Leasehold and Freehold Reform Bill (Seventh sitting)

Richard Fuller Excerpts

Committee stage
Thursday 25th January 2024 Public Bill Committees

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

I want to take up the point the hon. Gentleman made about the timing of the ground rent review and the implications for subsequent change in the Bill. Has the Opposition looked at what the potential legal liability might be if we move forward with this Bill without clarity on what happens on ground rent, particularly as this is retrospective legislation, and whether there is a potential liability for the taxpayer if that co-ordination does not work effectively?

[Matthew Pennycook]

We have had access to the advice and opinion of a number of organisations and individuals, which have probably been sent to the whole Committee. We have also sought to engage the opinions of many relevant experts in this area. The honest answer is that we do not know. I think the Minister himself would say openly that there is a sliding scale of risk with each of those options. I fully expect any of those options, if they are introduced, to result in litigation against the Government that seeks to take the matter to Strasbourg under the relevant rules. That has to be factored in. The Secretary of State and the Minister will be getting the relevant advice. That is why I encourage the Minister to be courageous in the option they ultimately choose. We want to strike the right balance by addressing the problem as it exists for leaseholders—that is very clear—but ensuring that whatever option comes forward can stick and is defensible. That is a conversation we will have over the coming weeks and months, because this issue is going to rumble on for some time to come.

Question put, That the amendment be made.

Leasehold and Freehold Reform Bill (Sixth sitting)

Richard Fuller Excerpts

Committee stage
Tuesday 23rd January 2024 Public Bill Committees

[The Minister for Housing, Planning and Building Safety (Lee Rowley)]

This Bill reforms the valuation process for leaseholders when they buy their freehold or extend their lease. It does this by repealing parts of existing legislation and setting out a new valuation scheme that leaseholders and landlords must follow. We are debating a large group of measures, so I am afraid—and I apologise to the Committee in advance—that my comments may be slightly longer than normal, in order to cover all of those.

Clause 9 amends the Leasehold Reform Act 1967, which deals with lease extensions and freehold acquisitions of houses. Subsections (1) to (3) make necessary changes to sections 8 and 9 of the 1967 Act in relation to freehold acquisitions. It mandates the use of clause 11, which sets out the new valuation scheme for calculating the price payable. Subsection (4) applies that to lease extensions for houses. I will shortly come on to that new valuation scheme covered in clause 11, the detail of which is contained in schedule 2. However, these changes introduce the valuation reforms contained in the Bill. I commend clause 9 to the Committee.

Clause 10 makes the necessary changes to the Leasehold Reform, Housing and Urban Development Act 1993, which deals with flats. The clause amends sections 32 and 56, and repeals schedules 6 and 13 of the 1993 Act, which deal with the freehold acquisition of a block of flats and lease extensions of a flat. In a similar way to clause 9, clause 10 mandates the use of clause 11 in determining the price payable for enfranchisement transactions—in relation to flats, rather than houses—and sets out the new valuation scheme for calculating the price payable. I commend clause 10 to the Committee.

Clause 11 provides the basis of the new valuation scheme that must be used to determine the price payable when exercising any of the four enfranchisement rights, which are acquiring the freehold of a house, extending the lease of a house, acquiring the freehold of a block of flats and extending the lease of a flat. The clause sets out that the premium is comprised of two elements: first, the market value, which is to be calculated in accordance with schedule 2; and, secondly, any other compensation, which is to be calculated in accordance with schedule 3.

Schedule 2 details the steps for calculating the price payable for lease extensions and freehold acquisitions. It also contains key reforms to the valuation process, including the removal of marriage value and hope value, capping ground rent at 0.1% of the freehold value in the valuation calculation, and providing the Secretary of State with a power to prescribe two rates used to calculate the premium.

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

The Minister just mentioned that schedule 2 eliminates marriage value. He will be aware, from the impact assessment, that there is a financial value associated with marriage value. Can the Minister tell me whether the Government think that marriage value is a real value—that it has intrinsic value—or is it just a number that has no material value at all? Is there something behind what marriage value is, and what is the rationale for eliminating it?

[Lee Rowley]

That is an interesting philosophical question to debate straight after lunch. The Government recognise that marriage value is utilised in a number of transactions. Therefore, some people in the market—some individuals, some economic actors—must deem that there is some form of additional value by marrying the lease and the freehold up within a shorter period of time. How that works, what exactly that is, and how expansive it is, is for others and for the market to determine, in a traditional and—something that I think we both would support—a wholly capitalist way. However, there does seem to be something to it, hence why we are making some of the reforms that we are making, given the feedback that we have been given.

[Richard Fuller]

I am grateful to the Minister for his summary, which I think is very accurate. Given that the Government have assessed that there is something real there, and decided that they want to eliminate the marriage value—obviously, a lot of work has gone into the preparation for that—what representations has he received about the legal underpinnings of this particular aspect of the legislation for those from whom that value is being taken?

[Lee Rowley]

The Government remain confident that the proposals being put forward are compliant with their responsibilities. I have only been in post for a short period of time, and my hon. Friend the Member for Redditch may wish to comment on this. The conversations I have had with the people who—I say this without breaking their confidence, given that some of them might be in camera—have come to me to represent their position have not focused on that as the main issue.

Schedule 2 also sets out how to divide the premium into shares, where multiple landlords are entitled to receive a share—for example, where there are intermediate landlords. We will go through that in further detail when we consider schedules 2 and 3. I commend clause 11 to the Committee.

I now turn to amendment 59, which is in my name. This amendment exempts business tenancies which qualify for enfranchisement rights under the Leasehold Reform Act 1967 from the standard valuation method. It is not our intention for the standard valuation method—especially the rent cap—to apply to any business rent, and this amendment closes off that possibility for a relatively rare type of lease where it might otherwise have existed. I commend this amendment to the Committee.

