Leasehold and Freehold Reform Bill (First sitting)

Mike Amesbury Excerpts

Committee stage
Tuesday 16th January 2024 Public Bill Committees

[Matthew Pennycook]

Q My second question relates to managing agents. Lots of the freeholders that leaseholders have to deal with are offshore and hard to reach. Managing agents are the first point of contact, and in many cases are the only point of contact. To what extent do you think that the Bill will function effectively without some kind of regulation of managing agents? Should we be looking to introduce that into the Bill?

Mr Martin Boyd: The RoPA—regulation of property agents—report, which the Government undertook some years ago under Lord Best and which proposed statutory regulation of managing agents in this sector and within the estate agency world, has unfortunately not moved forward. There are proposals in the Bill to bring estate agents within codes of practice, but nothing in particular changes on property management. We have a slightly strange position at the moment. In the social sector, there is now an obligation for a property manager to have a proper level of competencies to look after high-rise buildings, or high-risk buildings, as they are still called. In the private sector, though, we have nothing. There are no requirements to have any qualifications to look after and manage the highest of our high-rise buildings in this country. That is simply wrong, so I would support fully a move to the statutory regulation of agents.

[Mike Amesbury (Weaver Vale) (Lab)]

Q Hello Martin, good to see you. Are there any risks in banning new leasehold houses but not flats?

Mr Martin Boyd: Yes, there are risks. Currently, we do not have a viable commonhold system. Even if the Government were to come forward with the full Law Commission proposals, those had not reached the point where they created all the systems necessary to allow the conversion of leasehold flats to commonhold flats. I see no technical reason at the moment why we should not move quite quickly to commonhold on new build for extant stock. I think it will take longer—and, at the end of the day, conversion will be a consequence of consumer demand. People would want to do it. On my side, I would not want us to convert to commonhold, because I could not yet be sure that it would help to add to the value of the properties. It would make our management of the site a lot easier, but I could not guarantee to anyone living there that it would add to the value of their property—and that is what people want to know, before they convert.

[Richard Fuller (North East Bedfordshire) (Con)]

Q Mr Boyd, I want to pick up something you said in answer to the shadow Minster, when you were talking about the treatment of property managers or managing agents in the private sector. You enumerated a list of three options: a code of conduct, which you said existed in the social sector; legislation or regulation; and also qualification, which I took to be professional qualification. Which of those three is the preferred path, in your view?

Mr Martin Boyd: I do not think the Leasehold Advisory Service would have a specific preferred path. At least two of those are important. I will add a fourth, actually. It is illogical that we do not have a requirement for professional qualifications for those managing particularly complex buildings.

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[Rachel Maclean]

Sorry, I was looking at Mr Spender and I misspoke.

Liam Spender: I quite understand anyone being distracted by Mr O’Kelly. Thank you for the question. In our case to date, the freeholder has put £54,000 of its legal costs through the service charge. It did so in breach of a section 20C order, which is the current restriction that is supposed to prevent landlords from doing so. We complained and got most of that money back, but they have served something called a section 20B notice: they intend to recover the costs in the future if they prevail on appeal, by which point we could be looking at a substantial six-figure sum. This is all to do with us fighting to get back unreasonable service charges.

We are currently owed about £450,000—to give a round number—pending appeal. There is an appeal in April and I am carrying the burden of doing all that work myself. I quite understand why leaseholders without legal training give up and things will fall by the wayside. The system is very much stacked in landlords’ favour.

The cost provisions in the Bill are welcome. As you probably know, they changed the default so that the landlord has to ask for their costs. The issue is what has been created as a just and equitable jurisdiction; the tribunal can do what it thinks is fair in the circumstances. I believe—I think many people who have much more knowledge of this than I do would agree—that what that will mean in practice is probably that the tribunal will be inclined to give landlords their costs if they have won the case, so it will not change anything.

The other problem is that the first-tier tribunal considers itself a no-cost jurisdiction, and that is a generational way of thinking, so that has to be overcome and it has to get into the mindset of awarding costs to leaseholders and against landlords. Provisions could be included in the Bill that would make that that process easier—for example, prescribing a regime of fixed costs as applied to other low-value civil litigation. It is not a magic bullet, but I think that would be better than the current provisions in the Bill.

