Leasehold and Freehold Reform Bill (Ninth sitting)

Matthew Pennycook Excerpts

Committee stage
Tuesday 30th January 2024 Public Bill Committees

[Richard Fuller]

It is a pleasure to serve under your chairmanship, Sir Mark. I remind colleagues that we have moved from the clauses that relate to what was termed the “feudal” system of leasehold to the rather more modern problem of estate management charges, which in large part, although not exclusively, are incurred by those who own their homes. Essentially, the charges have arisen because of issues to do with adoption by local authorities. They are charges for a range of services in what might be termed, but are not necessarily, public areas, and for what might be, but are not necessarily, services or provisions that would normally be provided by a local authority.

It is worth bearing in mind how rapidly the issue of estate management charges has grown. From being essentially non-existent, or at least very rare, I think the charges now cover at least 1 million or 1.5 million homeowners—perhaps the Minister will tell us it is an even higher number. One issue is that we are essentially creating a two-tier society of council tax payers: people who pay council tax once to cover a range of public services, and residents in parts of our country who pay for those services twice—once through their council tax and again through their estate management charges.

The provisions in part 4 deal with a number of changes that seek to improve the rights of those subject to estate management charges and to improve access to redress. I commend a number of my local residents and councillors, most importantly Councillor Jim Weir of Great Denham, as well as 30 of my Conservative colleagues who wrote with me to the Prime Minister and Secretary of State to ask them to include the provisions in the Bill. I am grateful to them for doing so. Most particularly, I thank the former Minister—my hon. Friend the Member for Redditch—and the current Minister for their help and guidance on these matters. The provisions will enable us to make a great amount of progress. However, it is clear—and it was clear from the evidence the Committee received—that there is another path, or at least it is clear that the public also desire to abolish or reduce the current system of estate management charges, rather than improving it and the rights that people have. That is what the amendment seeks to achieve.

At issue is the matter of adoption. In the summary on page 4, paragraph 2 of the Competition and Market Authority report that looks into estate management charges and other issues, it states that

“evidence gathered in our market study to date has shown that, over the last five years or so, amenities on new housing estates that are available for wider public use (ie not for the exclusive use of households on the estate), are increasingly not being adopted by the relevant authority. This appears to be driven by the discretionary nature of adoption, housebuilders’ incentives not to pursue adoption and by local authority concerns about the future ongoing costs of maintaining amenities”.

That gets to the crux of the issue. The decision process for creating estate management charges takes place in a cosy discussion between the developers of new estates and the local authorities, both of which have an interest in ensuring that they are not the ones to carry the cost for a range of communal services. Guess who ends up paying the bill? It is homeowners up and down the country, who have no role in that cosy discussion. I wish to influence that cosy discussion through my amendment.

It is tricky to change the process of adoption, and I think you would consider it out of scope, Sir Mark, if we sought to do so in the Bill. In the evidence session, I heard colleagues talk about some of the risks involved in leaving councils with unadoptable roads and poor-standard infrastructure that the council tax payer has to pay to bring up to standard. No one on the Committee wishes to see that happen. My amendment would not force adoption, then, but essentially take the payer—the householder or homeowner—out of the equation for paying for those costs. It would exclude services or works that would ordinarily be provided by local authorities so that they would not count as costs that could be incurred by estate management charges.

My hope is that the amendment would pour a dose of reality on to developers by saying that they could no longer pass the buck for the costs of poor-standard infrastructure used by the public to homeowners on their estates. They would have to bring them up to standard, and then councils could adopt them.

[Matthew Pennycook (Greenwich and Woolwich) (Lab)]

It is a pleasure to continue our line-by-line consideration of the Bill with you in the Chair, Sir Mark. I rise to speak to amendment 150, tabled in my name and that of my hon. Friend the Member for Weaver Vale. As we have heard, part 4 of the Bill deals with the regulation of estate management. The hon. Member for North East Bedfordshire provided an extremely comprehensive overview of the problem and its prevalence.

The distinct set of problems faced by residential freeholders on private or mixed-tenure estates that part 4 seeks to address is well known and well understood. Those problems include: excessive or inappropriate charges levied for minimal or even non-existent services; charges imposed for services that should by right be covered by council tax; 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.

In addition to a general lack of clarity and transparency about how estate management charges and fees are arrived at and how they break down—these problems are not dissimilar to those experienced by long leaseholders in respect of service charges—residential freeholders on privately owned and managed estates clearly suffer from inadequate transparency in other unique respects. For example, as I have said in past debates on the subject in the House, 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 about 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 clearly a distinct problem with management fragmentation on many privately owned estates that have been constructed throughout the country in 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 that they face in respect of charges and fees. Underpinning all those issues of concern is a fundamental absence of adequate regulation or oversight of the practices of estate management companies and the fact that residential freeholders currently do not enjoy statutory rights equivalent to those held by leaseholders.