Turning to amendments 62, 63 and 64, which are in my name. Amendment 62 makes minor technical changes to assumption 1 in schedule 2 so that the clause operates as intended. The change to sub-paragraph 15(2)(a) makes the phrasing clear that the clause is about freehold acquisitions. The change to sub-paragraph 15(2)(b) is a minor and technical correction so that where a lease extension is granted by someone other than the freeholder, such as a head lessee, the assumption of merger with the interest of the person granting the extended lease still takes place for the purposes of the valuation methodology for intermediate leases. Amendments 63 and 64 fix typographical errors, by changing the word “property” to “premises”, as the latter is defined.

Turning to amendments 65, 67 and 68 in my name, these make small changes in schedule 2 so that the provision works as it was intended. Amendment 65 clarifies the valuation of the market value of a flat as it is to be used for the purposes of identifying the ground rent cap in the calculation of the term value. Amendment 67 makes a change to ensure that the definition of what is being valued is clear. Amendment 68 clarifies the valuation of the market value of a flat as it is to be used for calculating the reversion.

These amendments are intended to avoid any mis-interpretation of the standard valuation method. Some may mistakenly interpret the schedule as requiring a valuation of a flat as if it were a flying freehold which could cause it to be undervalued. Amendment 68 clarifies the meaning so that what is being valued is the share of the value of the freehold of the whole building and appurtenant property that is attributable to the flat. The amended text will make sure that the standard valuation method is interpreted as we intend it to be. I commend these amendments to the Committee.

Schedule 2 sets out how to apply the new standard methodology when calculating the premium that leaseholders of houses and flats need to pay to extend their lease or acquire their freehold. This includes fundamental reforms to the valuation process, including the removal of marriage value—which we have just discussed—and the capping of ground rent at 0.1% in the valuation calculation. These changes help to fulfil the Government’s aim to make it cheaper and easier for leaseholders to extend their lease or buy their freehold. The schedule is extensive and broken into seven parts.

Part 1 introduces schedule 2 and requires that this schedule must be followed when calculating the market value of the premium for lease extensions and freehold acquisitions for houses and flats. It also sets out how to divide the premium into shares where loss is suffered by multiple landlords. Part 1 also makes clear three definitions for the purposes of this schedule: that of “collective enfranchisement”, “freehold enfranchisement” and “lease extension”.

Part 2 of 7 sets out the basis of the market value for freehold acquisitions and lease extensions. Paragraph 2 does this for freehold acquisitions. It sets out that the market value of the freehold used in calculating the premium is the value of the freehold as if sold on the open market by a willing seller. Paragraph 3 does this for lease extensions. It sets out that the market value of the lease extension used in calculating the premium is the value of the 990-year extended lease, at peppercorn ground rent, as if sold on the open market by a willing seller. Paragraph 4 states that the premium for both acquisitions and extensions is to be determined in accordance with part 3 and on the basis of the assumptions set out in part 4.

Part 3 of schedule 2 sets out that while in general the standard valuation method must be used to determine the value of acquiring a freehold or extending a lease, there are some exceptions. The specific exceptions are set out in paragraphs 6 to 8 and include where the lease has five years or less remaining, where the property is subject to a home finance plan lease and where the lease is a market rack rent lease. For these purposes, a market rack rent lease is where the leaseholder has either paid no premium or a very low price for the lease in return for paying a high rent.

Paragraphs 9 to 11 set out some further detailed exceptions, including where there has been a pre-commencement lease extension of a house for 50 years at a modern ground rent. These paragraphs also explain that the standard valuation method only applies to a relevant flat in collective enfranchisements, where relevant flat excludes, for example, flats with shared ownership leases. Paragraph 12 provides that the standard valuation method can still be used to determine the value of the relevant freehold acquisition or lease extension, even when it is not compulsory to do so. Paragraph 13 makes it clear that the standard valuation method is to be used if either part 3 requires it to be used or where it is used on a voluntary basis in relation to the property being valued.

Part 4 of schedule 2 sets out the assumptions on which the valuation of freehold acquisitions or lease extensions are to be based, whether or not the standard valuation method is being used. Assumption 1 is that intermediate leases and freehold interests are treated as merged for the purposes of valuation where they are acquired in a freehold acquisition or where they are affected by the lease extension claim. The effect of assumption 1 is to simplify the process and lead to savings in process costs and premiums in some cases. This does not apply to intermediate leases that are not acquired. Assumption 2 is that the leaseholder is not, and never will be, in the enfranchisement market, nor will the leasehold and freehold interests by other means be married. The effect of assumption 2 is that no marriage or hope value is payable for either a lease extension or freehold acquisition. This will reduce premiums where leases have 80 years or fewer remaining and remove the cliff edge that leaseholders currently face.

Assumption 3 is that the relevant property is assumed to be in good repair and has not been improved under the current lease. The effect of assumption 3 is to prevent the premium being either decreased in favour of the leaseholder, due to the property being held in disrepair, or increased in favour of the landlord, due to the leaseholder having made improvements. The latter case would result in the leaseholders having paid for the improvements twice. In the case of a freehold house acquisition, assumption 3 will only apply to the current lease, removing the ability to chain together multiple long leases.

Assumption 4 is that where leasebacks are taken, their value is deducted from the freehold value, reducing the premium. Other assumptions can still be made when determining the market value, as long as they are consistent with assumptions 3 and 4 as well as the other provisions of schedule 2. The remaining paragraphs cover circumstances where the premium may have to vary, including to account for burdens or benefits on the title, differing terms in extended leases, leases with five years or fewer remaining, and where leaseholders own their immediately superior intermediate lease.

Part 5 sets out the standard valuation method, which is made up of three steps for lease extensions and freehold acquisitions. Combined with the assumptions set out in part 4, the resulting premium for many leaseholders will be lower than it otherwise would have been where they have leases with 80 years or fewer remaining, or high or escalating ground rents. The first step is to determine the term value, which is the capitalised value of the ground rent payable over the term of the lease. In other words, the landlord is compensated with a lump sum, instead of continuing to receive future ground rent for the remainder of the lease term. Part 7 must be used to determine the capitalised value.

