Leasehold and Freehold Reform Bill (Ninth sitting)

Richard Fuller Excerpts

Committee stage
Tuesday 30th January 2024 Public Bill Committees

Limitation of estate management charges: reasonableness

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

I beg to move amendment 145, in clause 41, page 66, line 28, at end insert—

“(c) only where they are incurred in the provision of services or the carrying out of works that would not ordinarily be provided by local authorities.”

This amendment would mean that services or works that would ordinarily be provided by local authorities are not relevant costs for the purposes of estate management charges.

[The Chair]

With this it will be convenient to discuss the following:

Amendment 150, in clause 41, page 66, line 28, at end insert—

“(c) where they are incurred in the provision of services or the carrying out of works, only where the requirement for those services or works is not the result of defects in the original construction.”

This amendment would ensure that services or works on private or mixed-use estate that are required as a result of defects in its construction are not relevant costs for the purposes of estate management charges.

Clause stand part.

[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.

[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.

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[Richard Fuller]

I have listened with interest to hon. Members’ contributions, particularly in respect of my amendment 145. I strongly believe that we need to close down the trend to create two tiers of council tax payers —those who pay once and those who have to pay twice—and ensure that we all pay only once. My amendment would directly address that issue. I would therefore like to put it to a vote.

Question put, That the amendment be made.

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[Richard Fuller]

I beg to move amendment 139, in clause 44, page 68, line 31, at end insert—

“(3A) Where the appropriate tribunal has made a determination on an application under subsection (1) or (3) that an estate management charge is not payable because the costs incurred by an estate manager are not relevant costs under section 41(1)(b) (services or works to be of a reasonable standard), the tribunal may impose a penalty on the estate manager which is payable to the residents of affected managed dwellings; and the tribunal may determine how much of the penalty is to be paid to the residents of each affected managed dwelling.”

This amendment would enable the tribunal to impose a financial penalty, payable to residents of affected managed dwellings, where estate management work has not been completed to a reasonable standard.

The clause is an excellent step forward in ensuring that freeholders will have rights to access a tribunal when there are errors and poor provision of services on their estate, so I very much welcome it. Through the amendment, I seek to probe the Minister about whether we have got the balance right to enable effective use of the tribunal. The amendment essentially says that in addition to requiring that poor-standard, poorly provided services are brought up to standard, the tribunal could impose a financial penalty on the management company.

It requires a tremendous effort for people to take cases to a tribunal: they often have to make a collective effort and gather evidence about what has gone wrong, and they may have to go through weeks, months or potentially years to get to the point where they can take a case successfully to tribunal. If the only remedy at the end of that is that those services have to be brought up to standard, where is the incentive not to provide defective services in the first place? By enabling the tribunal to impose financial penalties, the amendment would redress the balance, with the bias more towards those suffering from poor service in the first place.

[Lee Rowley]

I am grateful to my hon. Friend for tabling this probing amendment. I agree that where works and services are provided and charged for on freehold estates, their costs should be charged to residents only if they are of a reasonable standard. As he indicated, clause 41 makes progress in that regard. Clause 44 allows for the appropriate tribunal to determine whether an estate management charge is payable. Should the tribunal find that services or works charged for have not been carried out to a reasonable standard, it will determine the amount that the homeowner is liable to pay. That is equivalent to the leasehold regime, and I do think that tribunals are the best placed to make that decision.

On whether additionality is required, the appropriate tribunal is not an enforcement body; it is not a weights and measures authority or a district council. If a financial penalty were applied for works not completed to a reasonable standard, the appropriate tribunal would need to be satisfied beyond reasonable doubt that that was the case. My hon. Friend may say—I have some sympathy with the point—that people would probably not go to tribunal, given its complexity. In addition, if people want to sue for defective works and such things, they can do so through other parts of the legal system; that form of redress is available if necessary.

If we were to introduce penalties for works or services not completed to a reasonable standard on freehold estates, the challenge would be in the implications for the tribunal and the equivalent leasehold regime. Therefore, while I have a lot of sympathy with my hon. Friend’s point, I hope that he will consider withdrawing the amendment it on the basis that it would probably move the tribunal too much in one direction and create a whole heap of other consequences that we would need to think carefully about, and which I do not think we can accept at the current time.