There has been a broad consensus across the House for some time that residential freeholders on new build private and mixed-tenure estates require greater rights and protections, and the Government have recognised publicly—for at least six years, by my count—that they need to act to address the range of problems that freeholders face. Labour therefore welcomes the Government’s decision to use the Bill to create an entirely new statutory regime for residential freeholders based on leaseholders’ rights and is fully supportive of the intent behind the provisions in this part of the Bill.

Although part 4 sets the broad framework for regulating estate management, much of the detail necessary to bring that framework into force will come via regulations. We take no issue with that, and do not intend to pre-empt the regulations by attempting to prescribe a series of requirements on the face of the Bill. However, we believe that, where possible, we should seek to use part 4 not only to provide greater protection to residential freeholders who live on the estates, but to contribute to a reduction in the prevalence of such arrangements—a point that the hon. Member for North East Bedfordshire was driving at.

Although additional protections of the kind introduced under part 4 will almost certainly still be required, in its “Private management of public amenities on housing estates” working paper, published on 3 November last year, the Competition and Markets Authority stated that

“we consider that reducing the prevalence of private management arrangements would be the most direct route to address the root cause of our emerging concerns”.

The CMA made it clear in that working paper that reducing the prevalence of private management arrangements would require a mix of legislative and policy changes more fundamental than the introduction of regulatory protection, and drew attention to the fact that it would result in a wider set of consequential changes, not least the potential for

“significant impact on local authority finances and resources at a time when local authority funding is already stretched.”

That is why, while we very much sympathise with its intent of ensuring that residential freeholders on private or mixed-tenure estates are not charged for services that should by right be covered by council tax, we have reservations about amendment 145. We are concerned that it will, in effect, force local authorities to adopt public amenities on new housing estates, irrespective of circumstance, or—if compulsion is not the intent of the hon. Member for North East Bedfordshire—would see those amenities degrade and deteriorate as a result of not being maintained by either the private management company or the local authority.

[Richard Fuller]

I am grateful to the shadow Minister for his detailed look at my amendment. First, will he explain to the Committee where he sees compulsion on local authorities in the amendment? I cannot see it. Secondly, will he explain why his more material concern about the possibility of items degrading and estate management not doing anything would not be addressed by the strengthening provisions that the Government are putting in the Bill on behalf of homeowners?

[Matthew Pennycook]

Under my reading of the hon. Gentleman’s amendment, if it is ensured that services or works that would ordinarily be provided by local authorities are not relevant costs for the purposes of charges in this part, who will pick up the bill? If the local authority is not compelled to adopt the amenities, our concern is that no one will maintain them. To address his point directly, I worry that his amendment would not ensure that the private estate management company picks up the charge. I will come to why I think our amendment is a superior way of addressing this very real problem.

[Barry Gardiner (Brent North) (Lab)]

I am listening carefully to my hon. Friend. It may interest him to know that I was on a private estate in Kingswood at the weekend, for some reason. It soon became apparent that the developer had gone into liquidation and the estate was being run down in a quite dreadful way. As my hon. Friend said, in that situation, the developer itself and the management of the estate had, to all intents and purposes, ceased—residents were very voluble on things not being done—but the local authority had not adopted the road in the first place, and the services were suffering accordingly.

[Matthew Pennycook]

We are all driving at the same point. I was very much taken by the CMA’s conclusion that reducing the prevalence of these arrangements requires a combination of the mandatory adoption of amenities and putting in place corresponding common adoptable standards. If we do one without the other, we risk some unintended consequences.

My concern about the amendment tabled by the hon. Member for North East Bedfordshire is that we cannot simply remove from estate charges costs that should in an ideal circumstance be borne by local authorities and then expect the private management company to simply pick them up. I fear that the more likely scenario will be that the amenities are not properly maintained. That is a real concern, and should be for residential freeholders on the estates. As the hon. Member for North East Bedfordshire outlined, there are some good reasons why local authorities are reluctant to adopt public amenities on private or mixed-tenure estates.

[Richard Fuller]

I would hate to detain the Committee because we have a lot to go through, but let us understand the economic process here. Initially, the local authority and the developer will work out whether to adopt roads. The developer will then have to decide whether to set up an estate management company, which may or may not deliver facilities and services that would normally be covered by council tax. If the amendment is part of legislation, no property manager in their right mind will accept taking on the responsibility because they will not wish to be liable. Here is the flow of responsibility: one cannot lumber home owners with the cost, the property manager will not be lumbered with the cost for the reasons outlined—it may go bust—so the developer will then have to recognise that there is nowhere for it to turn.