In calculating the term value, a ground rent cap will now apply so that the valuation calculation will cap the ground rent at 0.1% of the freehold value. There are two exceptions. The first is where the leaseholder has paid no premium for the lease. The second is where the lease was purchased for a low premium in exchange for a high rent. In step two, the reversion value is determined. The reversion value compensates the landlord for the loss of the reversion at the expiry of the lease in the case of freehold acquisition and for the delayed reversion in the case of a lease extension.

For freehold acquisitions, the reversion value is the market value of the freehold at the expiry of the lease, discounted at the deferment rate. In a collective enfranchisement, this is calculated for each qualifying leaseholder’s lease. For lease extensions, the reversion value is the market value of a 990-year lease at peppercorn ground rent on the same terms as the new, extended lease and beginning at the end of the term of the current lease, discounted by the deferment rate.

Step 3 requires that the market value of the property determined by the standard evaluation method is found by adding the term and the reversion values in steps 1 and 2, and in collective acquisitions all the relevant term reversion values subject to any adjustments, as provided for in other parts. Part 5 gives powers to the Secretary of State to specify the deferment rate used to calculate the reversion value and includes a requirement to review the rate every 10 years.

[Richard Fuller]

Will the Minister explain why it is right to give the decision on those rates to the Secretary of State?

[Lee Rowley]

It is ultimately a balance, as we discussed this morning when talking about the fundamentals in clause 3, I think. We believe that it is proportionate to allow the Secretary of State to make a decision here, but I will be clear now and as we go through the Bill that that should be done only on an occasional basis, hence the reference to the 10-year review period.

[Richard Fuller]

Does the Minister accept that the absence of knowing what will be in the Secretary of State’s mind about what rate he or she may set affects the analysis of what is being done economically with the Bill quite significantly? What thought has he given to the legal challenge risks of holding back what is in the Secretary of State’s mind about what the rates would be?

[Lee Rowley]

I am grateful to my hon. Friend for his comments. I accept the point that we need to get as much of that information to members of the Committee, the House and the public as quickly as we are able to do so. I know that he and other Members recognise that we have a process that we need to go through in that period, and I hope that we give enough information about the process and changes, although I accept the interaction that he indicates. My hon. Friend is an experienced Member; it is not my intention in any way, but forgive me if I say anything that he knows.

Obviously we must get through the process of working through the legal risk. It is a very contested area—we can see that already. There have already been indications that people will look at it extremely closely, so it would not surprise me if it was looked at extremely closely in most ways. There are potential legal issues on both sides, in that whatever we come out with, any public policy change often or always creates a group of people who do not like it, and they have an ability through due process and the law to see if there is anything in there that they dislike. I guess this is no different, but equally the Government are cognisant that it creates a challenge in this domain. We must go through the process of having the consultation, which only closed quite recently, and giving enough time for that to be considered and transacted on before we come to a conclusion; otherwise, there is potential legal risk there as well.

Part 6 sets out how a premium determined under parts 1 to 5 should be divided among multiple parties, such as intermediate landlords and freeholders. That creates a saving in process costs for leaseholders, as the work of dividing the premium is picked up by the affected parties. The part specifies that the division is made according to how each person’s interest has been devalued or lost by the claim, termed as “loss”. It sets a formula that takes the market value, provided for in parts 1 to 5, multiplies it by that person’s loss and divides it by the total losses of all the parties. Loss cannot include marriage value or hope value, which we are preventing from forming part of the premium.

Finally, part 7 of seven sets out how to calculate the term value—that is, the capitalised value of the ground rent payable for the remainder of the term of the lease. That is a component of the premium, as explained in part 5, under different rent review clauses. Depending on the lease, the ground rent payable may not be subject to review; or it may be subject to review such that the rent payable after the review is known; or it may be subject to a review that makes reference to price inflation, for example, or the capital or rental value of the property. Part 7 is entirely technical and sets out the formulae that apply in each case. The inputs into the formulae are the rent payable, the term for which it is payable and the capitalisation rate. In all cases, where the rent payable exceeds 0.1% of the freehold value of the property, the ground rent cap applies, so that the rent payable is treated as if it is only 0.1% of the freehold value. Part 7 gives a power for the Secretary of State to specify the capitalisation rate used to calculate the term value, and includes a requirement to review that rate every 10 years. I commend the schedule to the Committee.

I turn to schedule 3. As stated in debate on clause 11, schedule 3 sets out when, and to whom, “other compensation” must be paid by enfranchising leaseholders. “Other compensation” is a concept in law; it acts as a top-up payment that landlords and other parties can claim if an enfranchisement claim impacts on their interest. The schedule permits other “reasonable” compensation to be paid in two types of cases. Although it continues an existing practice, it works to ensure that the top-up cannot be used to claim for values already covered by the standard valuation method in part 5.

First, other compensation is available where the enfranchisement claim causes a devaluing of property outside the premises subject to the claim. Secondly, other compensation is available where loss is caused to other property not subject to the claim, but only to the extent that it is referable to a person’s ownership of any interest in other property. If, for example, a landlord owns an unbroken parade of terraced houses and there is a freehold acquisition of one house, the landlord might claim for other compensation if they can demonstrate that the value of the whole parade has been diminished due to one of the houses enfranchising. The schedule sets out that it does not matter whether the landlord had other options, such as leasebacks, but did not take them. It also sets out definitions, such as the meaning of development value. I commend the schedule to the Committee.

I turn to schedule 4, which defines many of the terms used in schedules 2 and 3 that determine the make-up of an enfranchisement premium. It points to different parts of the schedules to demonstrate the meaning of those terms. For instance, the meanings of “term value” and “reversion value” are as described in schedule 2. I commend the schedule to the Committee.