[Richard Fuller]

I am grateful for the Minister’s comments. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[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.

[Richard Fuller]

With the Minister’s assurance that he will keep a watching brief on the issue, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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

[Lee Rowley]

Clause 44 grants homeowners a new right to apply to the appropriate tribunal for a determination on whether their estate management charge is payable, and if it is, how it should be paid, by whom and to whom it should be paid, and the date by which the payment should be made. Under this provision, the tribunal will enforce the newly established reasonableness principle set out by clause 41, which requires estate management services to be reasonable, and any works or services to be of a reasonable standard.

The clause requires estate management companies to charge the correct fees from the outset, thereby reducing the number of homeowners being overcharged for works and services on their estate or being at risk of legal action. The clause also sets out the circumstances in which an application cannot be made, including when the homeowner has already agreed to, but not paid, the charge, or in which the issue has already been subject to a decision by a court. That will prevent homeowners from bringing unjustified or vexatious claims, which can lead to delays in the payment of valid estate management charges and negatively impact the upkeep and good management of the estate. The clause delivers on a Government commitment to increase protections for existing homeowners, and I commend it to the Committee.

Question put and agreed to.

Clause 44 accordingly ordered to stand part of the Bill.

Clause 45

Demands for payment

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

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[Richard Fuller]

I beg to move amendment 141, in clause 49, page 72, line 26, leave out “£5,000” and insert “£50,000”.

This amendment would increase from £5,000 to £50,000 the maximum amount of damages which may be awarded for a failure on the part of an estate manager to comply with the obligations imposed by clauses 45 to 48 (rights relating to estate management charges).

[The Chair]

With this it will be convenient to discuss clause stand part.

[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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[Richard Fuller]

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 49 ordered to stand part of the Bill.

Clause 50

Meaning of “administration charge”

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

[Lee Rowley]

Currently, freehold homeowners on managed estates have very few protections relating to the cost of administration charges they may be liable to pay. This can leave homeowners paying excessively high administration charges that they are unable to challenge. We will address this issue and give homeowners greater protection. We intend to do that by mirroring the existing framework in place to protect leaseholders.

Clause 50 provides a definition of an administration charge. It is

“an amount payable…by an owner of a dwelling”.

That amount must be in connection with applications or approvals in connection with a relevant obligation, the provision of documents, the sale or transfer of land, a failure to make a payment by the owner, or a breach of a relevant obligation. Subsections (2) and (3) allow the Secretary of State and Welsh Ministers to amend the definition of an administration charge by regulations, which must be done using the affirmative procedure. I commend the clause to the Committee.

Question put and agreed to.

Clause 50 accordingly ordered to stand part of the Bill.

Clause 51

Duty of estate managers to publish administration charge schedules

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

[Lee Rowley]

Homeowners on managed estates can be subject to high and unreasonable administration charges, as I indicated. Part of the problem is the lack of clarity or transparency surrounding them. Clause 51 introduces a duty for an estate manager to publish an administration charge schedule if they expect to impose an administration charge.

Subsection (2) requires that the schedule should include the detail of administration charges that the estate manager considers to be payable and their associated costs. Where the cost cannot be confirmed before a charge is payable, the method of determining the cost should be included. Subsection (3) requires a revised schedule to be published if an estate manger revises the administration charges. Subsection (5) allows the Secretary of State and Welsh Ministers to prescribe in regulations the form and content of the administration charge schedule and how it is to be provided to homeowners. We will work with all relevant partners to ensure that we obtain the right level of detail in regulations.

I thank my hon. Friend the Member for North East Bedfordshire for his amendment 143, which would increase the maximum amount of damages from £1,000 to £10,000. I hope that, potentially, our discussion on the previous clause would apply here, and I repeat that the Government intend to write to all Committee members about this issue in the days ahead.

Amendment 144 seeks to ensure that any damages that the tribunal orders payable under Clause 52 (2)(b) cannot be recouped from residents through subsequent charges. I agree with my hon. Friend that residents should be protected from future charges. An estate manager can only recover costs incurred in estate management. A tribunal order to pay damages would not be regarded as falling within the definition of costs of estate management.