[Matthew Pennycook]

We fundamentally disagree on where the logic chain leads. I do not think that, on the basis of the amendment, the developer will be forced to pick up the costs. It is far more likely that they would build below what would be considered a common adoptable standard and then leave residential freeholders to live with substandard amenities. We could debate this further, but that is my take on the hon. Gentleman’s amendment: it would not force the management companies to do that. That is a real concern.

As I said, there are a variety of reasons why local authorities often do not take on responsibility. The most common one is that the public amenities on new housing estates are not built to a determined, adoptable standard. In those circumstances, one can hardly blame the local authority in question for a reluctance to adopt roads and common services that it will have to repair and maintain a great cost. My central argument is that if we are to reduce the prevalence of these arrangements, we must ensure that we introduce a common adoptable standard for public amenities on estates at the same time as we require mandatory adoption, as the CMA advises.

[Eddie Hughes (Walsall North) (Con)]

It is a pleasure to serve under you, Sir Mark. The civil engineer in me rises to agree with the hon. Gentleman completely; it is slightly embarrassing that we once again find common cause. The point is well made: if a set standard is identified that will be accepted universally by councils as one they would be prepared to adopt, and forced on the developers, the developers will meet that standard, but if they are left with any opportunity to build something substandard, they will always take it and they will frequently try to go further and not even meet the standard that they have prescribed in their own design work. I am sure that all Committee members will have seen examples of that in their constituencies. I again find common cause, and I hope the Minister considers these points.

[Matthew Pennycook]

I thank the hon. Gentleman for that intervention; it is a habit that I hope he continues because I think there is common ground here. When it comes to common adoptable standards, Ministers have often put it to me—the Minister no doubt will; previous Ministers have done—that local authorities have the tools they need to drive up the standards of public amenities that are constructed, but there is clearly something going wrong in that they are not ensuring that those standards are in place. As a consequence—not in every instance, but in many—local authorities have good reason to be reluctant to take them on.

We have tabled amendment 150 in an attempt to challenge the Government to consider how they might utilise the regulatory framework introduced by part 4 to drive up the standards of public amenities on the estates in question—that is the other half of the equation that I think we are all agreed we need. Our amendment would ensure that services or works on private or mixed-tenure estates that are required as a result of defects in construction are not relevant costs for the purposes of estate management. I think that, rather than the amendment of the hon. Member for North East Bedfordshire, would be the incentive that developers need to ensure that high standards are in place at the point that they hand the estate over. Ours is consciously a probing amendment and I hope the Minister will understand and appreciate the problem that it attempts to address, as does the hon. Member’s amendment. I look forward to hearing the Minister’s thoughts on it.

[Alistair Strathern (Mid Bedfordshire) (Lab)]

I rise briefly to add my weight to the comments of the shadow Minister, my hon. Friend the Member for Greenwich and Woolwich. I wholeheartedly share the concerns on this issue expressed by my Bedfordshire neighbour, the hon. Member for North East Bedfordshire. I know that, like me, he has received a lot of correspondence from constituents who find themselves with a variety of challenges and exposed by a situation whereby regulation simply has not kept pace with best practice.

As the CMA outlined last year, we have gone from a situation in which it was simply the norm that estates were adopted by the local authority to one in which that is far from the norm. In the last week, I have spoken to residents right across my constituency who have faced incredibly high service charges. Estate management companies are looking for the next frontier for their rent-seeking behaviour, often by charging fees for services that would normally be covered by council tax. Such is the fragmentation on estates, as the shadow Minister set out, that they sometimes even duplicate the fees charged by other management companies on the same estate.

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[Matthew Pennycook]

Amendment 150 was a probing amendment. I take on board the Minister’s statement that the Government are looking at the issue and that they do not believe that this legislation is the appropriate vehicle to deal with it.

If the Minister is willing to respond again, I would like a bit more clarity on precisely why in many cases amenities on estates are not being built to an adoptable standard. I think we all agree that we would like to see such a system. The Minister introduced a different problem, namely circumstances in which residents might not want their amenities adopted; I think that that would be a relatively small number of estates, but we would have to account for them. In general, we want to reduce the prevalence of arrangements and see adoption becoming mandatory in most circumstances.

Will the Minister expand on why the Government think the common amenable standards are not being met across the board? In a previous debate, the then Minister stated:

“The local authority has powers to ensure that developers build and maintain communal facilities to the standards and quality set out in the planning permission.”—[Official Report, 22 January 2019; Vol. 653, c. 132WH.]

Is something going wrong with the standards that most local authorities require at the planning permission stage? Is the section 106 agreement breaking down in some way? What is the reason? That might give us an insight into the solution that the Government have in mind and into why common adoptable standards are not currently the norm.

[Lee Rowley]

The hon. Gentleman is absolutely right that there are a variety of scenarios. I am not sure that residents of Fenton Street would not take the opportunity to adopt if they were given the opportunity; it is more about the broader challenges of getting a single coherent answer to a very complicated set of questions that have come about in the past few decades or over a longer period.