I turn to amendment 72 in my name, which corrects a typographical error in schedule 5 so that the provision works as intended. As a result of the amendment, Paragraph 7(3)(b) of that schedule will require the tenant, not the competent landlord, to pay into the tribunal the whole price payable. That is a new protection that could be used, for instance, where there are valid concerns about the conduct of a landlord handling the claim on behalf of others. I comment the amendment to the Committee.

Schedule 5 makes necessary consequential amendments that help to plug into existing law the new valuation methodology set out in clause 11 and schedule 2. It makes amendments to support the new valuation process in enfranchisement claims that involve multiple landlords, such as intermediate landlords and freeholders. That includes a fallback power, which enables leaseholders to require the transfer of property or grant of a lease, even if the landlords have not yet settled on how to divide the premium. That would be useful, for instance, if multiple landlords were in dispute with each other and it was threatening to hold up the claim.

The provisions also require the premium to be paid to the landlord handling the claim on behalf of the other landlords. They prevent landlords from requiring leaseholders to pay their share directly, as that would undermine the new valuation process where it involves intermediate leases. However, a new protection has been added that permits an individual landlord to require the whole price to be paid into the tribunal. That could be used, for example, where there are valid concerns about the conduct of a landlord handling the claim on behalf of others. With huge gratitude for allowing me to go through all of that, I commend schedule 5 to the Committee.

[Rachel Maclean (Redditch) (Con)]

I add my words of appreciation to those of the shadow Front-Bench spokesman for the Minister’s explanation. I want to add one brief point of clarity on marriage value, which was alluded to by my hon. Friend the Member for North East Bedfordshire. It is fair to say that marriage value is seen as one of the outdated, feudal and predatory practices of freeholders. It prevents people who have bought a house or flat in good faith from enjoying their property as we would expect them to do in a free country such as the UK.

I will not detain the Committee, but I recommend that anybody watching these proceedings or interested in the subject reads an absolutely fantastic article on leaseholdknowledge.com. That is a leaseholders’ charity that has done a superb and detailed work on this topic. An article by a gentleman called Linz Darlington explains that marriage value is particularly unfair, because people pay not only their own fees, but the freeholder’s fees, and there is a concept of hypothetical profit. The whole thing is just a massive racket—I am not qualified to explain it any better than that, so I leave my comments there. Many people have told me that marriage value should go. It is part of an outdated system. Read the article on the website. I commend the Government for bringing forward this very important part of the overall package of reforms.

[Richard Fuller]

It is a good to see you in the Chair, Dame Caroline. We are blessed on this Committee to have three people who have been Housing Ministers, the great experience and expertise of the hon. Member for Brent North, and the good graces of the shadow Minister, the hon. Member for Greenwich and Woolwich. I was recently speaking about the Bill to my right hon. Friend the Member for Ashford (Damian Green), who pointed out that there were discussions about some of the measures in the Bill when he was the adviser to Sir John Major in No. 10 in the 1990s.

I have none of the expertise or experience of any of the people I have just mentioned, so it is with humility that I rise to make some observations. My first observation, which is not specific to the Bill, is that whenever there is a clear consensus between Government and Opposition, problems usually arise subsequently. We have just spoken about 29 pages of schedules and two pages of clauses —31 pages of a 130-page Bill—and I heard one or two sentences from the shadow Minister. [Interruption.] Oh, the shadow Minister is coming back in later; good. I am encouraged. I was called to speak straight after my hon. Friend the Member for Redditch, rather than us bouncing between Government and Opposition Members, so I was worried. My first concern was that we were going through a very large proportion of the Bill very quickly. Grouping so much of the Bill together is a choice. It is perfectly within the ambit of the Opposition to say, in the Programming Sub-Committee, “We will do clause 9 stand part, then clauses 10 and clause 11, and then schedule 2 separately,” but in the planning done by the Government and Opposition Whips, we decided to put all the provisions together, so that we brush past them very quickly, hoping that no one will notice. I notice a twinkle in the eye of the hon. Member for Brent North.

[Barry Gardiner (Brent North) (Lab)]

Does the hon. Gentleman suspect that the reason why my hon. Friend the Member for Greenwich and Woolwich allowed such a grouping is that we hope that after the next general election, Parliament will be presented with a new Bill that does away with this nonsense altogether?

[Richard Fuller]

Well, maybe. I am not a mind reader, either of the mind of the shadow spokesperson or the mind of the great British public. They will make their decision at the next election and, I hope, return a Conservative Government for a fifth consecutive term, but that is not the import of my points today.

My first point was that the public should beware when they see such circumstances, not because anything is necessarily wrong, but because it is a leading indication that consensus is overwhelming scrutiny.

[Matthew Pennycook]

I rise to make two points. The first is that I will speak in great detail about valuation when we come to schedule 2, as I have indicated, because the meat of the Opposition’s concern relates to the deferment rate, which we will come to. Secondly, does the hon. Gentleman broadly agree that one of the reasons why this or any Committee would struggle to properly scrutinise this large group of schedules and clauses is that none of us has relevant expertise as professional valuers? One of the reasons why the Levelling Up, Housing and Communities Committee asked to undertake pre-legislative scrutiny of the Bill was precisely that it is so complex in certain areas, this area being a case in point.

[Richard Fuller]

It is a fair point, but I think we can get our heads around most of it. The general principles in this Bill are no different from those of others. There are some formula there; and when we see a formula such as one over one minus c to the power of n with a deferment rate of theta, we get worried that we do not understand. It takes us back to doing calculus at school. However, we can understand it—though within it there are some important things. The shadow Minister makes a good point, but there are amendments to schedule 2: the Government’s, his, and mine. I will make the point—and if I am wrong the Clerks will correct me, through the Chair—that we are debating the overall principle of schedule 2, not just the detail, though it is fair to raise some points about that.