The transparency measures included in clauses 46 and 47, in the form of the annual report and the right to obtain information upon request, would also deter estate managers from attempting to recoup these costs. That is because it would become obviously visible and it would be clear that it was not related to estate management. I note, however, my hon. Friend’s concerns and I am listening carefully on this matter. I hope that he might see fit to withdraw his amendment, having heard the Government’s response.

Finally, clause 52 sets out the enforcement provisions that reinforce the new duty in clause 51 to publish a schedule. A freehold homeowner on a managed estate may make an application to the appropriate tribunal if an estate manager has not published a schedule, or has done so but contrary to any provisions determined by the relevant Ministers.

The appropriate tribunal may order that the estate manager provides a correct schedule within 14 days of the order being made, and it may also order that the estate manager pays damages not exceeding £1,000 to the homeowner. We believe that this is a proportionate and effective enforcement mechanism where an estate manager fails to comply with its obligations. I commend the clause to the Committee.

[Richard Fuller]

Many thanks to the Minister, again, for proposing further changes to help homeowners who are affected by estate management charges. I am pleased to hear him reiterate that he will consider the issues raised in my amendment 143 about the appropriateness of charges. The shadow Minister raised similar concerns about those being set at an effective level.

On amendment 144, will the Minister consider writing to the Committee about how, in practice, not passing on damages, fees or charges to residents will work? Great Denham is a new part of my constituency, and in an estate of a few thousand houses, there may be 50, 60, 70 or more property management companies. All of them are discrete limited companies and all were set up as subsidiaries of one or more parent company. We need to be sure, from the Government’s point of view—given that some of these limited companies could go bust—about where the trail leads to. Under corporate law, as I understand it, there is no requirement for a parent company to be liable for the losses of a subsidiary that goes bust, and we want to ensure that liabilities flow upwards to the ultimate holding company.

Presumably, the payment of administration fees or dividends may go from subsidiary companies to the very large companies that are the ultimate parents. Is the Minister able to explain how he sees that working in practice? If not, or if it is too detailed to talk about now, perhaps he could agree to write to give some examples to the Committee in due course.

[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.

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[Lee Rowley]

Turning first to new clause 15, some leaseholders and homeowners on freehold estates do not currently have access to redress outside of the tribunal or the courts. I should note that part 4 of the Bill will give comprehensive rights and protections to homeowners on freehold estates, including access to the relevant tribunal. Though property managing agents are required by law to join a Government-approved redress scheme, there is no such requirement for leasehold landlords and freehold estate managers who manage their property or estate themselves. This means that for issues that fall outside the court or tribunal’s jurisdiction, such as poor communication or behavioural issues, those leaseholders and homeowners on freehold estates can make a complaint only through their landlord or estate manager’s own complaints process. If there is no complaints procedure, or once the leaseholder or homeowner has exhausted it, their access to redress is exhausted.

New clause 15 will fill this gap by providing that leasehold landlords and freehold estate managing agents who manage their property or estate can be required to join a redress scheme. The redress scheme will independently investigate and determine complaints made by a current or former owner. A redress scheme will need to be approved by, and administered by or on behalf of, the “lead enforcement authority”—the Secretary of State or other designated body. The Government have taken powers that will allow us to make exemptions to the requirement in specific circumstances and also a power to amend the definitions in this section. New clause 15 will fill gaps that leaseholders and homeowners on freehold estates currently experience in access to redress. I commend the clause to the Committee.

New clause 16 makes it clear that the redress scheme provided for under this part may act under a voluntary jurisdiction. That means they may allow for members to join the scheme who are not required to join under new clause 15. The scheme may also investigate and determine complaints outside their jurisdiction at their discretion, including complaints by people who are not current or former owners of a relevant dwelling. The scheme may offer voluntary mediation services and allow for certain complaints or circumstances to be excluded from their remit. The voluntary jurisdiction may be subject to the approval conditions that the redress scheme must comply with under new clause 18, which I will come to in a moment.

New clause 17 gives the Secretary of State the power to make payments, including loans, or give financial assistance to establish or maintain a redress scheme. The Government expect the costs of the redress scheme to be funded by the scheme themselves—for example, through charging membership fees. However, there may be some circumstances where the provision of funding is needed. The clause offers flexibility in that instance.