The hon. Gentleman raises a valid point about the outcome of the planning system. Everybody, irrespective of party, would want the planning system to work to a point where there are common standards for roads and public spaces. There is an interesting question as to why that is not the case. It is an area that as a Minister I intend to look into in more detail.

The question is whether is it a systemic problem or a matter of individual circumstances, where it is working okay in some areas but not in others. Anecdote leads to bad policy and bad law, but in my experience as a constituency MP it has worked in a number of areas and not in others. That suggests that there is variability and that it is therefore not a systemic issue, but that might be different elsewhere in the country. It is an area that I think we should look at more; I am not sure whether it needs legislation. That is an open question, but it is definitely something that I am keen to understand more.

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[Lee Rowley]

Clause 42 introduces new obligations on estate managers where the costs they wish to charge a homeowner exceed an appropriate amount. It mirrors sections 20 and 20ZA of the Landlord and Tenant Act 1985. Subsection (1) places an obligation on estate managers to consult homeowners where the costs for works or services exceed a given threshold. Subsections (2) to (4) confer a power to allow the Secretary of State to determine the appropriate threshold in regulations; the Secretary of State may also determine whether the threshold is to be a total sum or if the costs for individual homeowners exceed an appropriate amount.

Subsections (6) and (7) confer a power on the Secretary of State to set out in regulations the consultation require-ments and the provisions that may be included in the consultation process. Issues that may be in regulations are not exhaustive, but may include matters of relevance, including details of the proposed works, the provision of estimates, and requirements to have regard to homeowner observations and to specify reasons for carrying out the works if they proceed. We recognise that there are occasions where it may not be appropriate or possible for estate managers to consult homeowners—for example, where urgent or emergency works need to be carried out. Subsections (5) and (8) to (10) therefore allow estate managers to seek dispensation from the relevant tribunal of the need to consult. However, should estate managers fail to obtain dispensation or follow the consultation requirements, individual homeowner contributions are capped at the appropriate amount. The Government will engage extensively with stakeholders to determine the appropriate threshold for consultation and what the detail of the consultation arrangements should be. I commend the clause to the Committee.

[Matthew Pennycook]

I wish to probe the Minister a little further on the clause. As he said, it introduces requirements for estate managers to consult managed owners if the costs of any works to be charged as an estate management charge exceed an appropriate amount, which will be set out in regulations. Overall, the Government’s aim in this part of the Bill is clearly to introduce statutory protections for residential freeholders equivalent to those enjoyed by long leaseholders with regard to service charges.

If I understood the Minister correctly, he has confirmed that the Government’s intention with the clause is to establish for residential freeholders an equivalent to section 20 of the Landlord and Tenant Act 1985. If that is the intention, can the Minister confirm that the new requirements provided for by the clause will include requiring estate managers to have regard to written observations from residential freeholders on charges in excess of the to-be-determined appropriate amount, and where necessary to justify in writing the reasons why they awarded a contract to a tenderer that neither submitted the lowest estimate nor was nominated by a resident?

Furthermore, if the clause is indeed intended to mirror the operation of the existing section 20 consultation process, I urge the Minister to consider what might be done to address the known deficiencies of the process, including the fact that a leaseholder’s sole means of redress if they take issue with the landlord’s decision is the tribunal, and that there is no statutory meaning of what “have regard to” means in the context of the consultation. While he does so, I encourage him to take the opportunity to overturn, or at least modify, the decision of the Supreme Court in the 2013 Daejan Investments Limited v. Benson case, which has proved so detrimental to the consultation rights of leaseholders. I make this series of points because the Homeowners Rights Network, among others, has questioned the logic of extending to privately managed estates a regime that is not always effective in protecting residential leaseholders from unreasonable charges associated with major works.

[Lee Rowley]

The hon. Member for Greenwich and Woolwich encourages me to seek to overturn decisions of the Supreme Court! That could start a whole heap of discussion early on a Tuesday morning, but I will withhold further comment for now.

The hon. Member is absolutely right that clause 42 is intended to mirror section 20 of the 1985 Act. He is correct that the intention is to consider written responses as well; I hope that that reassures him. We will need to go through a consultation process: although we have said that our intention is to mirror section 20 of the 1985 Act to give confidence about the direction of travel, what is appropriate for these individual circumstances will need to be discussed, and I hope that we can pick up that discussion within the consultation.

Question put and agreed to.

Clause 42 accordingly ordered to stand part of the Bill.

