Freehold and Leasehold Reform

Justin Madders Excerpts

Wednesday 5th July 2023 Westminster Hall

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

It is a pleasure to see you in the Chair, Mr Sharma. I state for the record that alongside the hon. Members for Worthing West (Sir Peter Bottomley) and for St Albans (Daisy Cooper), I am co-chair of the all-party parliamentary group on leasehold and commonhold reform. We are ably supported in that endeavour by the Leasehold Knowledge Partnership, which works alongside the National Leasehold Campaign. We have worked over a number of years to get this issue right to the top of the political agenda, I am grateful to the hon. Member for Dartford (Gareth Johnson) for what he has said.

It is coming up to seven years since I first described leasehold as the payment protection insurance of the housebuilding industry. A couple of years ago, I said that estate management fees would be the new PPI because, as we are hearing today, they are clearly replacing leasehold as the new revenue stream to fleece homeowners of money that they should not have to pay. I have yet to hear a convincing argument as to why these companies need to exist on standard estates. They are simply adopting the works that the local authority used to do. When talking to people, it is difficult to imagine any justification for why they should have to pay twice for exactly the same services. That is what they are doing, with the only difference being that if people do not agree with the way council tax bills go, they can vote the council out. There is no such power over the management companies.

Management companies and fees will continue to be an issue: it sounds as though they are becoming more and more widespread, and there are now very few new estates where the model is not being used. Frankly, though, I do not think there is any reason for it to continue. It is beginning to raise some fundamental questions. For example, there is an estate where people pay for litter bins and collections, and they are saying, “Why should people who do not live on this estate get to walk their dogs on it, because they are not paying for cleaning the place up?” We end up in a very bad place if we do not tackle these issues and weed out the exploitation.

I say to those who raise these issues that we can see how knotty some of the legal questions are, and they do need untangling—an estate management company has a number of aspects to it—but despite the legal technicalities we have won the argument that leasehold is not fit for purpose, and that same argument needs to be applied to estate management companies. We also need political will to get the full reforms over the line.

Some might seek to defend the current system of leasehold. Perhaps the promises made by the Secretary of State for Communities and Local Government five and a half years ago have been forgotten; we have had quite a few changes since then. It would be churlish not to acknowledge that there has been some progress in cleaning up the mess, but in terms of legislation to help existing leaseholders, we have had very little action. The noises coming out of Whitehall in recent weeks have been concerning. For all the talk of change and promises made, perhaps nothing will actually happen. We cannot allow this to continue. We must ensure that justice is done.

People’s homes—the biggest single purchase they will ever make in their lives—have been turned into a cash converter, usually for an anonymous freeholder. It is the biggest insult in the history of housing that people pay ground rent. Although it is initially quite a modest fee, in the small print of a lot of these agreements—which are, thankfully, being exposed now—the price of ground rents goes up. With an escalator it can sometimes double after 10 years and then double again after another 10 years. That often means the property becomes unsellable.

The linking of ground rents to the retail price index is also becoming an issue given the rise in inflation, which makes some of the doubling ground rents seem slightly less outrageous than they are. This is now putting people in real hardship. The biggest insult of all is the fact that when people pay the ground rent, they get absolutely nothing in return. It is literally money for nothing and needs to be consigned to the dustbin of history.

The Financial Times recently reported that throughout the history of property the costs of leasehold and freehold homes have generally moved in lockstep, but over the past five years the price of freehold properties has continued to rise, whereas leasehold properties have not kept pace with that rise. No doubt Grenfell has played a part in that as the inadequacies of the regime that tragedy exposed have been laid bare, but the general toxicity of leasehold as a tenure has also made prices stagnate, and the stories of people who are unable to sell their homes because of unreasonable leases has played a part. The message is clearly coming through that leasehold has to be consigned to history.

The scandal has been going on for an awfully long time—for so long that the National Leasehold Campaign is having its activities immortalised in a play called “Fleecehold”, which will be coming to London next month. I hope the Minister will have time away from her duties to catch that. The fact that the campaign has become a piece of theatre shows us how long we have all been fighting for justice.

I absolutely agree that residents need greater power over the management of their homes, and flat owners need new rights to form residents’ associations. We need a simplification of the right to manage, leaseholders need the right to extend their lease to 990 years with zero ground rent at any time, and we need to bring forward the proposed reform of enfranchisement for leaseholders. We also need to deal with marriage value and prescribe rates for calculating the premiums.

We need to crack down on unfair fees and increase contract transparency, and we need to make sure that there is a proper reference document for fees so there is no longer a service charge rip-off. We need to give leaseholders the right to challenge those fees and poor performance from the service companies. We must also end the right of third-party landlords to build on other people’s homes without any consideration, which is another anomaly of the current regime.

We should regulate all managing agents and get rid of the frankly ridiculous situation in which the property manager of a high-rise building does not need to have any relevant qualifications. We should bring forward the statutory protection of all leaseholders’ funds, and give leaseholders the right not to pay if the landlord does not deliver their accounts on time. We should follow the example set by the Competition and Markets Authority and require some developers to reset ground rents to their original term.

We also need to look at shared-ownership properties, which are becoming a bigger issue. The triple whammy of service charges, rent for the bit that is not owned and ground rent is making it impossible for people to sell them.

I expect the Minister will say that the Government remain committed to leasehold reform but, with all due respect, it is not her we need to hear from: we need to hear from the Secretary of State or the Prime Minister himself. We need the Secretary of State to come to the Dispatch Box and tell us without any ambiguity what the Government’s position is. I say that because exactly one month ago the House resolved that the Secretary of State should make an oral statement by 23 June on the Government’s proposals for leasehold reform. Well, we are still waiting for that statement. What does the fact that the Secretary of State cannot even adhere to a motion passed by the House asking him to tell us what the plan actually is tell us about the Government’s commitment to reform?

Has the Secretary of State been gagged by the Prime Minister? There was a newspaper report last month that quoted someone from Downing Street saying that the Secretary of State wanted to be

“a maximalist on leaseholder reform, but we simply haven’t got time to be maximalist right now.”

I have to say that, given the fact that we are regularly finishing in this place three or four hours early, arguments about there not being enough parliamentary time are not going to wash.

Rather than relying on anonymous briefings to the press, the Government’s position on leasehold ought to come very clearly from the Secretary of State at the Dispatch Box. He should tell us what he is going to do and when he is going to do it by. We have had enough false dawns and jam tomorrow; we need action and we need it now.