[Mike Amesbury]

Q Is there anything else you would like in the Bill that is missing at the moment?

Sebastian O’Kelly: We would like to see a commitment to mandatory commonhold for new builds, frankly. How many more times are we going to try to reform the leasehold system? How many goes have we had at this since the 1960s? If you keep having to reform leasehold, is the answer not that it does not work? Why do you want this third-party investor—now, invariably, somebody offshore—hitching a ride on the value of somebody else’s home? It is a nonsense. One Duke of Westminster we can accept—the political continuity of our country maybe allows a freehold such as that—but we will create 1,000 of them with this. It is a nonsense. Bring it to an end and bring us in touch with the rest of the world—that is my statement.

[The Chair]

Right, that is very clear.

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[Rachel Maclean]

Q Do you agree with some of the arguments that are put forward by the freeholders lobby and organisations that abolishing ground rent will destabilise the pensions industry and mean that nurses and care workers and the good people who are toiling very hard in our public services will have their pensions destroyed? What do you say to that?

Jo Derbyshire: I think that is project fear. I work in pensions. I work in administration, not investments, but I sit on a lot of pension committees where we talk about the assets that pension schemes hold. They have investment strategies and they protect themselves from over-investing in one asset class. The amount of ground rents held by pension funds in this country would pale into insignificance compared with, for example, the impact of the mini-Budget and what happened with equities shortly after that. This is deliberate scaremongering.

[Mike Amesbury]

Q I have two brief questions. Are there any risks in terms of banning new leasehold houses but not flats? Why do you think this country is an outlier in the world and is so wedded still to this day to the feudal system of leasehold?

Katie Kendrick: You cannot just ban leasehold houses and not flats—70% of leaseholders live in flats, so you are not tackling the problem. You are cherry-picking the easy things, and banning leasehold houses is easy. It is more tricky with flats, but that does not mean it is not achievable. As you have said, it has been achieved everywhere else in the world. We do not need to continue to mask that leasehold system. It is deeply flawed and it ultimately needs to be abolished.

We do understand that there is no magic wand and this is not going to happen tomorrow, but there have been a lot of campaigners, well before us, who have highlighted the issues of leasehold, and yet here we are, still, again, trying to make it a little bit fairer. It does not need to be a little bit fairer—it needs to go. That needs to be the ultimate aim. Everybody needs to work on this. There is something better out there, despite what the other lobbying groups will tell you.

[Richard Fuller]

Q This is a question I will ask a number of witnesses. We do an impact assessment for legislative change to all Bills, sometimes done well and sometimes less so. This has an assessment of the total cost of the Bill, with the best estimate being £2.9 billion. That is quite large for a Bill. A large part of that—about two thirds—is a transfer of the value from freeholders to leaseholders. That is at £1.8 billion, or £1.9 billion. What are your thoughts about that transfer of wealth?

Jo Derbyshire: It is long overdue; bring it on.

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[Andy Carter]

Q A final question from me: on your social media channels, you talk about the leasehold scandal as being very similar to Mr Bates—who is in Committee just over the way—against the Post Office. I mean, is that true? Is it David versus Goliath?

Katie Kendrick: Absolutely. When I watched the programme, I was shouting out loud. The parallels—the similarities—are astounding. The system there was a computer system; the system here is leasehold. People have been ripped off for so many years and paid unnecessary fees, and lots of leaseholders are thousands of pounds out of pocket. And that is because the system—the leasehold system—has allowed that to happen, and it is a scandal of the same magnitude, as far as I am concerned. People have, unfortunately, lost their lives. I have become a bit of an agony aunt for people; my phone never stops because people contact me in tears, and I have stopped people from taking their own lives because of leasehold. It is horrendous—absolutely horrendous—when you are living it and you feel completely trapped. It is when they feel that there is no way out that people look at taking another way out, and it is horrendous.

Cath Williams: And we were both told, weren’t we, by the CEOs of the developers that we bought our houses from, that there was no leasehold scandal?

Katie Kendrick: Yes.