Clause 43

Limitation of estate management charges: time limits

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[Richard Fuller]

I beg to move amendment 140, in clause 44, page 69, line 6, at end insert—

“(7) The Secretary of State must by regulations provide—

(a) that an estate manager’s litigation costs incurred as a consequence of an application under this section may not be recouped through the estate management charge, except where the tribunal considers it just and equitable for such costs to be so recouped;

(b) for the right of an applicant under this section to claim litigation costs incurred as a consequence of an application under this section from the estate manager, where the tribunal considers it just and equitable in the circumstances.

(8) Regulations under subsection (7) may amend primary legislation.”

This amendment would require the Secretary of State to make regulations preventing estate managers from passing their litigation costs on to residents through the estate management charge, and providing for residents to be able to reclaim their litigation costs from an estate manager.

The amendment, which is in a similar vein to the previous one, is designed to probe the Minister on whether we have got the balance right in the clause to enable effective use of the tribunal by those who would wish to bring a case against estate managers. As we heard when we discussed the clauses on leasehold, one of the biggest concerns that people have is that they will face open-ended litigation costs. In this case, the litigation costs will essentially be cycled back through the estate management charges, and therefore effectively end up being paid by homeowners on the affected estates.

Amendment 140 is designed to prevent that passing on of litigation costs. It also recognises that many homeowners may wish to take action but not have the wherewithal to pay the litigation costs. Paragraph (b) of the amendment therefore enables residents to claim the litigation costs arising from their application. I am interested in the Minister’s view on the balance of litigation in such circumstances—we have spoken about it in relation to other circumstances. I think we all want the tribunal to work, but for that to happen, people must not be put off by the fear that they may face significant direct or indirect litigation costs.

[Matthew Pennycook]

I rise to support the amendment. We discussed litigation costs in relation to clause 34; we strongly argued for a general prohibition with very limited exceptions. The hon. Gentleman is right to draw attention to the fact, which applies to part 4 as a whole, that we should not replicate the flaws of the leasehold system in the newer system of estate management charges. Our arguments in relation to the leasehold regime therefore apply equally here, and the hon. Gentleman is right to raise the point.

[Lee Rowley]

I will try directly to address the point made by my hon. Friend the Member for North East Bedfordshire, to which we are sympathetic. It is important that litigation costs are not passed on. On the leasehold side, there is clear evidence that that is happening, but the question is whether there is clear evidence of it happening in the area of estate management. From speaking to officials, we do not see that clear evidence at the moment. However, if any members of the Committee or others have such evidence, I would welcome it. If it is happening, I am sure that we would be happy to consider the issue as the Bill progresses.

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[Matthew Pennycook]

Briefly, when we discussed the regulation of service charges in clauses 26 to 30, we made a number of specific arguments about how those clauses might be tightened and strengthened. Can the Minister give us a commitment that if the Government determine to amend those clauses in any way, they will seek to read across the equivalent changes to this part of the Bill or, if they do not think that they apply, to justify where wider deviations between the two regimes are necessary? As I said, we are mirroring broadly the statutory protections in place for long leaseholders here, but where they differ, the Committee would certainly welcome clarification as to why.

[Lee Rowley]

I am grateful to the hon. Gentleman for his question. He tempts me into hypotheticals, but I hope that we are demonstrating our willingness to try to work constructively to see where areas can be improved. I must caveat that with clarity that we will not be able to improve every area; of necessity, prioritisations will need to be made. Of course there will be disagreements in this place and elsewhere about what is possible, but we shall see; if there is read-over, we shall see.

Question put and agreed to.

Clause 46 accordingly ordered to stand part of the Bill.

Clause 47

Right to request information

Question proposed, That the clause stand part of the Bill.

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[Richard Fuller]

The Minister or shadow Minister will correct me if I am wrong, but I believe we covered issues to do with penalties earlier. The intent of this proposal is to ensure that damages in the leasehold and freehold system are the same. I therefore think I ought to ask leave to withdraw my amendment.

[Matthew Pennycook]

Without rehashing the debate on clause 30, I rise briefly to put on record that the Opposition think that the point the amendment is driving at is well made. We need equivalence between the two regimes, but we were concerned, notwithstanding damages versus penalties and all the rest, that the proposed financial penalty is too low to act as a serious deterrent to the type of behaviour that we are trying to do away with.

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[Lee Rowley]

My hon. Friend highlights an important point. I think it is better that I write, but in principle, the transparency we seek to bring and the requirement to clearly articulate the charges that have been made, either in the annual report or elsewhere, aim to provide the sunlight that means that it is clear who is paying for what, and, if it is not a reasonable charge, there is a process that can be followed. But I will write to him with more on that, if that is helpful, because we all want to get this right.