--- Later in debate ---

[Richard Fuller]

My hon. Friend is absolutely right. That is why we are passing this legislation. I want to be clear about that, because there will be circumstances in freeholder-leaseholder relationships where the performance has been inadequate or poor. There may be circumstances where the performance has been perfectly reasonable.

[Matthew Pennycook]

In some ways, I am doing the Government’s job, but I would just probe the hon. Gentleman on the Government’s intention, specifically in relation to value. At least on the basis of my understanding, it is not to right an abuse in the system. It is to remove payments, which are very real for leaseholders, that are based on a hypothetical profit that some would argue should not exist in a fair market. It is not about righting specific wrongs but a systemic wrong in the valuation process, from the Government’s point of view.

The hon. Gentleman may take issue with that, perhaps because he does not agree with one of the main objectives of the Bill—to make the enfranchisement process cheaper for leaseholders—or maybe he just takes issue with the fact that we do not know the prescribed figures that the Secretary of State will set, so we do not have a real sense of the values. The clause is attempting to right a systemic wrong as regards marriage value and other components of the existing valuation method. It is not just dealing with specific abuses in the system by bad faith actors.

[Richard Fuller]

I agree with the shadow Minister. I am not trying to undermine the intentions of the Bill—I agree with them—but I want them to be legally secure, and I want to probe and understand them. He said that these are hypothetical profits, but they are not quite hypothetical. They would only be hypothetical if they were not real, but as we have already heard, they are. They are calculated profits, and it is a matter of how that calculation is determined that is at issue, not whether they are hypothetical or real.

[Matthew Pennycook]

The hon. Member tempts me to engage in the philosophical debate that the Minister alluded to, and I think it is debatable whether they are real. Let me put it to him like this. If I own a vase, is the value of a second vase increased by the fact that I own the first one? That is what marriage value is doing; it is the hypothetical profit from the joining of the leases. I think it is at least debatable as to whether it is real in the sense that he advances, although it is very real for leaseholders who have to pay it if they seek to enfranchise under the current system.

[Richard Fuller]

Somebody had to mention the vase.

[Eddie Hughes (Walsall North) (Con)]

Or the cup and saucer?

[Richard Fuller]

I am just so glad it was not me. The Minister and shadow Minister are far more experienced than I am on this matter, so I am drawing on a much more limited data set than they are. But, to date, I have not heard loud and clear that there is no such thing as marriage value. I have heard that there are questions about how it is calculated and that we do not think it should apply, which is a political point of view. If the shadow Minister is trying to say that there is something else he wants, between the issues of calculation and of making a political decision to transfer it, that is interesting to me. I do not think that he has been trying to make that point, and I certainly do not think we have heard that evidenced.

It is a crucial point. The idea that we are expunging values that relate to something real, which is under contract, is a material point in trying to make this legislation bulletproof or, as the Minister rightly says, to ensure that, in a hotly contested area, the Government get it right. In circumstances where there are real values —although perhaps massively overemphasised—where performance has been exemplary or to contract, where there has been no question of the performance required under contract, and, finally, where there has not been price gouging, or this automatic doubling every two years, and the rents have remained the same, what is the reason to apply legislation retrospectively?

[Rachel Maclean]

Does my hon. Friend not agree that the concept of ground rent itself is “gouging”, to use his word, because it is a payment for nothing? Clearly, the freeholders are receiving payment through service charges and the price of buying and selling a lease. The ground rent is a payment for nothing. Whether it is, in his words, a reasonable one and not gouging but is kept low and so on, still, in my mind and certainly that of many leaseholders, the Competition and Markets Authority, the Government and the analysis, it is a payment for nothing and so, fundamentally, it is wrong and unfair. I wonder what my hon. Friend thinks about that.

[Richard Fuller]

The former Minister makes an excellent point. She knows much more about this than I do and therefore I am very wary about falling into the trap of answering her question directly. What I will say is that, for the purposes of my speech today, what I think is not important. What is important is this: what will the courts find, and how have we ensured that the Bill is robust in those circumstances? I will say, without answering my hon. Friend’s question, that people sometimes sign contracts for things that they do not use or that have no value, but there is an argument that they signed a contract and it had these line items in it. People may sign a contract that gives them access to a swimming pool or gym and they may not use it. I do not mean to be pejorative, because these are very important issues. I am just saying that the principle is that, whether ground rent is real or not, it is still subject to the fact that it was part of a contract that was signed, and that will have weight in any legal challenge to the Bill.

[Barry Gardiner]

rose—

[Richard Fuller]

I do not know whether the hon. Member for Brent North wants to intervene and give me some more knowledge.

[Barry Gardiner]

The hon. Member’s colleague, the hon. Member for Redditch, made a pertinent intervention in relation to ground rent, but I wanted to try to address what philosophical issues he is having with marriage value. Marriage value is an additional element of value created by the combination of two or more assets or interests where the combined value is more than the sum of the separate values. That is why the cup and saucer and the vase analogies are apposite. He seems to me to be seeking to say, “Well, if this exists, if people are actually paying this, it’s real; it’s not a fiction.” Let me set out my understanding of what the Government are trying to do and, indeed, what Parliament has tried to do on many occasions, going back to 1967, after we passed the legislation to right what had happened in the Custins v. Hearts of Oak case, where marriage value had been introduced against the will of Parliament. The point is this. If someone is the leaseholder, the person who owns that lease to the home, it is much more important to them than to anybody else in the world that they get the freehold together with it. That is the other vase; that is the saucer that goes with the cup. To them, that is important and it has a value that it does not have for the rest of the world. That is why they are constrained, and that is the constraint that Parliament has repeatedly tried to free people from, because they are not simply a willing seller in a free market with a willing buyer in a free market. This person, as the leaseholder, is a buyer under special measures.

[Barry Gardiner]

I am happy to be guided by you, Dame Caroline. I think I have made the point and I hope that the hon. Member for North East Bedfordshire will be able to take it on board, because it does go to what I think he would recognise from a free market point of view as the essence of why this is important.