[Mike Amesbury]

Q Can you tell the Committee about what is commonly known as “fleecehold”? Does this Bill in any way deal with aspects such as that?

Katie Kendrick: Our campaign coined the term fleecehold, and it has been used as a bit of an umbrella to describe all of the different ways that we can be ripped off through our homes. It first began because, when we were enfranchising and buying our freeholds, the freeholder was trying to retain all the same permission fees—such as permission to put on a conservatory or to paint the front door—in the transfer document. Ultimately, you could be a freeholder but still have to pay permission fees to the original freeholder.

That is where fleecehold came from, but fleecehold is now used as a much broader phrase because we have estate management charges. The new build estates all have estate management charges attached to them. They have replaced one income stream—leasehold—by creating another asset in the open green spaces. We all have lovely big open spaces and lovely parks, but it is the residents who pay for that. Again, it is a private management company that manages them. You have no transparency over what they are spending.

I can remember somebody ringing me up and saying, “Katie, I have a breakdown of my estate management charges and they are charging me such-and-such for a park, so I rang up and said, ‘You’re charging me.’ ‘Yes, Mr Such-and-Such. You have to pay for the upkeep of your park.’” And he went, “I understand that, but I haven’t got a park.” It is outrageous. It is great that they are going to give people more right to challenge the costs, which they do not currently have with their freeholders. They have fewer rights than leaseholders to challenge at tribunal. But ultimately why have we gone to a private estate model? Why are people paying double council tax? They are paying full council tax the same as anybody else is, yet they now have to pay thousands of pounds in estate management charges. It is a ticking timebomb.

The estates look very nice now, but in the future when the pavements are falling to pieces—I spoke to a police officer and things are not enforceable because they are classed as private. Speeding restrictions? You could have a boy racer running through the estate, but the police cannot enforce anything. The same with double yellow lines and things like that. It is a ticking timebomb, because new build estates are popping up all over the place with private management companies.

Jo Derbyshire: There are some things in the Bill that try to stop things. Typically on fleecehold estates there might be freehold houses, but the estate management charge is secured legally by something called a rent charge. What most people do not understand is that if they withhold their estate management fees, the property can be converted from freehold to leasehold. Again, that cannot be right.

[Rachel Maclean]

Q I just want to clarify your understanding of something that Mr Gardiner said earlier. I might need to put this to the Minister later, but Mr Gardiner said that if the new provisions on ground rent go through and ground rent goes to peppercorn or zero—I might be misquoting him.

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[Richard Fuller]

Q The other part is that bringing a lot of this together will mean that the first-tier tribunal has a lot more work. Do you think that people may want to get justice, but that it will be denied because the first-tier tribunal is going to be overwhelmed?

Amanda Gourlay: I would not anticipate that the first-tier tribunal would be overwhelmed. At the moment, I find that my hearings go through within a reasonable period of time. That is the best I can say.

[Mike Amesbury]

Q Would commonhold being the default position make your job less complex?

Amanda Gourlay: In the first few years, it would make it more complex, because I would have to learn about it. I have read the Law Commission’s report, and any new scheme is going to involve some bedding down. From what I read and hear about commonhold, it should make matters less litigious. That is what I hear. I have no experience of commonhold directly, however.

[Andy Carter]

Q Having heard from some of our other witnesses, and from the casework that I see in my office, it strikes me that there is a lot of bad practice in the sector. We heard from one of our first witnesses this morning about recurring charges not being disclosed at the point of sale. Does the Bill address that sufficiently? Would it be more sensible to have a clause stating that if recurring charges are not disclosed when the transaction is complete and you purchase the property, they are not paid?

Amanda Gourlay: The difficulty always comes back to what information people are given when they purchase a property, or when they take on the lease of a flat or a house. On the whole, those in the conveyancing industry who behave ethically do their best to inform people. I have very little conveyancing experience, so I am going to hold my fire on that a little. Clearly, if something is important, it should be drawn to a purchaser’s attention. Recurring charges are something I would have anticipated. Anecdotally, I have heard that people will say, “I don’t understand why I am paying a service charge—I own my flat.” “Education” always sounds slightly high-handed, but more information being made available or accessible would be useful.