issues in the management of such properties, and after listening to it, I believe that there are many parallels between the two measures.

Regulation is long overdue. Homeowners have been subjected to unjustified extra costs and there is a distinct lack of transparency. It is clearly another example of homeowners falling foul of greedy developers and the more insidious practices that they have adopted in recent years. We have seen that happen with ground rents and consent fees for leasehold properties, whether flats or houses, where developers have become ever more adept at squeezing cash out of homeowners for the provision of grounds maintenance and other communal services.

As my hon. Friend the Member for Bishop Auckland highlighted, we now see “fleecehold” estate fees. Freeholders and residents on private housing developments find themselves facing escalating costs when the developers from which they purchased their homes in good faith sell off the grounds maintenance to private providers. In blocks of flats, the practice of spurious service charges has developed. In my constituency, a management company that managed only four flats in a block suddenly increased the service charge from around £50 a year to £911 a year. Many of those charges were questionable and the insurance charge in particular stood out, because the insurer seemed to be very well connected and had the same name as the management company. That would simply not be allowed for any other consumer purchase, so why it is allowed in this instance?

As hon. Members have said, the idea of the developer paying the local authority a commuted sum to cut the grass and maintain the common parts has had its day. I am unclear whether the blame for that lies with cash-strapped local authorities asking for too much or with developers being unprepared to cough up more funds in advance. The net effect of that is that more and more homeowners are being asked to pay twice for the maintenance of open spaces: once through a management fee and once through their council tax.

Council tax pays for lots of things, but something as visible and obvious as grounds maintenance leads people to ask a pertinent question: why are they facing a double whammy? My suspicion is that developers will always be tempted to save themselves the expense of paying an up-front sum to the local authority by instead letting their customers pay further down the line, long after they have fled the scene. Of course, someone buying their first home—probably with Help to Buy—will, in reality, have nowhere else to go and will have to accept those arrangements whether or not they genuinely consent to them.

What is wrong with just building and selling family homes? Why are buyers being subjected to covert efforts to squirrel in extra income? Is the sector so avaricious that it has to squeeze every last penny out of young families who have to scrimp and save just to get on the housing ladder? As with ground rent, consent fees and leaseholds, our plc house builders have had £8 billion of help through the Help to Buy scheme. They have trousered that assistance to rip off customers in their own schemes. Developers simply cannot be trusted to play fair with their customers, or with us, as wider taxpayers.

We have a huge shortage of housing. There are significant barriers to buyers getting on to the housing ladder, and a handful of huge companies are responsible for the vast majority of housing delivery. That reliance on a small group of developers has been a very poor deal for the taxpayer, and was the backdrop against which the leasehold scandal emerged.

It cannot be right that the companies that are guilty of the industrial-scale rip-offs that we have heard about regarding both leaseholds and the issue being discussed today are the same ones that we end up relying on to get out of our very real and damaging housing crisis. There is an over-reliance on the market—a market that, to me, is broken—to deliver the new homes that we desperately need.

The net effect is that there is little protection for homeowners. People deserve far more protection than they currently get. Sadly, I have seen very little evidence to suggest that developers will act responsibly and adopt fair and reasonable practices on a voluntary basis. The whole system needs a shake-up, and it needs it now.