[Matthew Pennycook]

I rise briefly to support the argument made by the hon. Member for North East Bedfordshire. There is a specific problem on privately managed estates, which I referred to when speaking to clause 41, relating to the fragmentation of multiple estate management companies. I share his concern, which partly speaks to whether the penalties are appropriate in terms of enforcement. On some estates, residential leaseholders will face a situation where, yes, there may be a requirement for an annual report and there may be a degree of transparency, but the onus will be on them to go through six or seven sets of accounts from the different subsidiaries. We need to look at how we can simplify some of the management structures that companies use, which could cause huge amounts of confusion for residential leaseholders, and, as I say, put the onus on them to try to work through different sets of accounts in a way that they might find difficult to do.

Question put and agreed to.

Clause 51 accordingly ordered to stand part of the Bill.

Clause 52 ordered to stand part of the Bill.

Clause 53

Limitation of administration charges

Question proposed, That the clause stand part of the Bill.

[Lee Rowley]

I hope that some of the comments I am about to make will reassure my hon. Friend the Member for North East Bedfordshire that we are keen to get this right.

Homeowners on managed estates can be subject to excessive administration charges, with little understanding of what fees they may be liable to pay. Subsection (1) puts a stop to that by introducing a requirement for all administration charges to be reasonable. Subsections (2) and (3) require that an administration charge is payable only if the amount or the description of how the amount is to be calculated has been published on an administration charge schedule for 28 days. Subsection (4) sets out other conditions under which an administration charge is not payable to the estate manager. They include circumstances where the estate manager is charging homeowners on the same estate different amounts for carrying out similar tasks, and therefore prevents them from being charged at different rates. I commend the clause to the Committee.

Question put and agreed to.

Clause 53 accordingly ordered to stand part of the Bill.

Clause 54

Determination of tribunal as to administration charges

Question proposed, That the clause stand part of the Bill.

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[Lee Rowley]

Part 5 of the Bill addresses issues relating to rentcharges. Since the Rentcharges Act 1977, the creation of most types of rentcharge has been prohibited. The main class of rentcharge excepted from the general prohibition is known as an estate rentcharge. Estate rentcharges are usually mechanisms for a management company to obtain contributions towards the costs of maintaining communal areas.

Part 4 of the Bill creates new protections for homeowners who pay an estate rentcharge to an estate manager for the provision of estate management services. Clause 58 makes a minor amendment to the Rentcharges Act 1977 to amend the definition of “estate rentcharge” in section 2 of the Act. The effect of the amendment is to ensure that payments may be made to cover improvements to communal areas as well as maintenance and repairs. This ensures that it aligns with the definition of the service charges that leaseholders must pay, and allows estate managers to pass on costs of any improvements to the areas they look after, and will ensure that they meet their legal obligations as well as having sufficient funds to carry out such works. The sums paid for improvement will still be subject to the protections in part 4—for example, the requirement to be reasonable. This is a clarificatory amendment, and I commend clause 58 to the Committee.

[Matthew Pennycook]

This is a clarificatory amendment, and we do not take issue with it. I will speak on our concerns about rentcharges in relation to clause 59.

Question put and agreed to.

Clause 58 accordingly ordered to stand part of the Bill.

Clause 59

Regulation of remedies for arrears of rentcharges

Question proposed, That the clause stand part of the Bill.

[The Chair]

With this it will be convenient to discuss new clause 4—Remedies for the recovery of annual sums charged on land—

“(1) Section 121 of the Law of Property Act 1925 is omitted.

(2) The amendment made by subsection (1) has effect in relation to arrears arising before or after the coming into force of this section.”

This new clause, which is intended to replace clause 59, would remove the provision of existing law which, among other things, allows a rentcharge owner to take possession of a freehold property in instances where a freehold homeowner failed to pay a rentcharge.

[Lee Rowley]

An income-supporting rentcharge is an annual sum paid by a freehold homeowner to a third party who normally has no other interest in the property. Under the 1977 Act, no new rentcharges of this type may be created, and all existing ones will be extinguished in 2037. Most income-supporting rentcharges can be for relatively small amounts—typically between £1 and £25 per annum—and the majority of freehold properties affected by these rentcharges are located in the north-west and the south-west of England.

However, a loophole remains. Failure to pay a rentcharge within 40 days of its due date means that, under section 121 of the Law of Property Act 1925, the recipient of the rentcharge may take possession of the subject premises until the arrears and all costs and expenses are paid. The rentcharge owner may alternatively grant a lease of the subject premises to a trustee that the rentcharge owner may set up themselves. The Government believe that that law is unfair and can have a grossly dispro-portionate consequence for a very small amount of money not being paid. This clause seeks to address that and ensure that freeholders cannot be subject to a possession order or the granting of a lease for rentcharge arrears.

Subsection (2) introduces new sections into the 1925 Act. Proposed new section 120B details that no action to recover or require payment of regulated rentcharge arrears may be taken unless notice has been served and the demand for payment complies with the new requirements. Those requirements set out what information the notice must include. The section also sets out that the homeowner does not have to pay the rentcharge owner any administrative fee.