[Richard Fuller]

Dame Caroline, you were not in Committee when I made a point of order on the hon. Member for Brent North, perhaps inadvisably, but this time I thought his intervention was very helpful, so I would like to commend him. That point is very helpful to my understanding, and I appreciate his building my understanding further. We will have to see.

My purpose in making these points is to look at the possibilities of legal challenge. I am not a lawyer so I am probably one of the first to do that anyway, but the principles behind schedule 2 relate to existing contracts and make a political decision to redistribute value to full or some extent. In Committee, however, we are doing this where we do not have complete financial information about the extent to which we open ourselves to the charge that our decision will have unintended consequences. We are putting a lot of faith in the Government to get that right.

We are dealing with different situations: where, in a relationship between a freeholder and a leaseholder, freeholders are providing poor service or have been price gouging; or where other freeholders have entered into contracts, done all the right things under that contract and behaved in a very excellent way, but we are now retrospectively going to change all their contracts. I want to put on the record some of my concerns about doing so. I understand that the intention of the House as a whole is to move forward, but I am interested in whether the Minister has any comment on that—he does not need to—or has something interesting to add.

--- Later in debate ---

[Lee Rowley]

I am grateful to the hon. Gentleman for his question. There is always a case for reform in all areas of public policy. I recognise the importance of getting it right on shared ownership. On both sides of the Committee, we share an objective to make sure that this works as best it can, given that it is giving people the opportunity of capital and a new opportunity to be able to acquire that in a way that is not available to them through other means that the market offers. In half-answering the question, which is that there are always things that can be done—obviously I cannot anticipate the great fifth Conservative election victory that is coming or what the manifesto and the outcome may be—but I will certainly take on board the hon. Gentleman’s comments, so that when that election victory comes we can accommodate his suggestion.

Part 1B amends the Leasehold Reform, Housing and Urban Development Act 1993 to make similar changes for flats. New paragraph 5I repeals the current exclusion, and 5K provides that shared ownership leaseholders are qualifying leaseholders for lease extension rights. New paragraph 5J excludes shared ownership leases from collective acquisition rights and gives a power to the Secretary of State to exclude other shared ownership leases from the same where they are not excluded by this section. New paragraph 5M requires leasebacks to the former freeholder of any shared ownership flats subject to a collective freehold acquisition if the former freeholder is the provider. New paragraph 5N deals with the sharing of staircasing premiums between relevant landlords, exactly as new paragraph 5E does for houses. Finally, new paragraph 5P inserts the necessary definitions, as new paragraph 5F did for houses. I commend the amendment to the Committee.

[Richard Fuller]

On a point of clarification, Dame Caroline, are we discussing the other amendments in this group?

[The Chair]

No, we are just speaking to amendments 60, 61, 66, 69, 70 and 74.

Amendment 60 agreed to.

Amendments made: 61, in schedule 2, page 91, line 21, leave out “38(1)” and insert “101(1)”.

This amendment is consequential on Amendment 74.

Amendment 62, in schedule 2, page 92, line 15, leave out sub-paragraph (2) and insert—

“(2) Assumption 1: it must be assumed that—

(a) in the case of a freehold enfranchisement, any lease which the claimant is acquiring as part of the enfranchisement is merged with the freehold;

(b) in the case of a lease extension, any lease which is deemed to be surrendered and regranted as part of the lease extension is merged with the interest of the person granting the lease extension.”

This amendment would ensure that where an intermediate leaseholder grants a lease extension, the lease which is deemed to be surrendered and regranted as part of that extension is assumed to be merged with the intermediate leaseholder’s lease for the purposes of valuation.

Amendment 63, in schedule 2, page 94, line 22, leave out “property” and insert “premises”.

This amendment would amend the sub-paragraph to use the correct defined term.

Amendment 64, in schedule 2, page 94, line 24, leave out “that property” and insert “those premises”.

This amendment would amend the sub-paragraph to use the correct defined term.

Amendment 65, in schedule 2, page 97, line 14, leave out from second “of” to end of line 21 and insert “the premises being valued.

(4A) The “premises being valued” are the premises that—

(a) are demised by the lease being valued, and

(b) are subject to the standard valuation method.

(4B) The “market value” of the premises being valued is—

(a) in the case of a freehold enfranchisement, or lease extension, under the LRA 1967, the amount which the freehold of the premises being valued could have been expected to realise if it had been sold on the open market with vacant possession by a willing seller at the valuation date;

(b) in the case of a collective enfranchisement or lease extension under the LRHUDA 1993, the share of the relevant freehold market value which is attributable to the premises being valued.

(4C) The “relevant freehold market value” is —

(a) in the case of a collective enfranchisement, the amount which the freehold to be acquired on the collective enfranchisement could have been expected to realise if it had been sold on the open market with vacant possession by a willing seller at the valuation date;

(b) in the case of a lease extension under the LRHUDA 1993, the amount which the freehold of the building and any other land which contain the premises being valued could have been expected to realise if it had been sold on the open market with vacant possession by a willing seller at the valuation date.”

This amendment would clarify that where the term value of a lease of a flat and any other property is being valued under Schedule 2, the market value is a share of the freehold value of the premises which contain the flat and other property.

Amendment 66, in schedule 2, page 97, line 33, at end insert—

“(9) If the lease being valued is a shared ownership lease—

(a) the rent that is to be used for the purposes of sub-paragraph (1) and (2) is the rent that is payable under the lease in respect of the tenant’s share in the property demised by the lease;

(b) where the lease does not reserve separate rents in respect of the tenant’s share in the demised premises and the landlord’s share in the property demised by the lease, any rent reserved is to be treated as reserved in respect of the landlord’s share.”

This provides that, where there is a shared ownership lease, the rent payable in respect of the share owned by the tenant is to be taken into account when determining the term value; and deals with the case where no rent is specifically reserved in respect of the share owned by the tenant.

Amendment 67, in schedule 2, page 97, line 39, leave out “the freehold of”.

