Estate Adoption: North-east England

Matthew Pennycook Excerpts

Tuesday 15th October 2024 Westminster Hall

[The Minister for Housing and Planning (Matthew Pennycook)]

It is a real pleasure to serve with you in the Chair, Mrs Harris. I congratulate my hon. Friend the Member for Cramlington and Killingworth (Emma Foody) on securing this important debate. She has only been in the House for a short time, but she has already earned a well-deserved reputation as a hard-working and conscientious Member, and a doughty champion of her constituents’ interests. I commend her for the impassioned case she just made in support of action to ensure that residential freeholders living on private or mixed-tenure estates in her constituency and across the country are better protected from unfair costs, and that the infrastructure and amenities they rely on are brought up to an appropriate standard.

The distinct set of problems faced by residential freeholders on private or mixed-tenure estates is well known and well understood. The problems include, as my hon. Friend has just set out in some detail, excessive or inappropriate charges levied for minimal or even non-existent services, charges that include costly and arbitrary administration fees, charges hiked without adequate justification, and charges levied when residential freeholders are in the process of selling their property.

The general lack of transparency and clarity experienced by residential freeholders in respect of how their estate management charges and fees are arrived at, and how they break down, is compounded by the distinct lack of control experienced by homeowners on estates that have what is known as an embedded management company. Under this arrangement, which encompasses around 20% of freehold estates, the company running the estate is set in the title deeds for the properties, and residents have no ability to change it. They therefore lack the ability of homeowners on estates run by resident-led companies, often with the support of managing agents, to exert at least some influence over the level of estate management charges and how funds are spent. During proceedings on the Leasehold and Freehold Reform Act 2024 in the last Parliament, I pressed the previous Government, in my capacity as shadow Minister, to introduce a right for residents to take over the management of their estates. We are now giving careful consideration to the merits of doing so.

Residential freeholders on privately owned and managed estates clearly suffer from inadequate transparency in other unique respects. For example, it would appear to be fairly common for residential freeholders not to be notified of their future liability for charges early in the conveyancing process. Many learn of their exposure only at the point of completion. Even in instances in which residential freeholders are notified of their future liability in good time, many have to confront the fact that their contracts do not specify limits or caps on charges and fees. There is also a distinct problem with management fragmentation on many privately owned estates that have been constructed throughout the country over recent years, with residential freeholders, even on relatively new estates, frequently having to navigate scores of management companies, each levying fees for services in a way that further exacerbates the general lack of transparency and potential for abuse they face in respect of charges and fees.

A related problem experienced by residential freeholders in many of these estates, as my hon. Friend the Member for Cramlington and Killingworth and others have mentioned, is the quality and timely delivery of infra- structure and amenities. Historically, when a local authority was to adopt an estate, it would set clear standards and provide oversight to ensure that amenities were delivered to those standards, but the delivery of such amenities is now often left to the developer, with limited engagement from local authorities. I have heard countless stories—we have heard some more today—of how this development is leaving people living in homes on unfinished estates or with facilities that at best are substandard, and at worst can be dangerous.

At the root of many of these problems are the falling levels of adoption of amenities on housing estates by local authorities. If hon. Members have not seen it, I urge them to read the CMA’s house building market study, published in February, which is the most detailed study of the problem we have come across. It detailed how the problem appears to be driven by the discretionary nature of adoption, by house builders’ incentives not to pursue adoption in the first place and by local authority concerns. That must be acknowledged, because in the last Parliament, I often heard calls from the then Government simply to put the costs on to local authorities to force adoption, but there are concerns among local authorities, in the context of pressures on their resources and finances, about the future ongoing costs of maintaining amenities that are often delivered to a poor standard.

The situation is leading to poor outcomes for homeowners and, in some cases, potentially serious detriment from exposure to costs—too often opaque and difficult to control, and levied, as my hon. Friend said, in addition to council tax—for amenities that are open to use by the general public. The Government are clear that the current situation is unfair and unreasonable, and it must be brought to an end. There is a pressing need to better protect residential freeholders who are experiencing such problems on existing freehold estates, but also an urgent need to reduce the prevalence of these arrangements, which the CMA estimates represent a significant proportion of new housing supply across the country.

Underpinning many of the issues of concern raised today is the fundamental absence of regulation or oversight of the practices of estate management companies, and the fact that residential freeholders do not enjoy statutory rights equivalent to those held by leaseholders. The Leasehold and Freehold Reform Act 2024 took steps to give existing homeowners on such estates additional protections and enable them to hold their estate manager to account for the money that is spent.

The Act created a new statutory regime for homeowners based on leaseholders’ rights. It includes improved transparency over such charges to ensure that they are reasonably set, and a new right to challenge them if they are not. Bringing those measures into effect will require detailed secondary legislation, given the considerable amount of detail and thought that we need to put into them. We are working at pace, but I hope my hon. Friends will appreciate that it is important that we take time to get the detail right. If we introduce that secondary legislation and it contains flaws, their constituents and mine will suffer, so it is important that we take the time to get it right and engage with stakeholders. Work is ongoing in that area, however.

We are clear that the measures in the Leasehold and Freehold Reform Act are not enough, which is why, in the Government’s manifesto, we committed to ending the injustice of fleecehold and better protecting residential freeholders against unfair costs. That is why we reiterated that commitment in the King’s Speech. This is a complex area of policy, which is why the Government intend to consult with homeowners, developers, local authorities, management companies and others so that we can develop meaningful and effective solutions to these problems. The consultation that we intend to publish in due course will need to consider a wide range of trade-offs, including costs to homeowners and local authorities, potential impacts on housing supply and the links to the planning system. In direct response to the question that my hon. Friend the Member for Stockton North (Chris McDonald) asked, we will absolutely consider the recommendations made by the CMA and respond to its report directly in the interim, but it is one of a number of potential solutions to this problem. We want to consider everything in the round to ensure that we have the right answer when we bring it forward.

The reforms we intend to make in this area, in whatever form they ultimately take, sit alongside our wider plans to bring the feudal system of leasehold to an end, and they need to be seen in that context. This is a distinct subset of problems on private and mixed tenure estates, but it sits alongside a range of problems experienced by residential leaseholders and freeholders. That is why the Government will take steps to enact the remaining Law Commission recommendations around enfranchisement and the right to manage; it is why we will take steps to reinvigorate commonhold and ensure that it is the default tenure; and it is why we intend to take steps to tackle specific problems, such as the injustice of forfeiture and unaffordable, unreasonable ground rents. I hope to be able to say more on that topic soon.

I am grateful to my hon. Friend the Member for Cramlington and Killingworth and other hon. Members for raising their concerns about this issue. We acknowledge that it is a problem, and I hope that they will take my assurances at face value when I say that we are working on solutions to it and will bring them forward in due course. We want to listen to the experiences of hon. Members across the country—although this is a north-east debate, the problem very much affects constituencies in all parts of England. As I say, we are committed to taking firm action to end the injustice of fleecehold and better protect residential freeholders from those costs, and I look forward to bringing further information to the House to that end.

Question put and agreed to.