New clause 18 makes provision for the approval and designation of redress schemes. The approval conditions will apply to the future redress scheme and must be satisfied before the redress scheme is approved or designated. The approval conditions will be set out in regulations made by the Secretary of State and will include, but are not limited to, those conditions set out in subsection (3). In addition, new clause 18 allows the Secretary of State to make regulations to provide for the process for making applications for the approval of a redress scheme, the time the approval or designation remains valid, and the process for approval or designation to be withdrawn or revoked. It also allows for a scheme to set membership fees to cover the cost of providing the service.

I will now turn to new clauses 19, 20 and 9, and new schedule 1. To ensure compliance from landlords and freehold estate managers who are required to join a redress scheme, we need to ensure that robust enforcement mechanisms are in place. New clause 19 does that by allowing an enforcement authority to impose financial penalties where breaches of regulations by not joining a redress scheme occur. It also allows for the Secretary of State to make regulations to allow for the investigation of suspected breaches, and for co-operation and information sharing between enforcement authorities for the purposes of investigation.

New clause 20 sets out the amounts of the financial penalty that enforcement authorities may impose on landlords and freehold estate managers who do not comply with the requirement to join a redress scheme. An initial penalty for breaching the requirement may be up to £5,000. However, repeated breaches could lead to a penalty of up to £30,000. The new clause also allows the Secretary of State to amend the amount of financial penalty in regulations to reflect changes in the value of money.

New clause 9 provides a route for leaseholders to apply to the tribunal for an order to appoint a manager in place of their landlord if their landlord has failed to join the redress scheme. As with other “reasons”, leaseholders can apply for an order that a manager be appointed, and the tribunal will make one if

“it is just and convenient to make the order in all the circumstances of the case”.

[Richard Fuller]

The Minister will be aware of concerns about the practical application of this provision when it is put into practice, and the pressures on the tribunal. Under new clause 9, as I best understand it, homeowners will have the right to go to the first-tier tribunal to ask to change from company A to company B as their estate manager. If that is the case, why does it have to go through a tribunal? Why is it not feasible for people to determine that themselves without referring to a tribunal?

[Lee Rowley]

My hon. Friend raises an important point. I recognise the significant body of views in this place and elsewhere about the ability to appoint a right to manage company or a representative directly, and I have certainly heard those concerns. In this case, working within the framework of the proposed legislation, we wanted to ensure that there is a route to allow a manager to be appointed if a landlord refuses to comply. Of course, we would hope that a landlord would not refuse in the first instance.

The Government have also provided in new clause 13 that homeowners on freehold estates can apply to the tribunal for an order to appoint a new manager for the estate if a relevant estate manager has breached the requirement to join a redress scheme. New schedule 1 sets out further provisions relating to the penalties set out in new clause 19. It will require an enforcement authority to give a landlord or freehold estate manager whom they suspect of breaching the requirement to join a scheme a notice of its intention to issue a financial penalty before issuing a final notice. Those who are given a notice by the enforcement authority may make representations. The schedule sets out that where an enforcement authority imposes a financial penalty, it may apply the proceeds towards meeting the costs and expenses incurred in carrying out its functions. Any proceeds that are not so applied will be paid to the Secretary of State.

New clause 21 gives the Secretary of State the power to provide that a future redress scheme provider may apply to a court or tribunal for an order that a decision made under the scheme be enforced as if it were an order of the court. That may be necessary if there is an issue with landlords or freehold estate managers not complying with the redress scheme’s decisions.

New clause 22 makes the necessary provisions for the role of the lead enforcement authority. That is defined by new clause 15 as the Secretary of State, or another person designated by the Secretary of State. New clause 22 provides that the lead enforcement authority will have necessary oversight of the scheme. It also provides that if the Secretary of State decides to designate the role of the lead enforcement authority to another person, the Secretary of State will still have the appropriate power to direct the lead enforcement authority. That includes provisions to make payments and to bring the arrangement to an end.

New clause 23 provides for the Secretary of State to issue or approve guidance for enforcement authorities and the administrator of the future redress scheme about co-operation. It makes clear that the Secretary of State will exercise powers under new clause 18 to ensure that the administrator of the redress scheme has regard to guidance issued or approved under the section. Importantly, the amendment also requires the enforcement authority to have regard to the same guidance. New clause 24 makes necessary provision for the interpretation of this part of the Bill, including the definitions used. I commend the clauses to the Committee.