Proposed new section 120C sets out various requirements relating to the serving of notice under proposed new section 120B, aimed at ensuring that freeholders receive the demand of payment at the address of the charged land. Proposed new section 120D confers powers on the Secretary of State to set out in regulations a limit on the amounts payable by landowners, indirectly or directly, in relation to the action of recovering or requiring payment of regulated rentcharge arrears. That provision seeks to avoid abuse of administration costs charged when simply accepting payment of arrears, and the process of removing any restriction on the freehold title at the Land Registry. The charge does not affect the cost that is paid directly to the Land Registry itself.

Clause 59 (3) and (4) to clause 59 seek to disapply rentcharge owners from using the provisions set out in sections 121 and 122 of the 1925 Act. In doing so, they provide additional protection to avoid rentcharge owners rushing to invoke those provisions. The effect of those subsections is to make any action to reclaim arrears using the 1925 Act void retrospectively once the provisions are introduced. Subsection (5) ensures that the provisions of the clause apply to rentcharge arrears that have arisen before and after the changes come into force. Subsection (6) inserts new section 122A into the 1925 Act, which details that an instrument creating a rentcharge, contract or any other arrangement is of no effect to the extent that it makes provision contrary to the provisions in this clause. Clause 59 delivers on a Government commitment to protect freehold homeowners from the disproportionate effects of falling into arrears in the payment of their rentcharge.

I turn to new clause 4, for which I thank the shadow Minister, the hon. Member for Greenwich and Woolwich. It seeks to abolish section 121 of the 1925 Act. The effect of the new clause would be that a failure to pay any form of rentcharge would prevent the owner of the rentcharge from granting a lease on the property, or from taking possession of it until the fee was paid. We are sympathetic to the issue raised by the shadow Minister, and we have recognised that forfeiture is an extreme measure and should only be used as a last resort. Although in practice it is already rarely used, I recognise that the potential consequences may feel disproportionate. That is why we have included clause 59, which disapplies this remedy for income-supporting rentcharges where we know that homeowners pay nominal sums for very little in return.

As with leasehold forfeiture, any changes will require a careful balancing of the rights and responsibilities of interested parties. We are concerned as to what this new clause could mean where a homeowner pays estate rentcharges that are essential for the management of their estate, or any other form of legitimate rentcharge. The Government want to ensure that where they are required to be paid, these charges are paid in a timely manner so that the smooth running of the estate can continue. If estate management companies are unable to recover these sums, there is the potential that the costs will fall to other homeowners or that the upkeep of the estate will worsen. We are keen to understand any unintended consequences before abolishing section 121 of the 1925 Act all together. We need to weigh up the needs of the estate with the stress and uncertainty that we know this law can cause for some homeowners and lenders. We are listening carefully to the arguments, and I am happy to give the hon. Gentleman that commitment. I hope that, with those reassurances, he may consider not moving his new clause.

[Matthew Pennycook]

I was slightly surprised, in a welcome way, by the Minister’s response, in that he seemed to indicate that the Government are open to considering the abolition of section 121 of the 1925 Act all together, notwithstanding the need to ensure that there are no unintended consequences, but we are debating clause 59 as it stands, which does not propose that, so I hope to convert the Minister’s sympathy into agreement with our position if I can.

Part 5 of the Bill concerns rentcharges, which in general terms can be understood as an indefinite, periodic payment made in respect of freehold land by the current freeholder to a third party or “rent owner” who has no reversionary interest in the charged land in question. In some cases, the charge relates to the provision of a service; in others it is, in effect, simply a profit stream for the interested third party. All rentcharges, as the Minister made clear, are covered by the Rentcharges Act 1977, which prohibited the creation of new so-called income-only rentcharges and provided that all such rentcharges will be extinguished in 2037.

The 1977 Act does not detail the remedies available to a rentcharge holder whose rentcharge is not paid, although any can simply sue for a money judgment. It is section 121 of the Law of Property Act 1925 that creates two additional remedies for rentcharge non-payment. First, unless excluded by the terms of the rentcharge itself, there is a right for the rentcharge holder to take possession of the charged land in question and retain any income associated with it so long as the money owed, whether demanded or not, is unpaid for 40 days. Secondly, unless prohibited by the terms of the rentcharge, and assuming that the money owed is outstanding for at least 40 days, there is a power to demise the land to a trustee by way of a lease in order to raise the funds necessary to pay the arrears and costs.