This amendment is consequential on Amendment 68.

Amendment 68, in schedule 2, page 98, line 7, leave out from first “of” to end of line 10 and insert “the premises being valued is—

(a) in the case of the transfer of a freehold house under the LRA 1967, the amount which the freehold of the premises being valued could have been expected to realise if it had been sold on the open market with vacant possession by a willing seller at the valuation date;

(b) in the case of a collective enfranchisement, the share of the relevant freehold market value which is attributable to the premises being valued.

(3A) The “relevant freehold market value” is the amount which the freehold to be acquired on the collective enfranchisement could have been expected to realise if it had been sold on the open market with vacant possession by a willing seller at the valuation date.”—(Lee Rowley.)

This amendment would clarify that where the reversion value of a lease of a flat is being valued under Schedule 2 for the purposes of enfranchisement, the market value is a share of the value of the freehold being acquired on the collective enfranchisement.

--- Later in debate ---

[Matthew Pennycook]

I thank the hon. Lady for her intervention. To be very clear, we agree with the Government’s proposal that the Secretary of State set the rate. The alternative would be, as Mr Fanshawe put to us in the evidence sessions, that we rely as a starting point on the Sportelli judgment, with its 4.75% and 5% rates respectively, and that leaseholders are free in the process of dispute to argue for more favourable rates on the grounds of particular circumstances being implied. On balance, we think that it is right that the Secretary of State sets the rate. What I am trying to drive at, which I will get to, is that how the Secretary of State sets the rate and what it should be are crucial to the outcomes for leaseholders in terms of the premium payable.

When it comes to the regulations required to bring the new valuation process into force, we obviously recognise that they are the means by which the detailed methodology for setting the applicable deferment rate will be brought forward. However, while it would not be right to pre-empt those regulations in Committee, we believe that the objective underpinning the setting of the deferment rate should be set out in the Bill. While the rate or rates will need to be set at a level that does not unfairly denude freeholders of value, we think it is important that the Bill states clearly that in determining what should be the rate or rates, the Secretary of State must have at the forefront of their mind the need to reduce premiums for leaseholders. Amendments 2 and 3 would ensure that that is the case in relation to both freehold acquisition and lease extensions. While other considerations will clearly need to be taken into account, not least how to ensure that landlords receive adequate compensation to reflect their legitimate property interests, these amendments would oblige Ministers to set a rate or rates with the overriding objective of encouraging leaseholders to acquire their freehold at the lowest possible cost.

That is important because with marriage and hope value abolished and the treatment of ground rents in the valuation calculation capped at peppercorn rates, it is the deferment rate that will be the primary driver of price to be paid by leaseholders in enfranchisement or extension claims. It is essential that reducing premiums for leaseholders is the determining factor in the process by which such a rate or rates will be set and reviewed, and it must therefore be put on the face of the Bill. On that basis, I hope the Minister will consider accepting both amendments. I look forward to his response.

[Richard Fuller]

I rise in support of my amendments 146 to 149, which, similarly to the shadow Minister’s amendment 2, seek to provide some framework and guidance around, and a better understanding of, how the Secretary of State will determine these very important discount rates. I go back to the point about the importance of trying to give as much clarity as possible about what we are passing into legislation and to avoid unintended consequences. The Minister will be aware that some of the businesses affected may be subject to statutory disclosures. It is very hard to make a formal statutory disclosure if one is not clear what the impact will be. My amendment seeks to provide that.

I want to explain some of the reasons why I have chosen to focus on the issues of market rates and interest, and regional trends. The shadow Minister made some very good points that I am sure the Minister will respond to. It is important to understand that it is always possible for Government to fix market rates and interest, either directly or by the courts, but interest rates do change; the world does change. We can find ourselves adrift on interest rates relatively quickly. The Sportelli judgment, I think, was made at a time when the Bank rate was 4.5%. In that context, the setting of the discount rate did not seem particularly inappropriate. Three years later, the Bank rate went to 0.5% as a consequence of quantitative easing, and stayed like that for seven years. Obviously, it is in the interests of party A for the rate to be set high and in the interests of party B for the rate to be set low, but there is a concern about the rate being fixed without certain guidance.

The shadow Minister has argued that the rate should have regard to the desirability of encouraging leaseholders to acquire their freehold at the lowest possible cost; that fits the imperative that informed the Bill. My view is that we ought to first encourage the Secretary of State to anchor his or her judgment on the market rate of interest—not a specific market rate of interest, but a set of market rates of interest. The reason is that there will be leases of certain terms: five, 10, 15, 30, 50 or 100 years. When someone buys an investment and ties up their money for a longer period of time, they pay a different rate of interest than when they do so for a shorter period of time. It is appropriate for the Government to have regard to that when setting the discount rates. That is why I have tabled this amendment. I am interested to know what the Minister has to say about it.

Amendment 149 is about regional variations in market conditions. The Minister will know that a large part of the Bill relates to London, but not all of it. The way property prices move in Bedfordshire—I see that another Bedfordshire MP, the hon. Member for Mid Bedfordshire, is here—and in other parts of the country is different from London. Market conditions vary. In order to be fair to participants, it is important that the Secretary of State has regard to regional variations. I hope the Minister can provide some encouraging words on market conditions and tying the discount rate to some form of understanding of market interest rates.

[Lee Rowley]

I am grateful to the hon. Member for Greenwich and Woolwich and my hon. Friend the Member for North East Bedfordshire for their contributions. We effectively have two sets of amendments from different sides of the discussion, which demonstrates both the importance and the challenge of getting this right. Before I turn to their points, the question before the Committee is whether we want to put further constraints or further elements into primary legislation, or are content in principle to allow most of them to be covered by the Secretary of State of the day at the time. The Government’s view is that the latter is more proportionate and reasonable. That is why we have come forward with the current proposal. As a result, we will not be accepting the amendments, but I will add a few more comments to try to convince the hon. Gentlemen to withdraw their amendments.