In short, the 1925 Act provides for the power to seize freehold houses for non-payment of a rentcharge, even if the arrears are merely a few pounds, and allows the rentcharge holder to retain possession or render it in effect worthless by means of maintaining a 99-year lease over it, even if, as demonstrated by the 2016 case of Roberts v. Lawton, the rentcharge is redeemed or the underlying debt cleared. In our view, the remedies provided for by the 1925 Act are a wholly disproportionate and draconian legacy of Victorian-era property law. As I have said, the 1977 Act prohibited the creation of new rentcharges and provided for existing rentcharges to be abolished in 2037, but 13 years from now is still a long time away and any lease granted prior to the abolition will remain in force. Rentcharges are therefore an area of law in respect of which legislative reform is long overdue, and the need to protect rent payers from what amounts, essentially, to a particularly severe form of freehold forfeiture as a result of the relevant remedies provided for by the 1925 Act is pressing.

With clause 58 having amended the definition of estate rentcharge, clause 59 seeks to provide for revised remedies for arrears by amending the 1925 Act. As the Minister has set out, clause 59, in place of the existing two remedies for rentcharge non-payment under the Act, proposes requiring the third party or rent owner to issue an appropriate demand before they can seek to recover or compel payment, and gives the Secretary of State the power by regulation to limit the amount payable by the freehold homeowner in respect of rentcharge arrears or to provide that no amount is repayable. Although we appreciate that the intent of the clause is to better protect freehold homeowners from the existing disproportionate remedies that are available to rentcharge holders when rentcharges go unpaid, we believe it is an overly complicated and onerous attempt to make more palatable the methods of enforcing rentcharges provided for by the 1925 Act that are simply not justifiable in any form.

No one disputes that there might be a need for legitimate and reasonable rentcharges. Indeed, if and when the Government finally deliver on the pledge to require all new houses in England and Wales to be sold as freehold properties, such charges will become even more important as a means to ensure that freehold houses contribute towards communal estate services. However, the threat of their being enforced by means of the draconian remedies in section 121 of the 1925 Act must, in our view, be removed.

--- Later in debate ---

[Lee Rowley]

I am grateful to the hon. Gentleman. He makes a strong case for his arguments. As I have indicated, although I will not accept new clause 4, we do think there is an argument that is reasonable to be had here, while recognising that we need to consider the consequential potential of any change. I am happy to discuss that further with him separately to see whether we can make further progress at a later stage of the Bill.

[Matthew Pennycook]

I thank the Minister for that answer. I am tempted to not move the new clause, but I can only deal with the piece of legislation in front of me. What is in front of me is not a placeholder clause that says, “We will review the 1925 Act”; it is a clause that puts in place an amended version of the remedies. We feel so strongly about this point that we will vote against clause stand part, but I will take the Minister up on his offer to discuss a more sensible way of dealing with the types of contraventions that we have discussed.

Question put, That the clause stand part of the Bill.

--- Later in debate ---

[Lee Rowley]

Clause 64 makes provision for the commencement of the Bill. The substantive provisions of the Bill will come into force on a day appointed by the Secretary of State by regulation. For a number of policy areas, regulations need to be drafted and laid before Parliament before the provisions in the Bill can commence. Hon. Members should be assured that we are not intending to have any unnecessary delay in implementation, and the Department is working hard to plan and carry out the associated programme of secondary legislation. Subsection (2) sets out that the provisions for section 59, namely the regulation of remedies for rent charge arrears, come into force two days after the Act is passed. I commend the clause to the Committee.

[Matthew Pennycook]

I have two brief points. On the general commencement provisions, the Minister just made it perfectly clear that there are no firm dates for commencement on all the issues that require regulations. I take on board what he said about not seeking any unnecessary delay, and that is welcome. However, I push him to go slightly further to give us a sense of the timetabling of some of the more important provisions in the Bill, because leaseholders watching our proceedings will want to know when the rights provided for by the Bill can be enjoyed.

I have a point specifically on subsection (2), which specifies that clause 59 comes into force at the end of a period of two months, as I understand it—the Minister said “two days”, and I think it is two months. Given that some of the provisions in clause 59—I am thinking particularly of new subsection 120D(4)—bring the relevant provision into force on First Reading on 27 November 2023, why is there a two-month delay after Royal Assent? Why not bring the measures into force on Royal Assent?

[Lee Rowley]

I am grateful to the hon. Gentleman for his questions. Obviously, as he will know, I do not need to push too heavily the point that we need to get the Bill through this place. We are trying to move it as quickly as we possibly can, but the other place may have other ideas, although I hope that it will not. I hope I can provide assurances that we will try to get these things moving as quickly as possible.

On the hon. Gentleman’s specific point about subsection (2), I thank him for correcting me; it is two months. As I understand it—I am happy to go away and review it—there is a relative convention in these instances. However, given the desire and intention of all parties, including the Secretary of State, to move as quickly as possible, we will see whether we can speed it up.

Question put and agreed to.

Clause 64 accordingly ordered to stand part of the Bill.

Clause 65

Short Title

Question proposed, That the clause stand part of the Bill.