The hon. Member for Greenwich and Woolwich made a number of points on consultation. Although I cannot anticipate or confirm at this stage, I think it is absolutely the case that we would need further discussion and careful consideration of the approach, as I hope we have made clear throughout the debate. On his point about the review every 10 years, the existing judgment has now stood for going on 16 years—I know he knows that, because he has referenced it—and has done so relatively successfully. However, I take his point about tribunals being able to change things. Effectively, this is coming in through a tribunal in the first instance. There is a balance to be struck.

We have put a reference to 10 years in the Bill so that there is a recognition that there would need to be a review—as opposed to an open-ended ability with no indication of when it is used—while being clear that, although it would be for the Government of the day to determine, regular reviews will have potential impacts and potential challenges to the market, and there has to be some form of consistency or clarity in order to give people the confidence to invest and make decisions on an economic basis. The reason we have approached the provision from this angle is both to provide flexibility through the ability to change not being in primary legislation, but also giving guidance that there will be reviews at least every 10 years—albeit not indicating that they should be on a more frequent basis in order not to get into a discussion about whether there is too much movement for consistency and clarity.

My hon. Friend the Member for North East Bedfordshire made a number of important points, particularly with regard to his general point about market conditions and the importance of getting that right, and also that there are regional variations. This is another detailed part of the conversation, which the Government seek to move into another discussion rather than being on the face of the Bill. I recognise that sometimes that is not ideal, but one reason we want to preserve flexibility is to give the Secretary of State of the day the ability to respond to market conditions where necessary.

On the first point that my hon. Friend raised, we have been clear from the outset—when the Government announced the reforms—that rates should be set at market value to ensure that the amount landlords are compensated reflects their legitimate property interest. It is important that landlords receive sufficient compensation. To his earlier questions about legality, this is an important safeguard to ensure compatibility with various rights-based legislation, which we talk about extensively in this place.

The Secretary of State will set the deferment rate in secondary legislation. We have been engaging, and continue to engage, with the sector to understand its position to ensure that rates are set in a way that is fair to all those whose property rights are changed and interfered with, and fair to leaseholders. Although I cannot give an indication or a guarantee around regionality, I am happy to say that we want to set the levels at market rates, but also with the recognition that many different elements need to be considered, one of which may be regionality. That is why we need to continue this conversation beyond this discussion. The proposition that the Government are now putting to the Committee is to set these elements in primary legislation and to continue the discussions that my hon. Friend and others have asked for through other means that will come forward in due course.

Leasehold and Freehold Reform Bill (Fifth sitting)

Richard Fuller Excerpts

Committee stage
Tuesday 23rd January 2024 Public Bill Committees

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

I want to speak briefly in support of the third point made by the shadow Minister, the hon. Member for Greenwich and Woolwich, in which he addressed the interaction of the Bill with the Government’s ground rent consultation. If I heard him correctly, he was asking the Government at least to be clear as to how those recommendations will affect the Bill. He was asking the Government to be clear on their position; I will not go as far as that, because I think the Government have the discretion to decide when they want to announce that or not.

However, there is another issue that the Minister could perhaps consider: the impact assessment on the valuation, which we, as Members of Parliament, are being asked to address in this Bill. As we heard in the evidence sessions, the current impact assessment may potentially omit a significant amount of value that will be taken into account as part of the ground rent reform. If it is the Government’s intention to introduce amendments on that, as the shadow spokesman was asking, it would be useful to have clarity from the Minister on that, but we should also ask the Minister whether an updated impact assessment can be presented to incorporate what the value of those recommendations would be.

[Rachel Maclean]

I rise briefly to add my support for some of the comments and, most importantly, for the ability of leaseholders to extend their leases. As we know, this is one of the most egregious features of the current system: people buy properties that they then find have short leases, after which they are whacked with massive charges coming out of the blue; they do not understand how those charges are calculated, and they end up having to pay them because they have no choice. They are completely over a barrel. I know that leaseholders will massively welcome this change, which is one of the most important parts of the whole Bill.

Having said that, it is vital that we understand when we will see the Government’s response on the ground rent consultation, as my hon. Friend the Member for North East Bedfordshire and the shadow spokesperson, the hon. Member for Greenwich and Woolwich, have said. It will, of course, affect the calculations.

I also want to raise with the Committee the number of people who have sat in front of me and asked, “When will you bring this forward? I don’t know whether to extend my lease now or wait another year or for another consultation”. It is a huge number of people. I want to make this point to everybody: if we get this right, it will affect a lot of people very beneficially.

[Lee Rowley]

I thank hon. Members for their questions and comments, which I will try to address. There is obviously a desire to understand the interaction of the two clauses with the outcome of the consultation that closed last week. We saw to some extent in our deliberations last week, on the first two days in Committee, when we took evidence, that this is a contested area. As a result and notwithstanding the fact that by convention in this place we have the ability to speak freely, I hope the Committee will understand that I will limit my remarks.

I understand the eagerness, enthusiasm and legitimate desire of the Committee to understand the position that we will seek to provide. We will provide that to the Committee, and publicly, as soon as possible. It will not be possible for me to answer all the questions that were asked today. I accept the point made by my hon. Friend the Member for North East Bedfordshire that there is a difference between process and decision, but some elements of the process could be impacted by the decision and it will therefore be difficult to engage in hypotheticals at this stage. However, we will respond to the legitimate points that the Committee has made as soon as we are able to do so.

I agree with the points made by the hon. Member for Greenwich and Woolwich and by my hon. Friend the Member for Redditch about the importance of clarifying how quickly the provisions will come into force. Again, that is a difficult one to answer because we need to get through this process. We have no idea what the other place might or might not do or how quickly the process will go. Although we are all grateful for the confirmation from my Labour colleagues that we are seeking to move this as quickly as possible, it is difficult to be able to answer the question at this stage, but I hope to say more in due course.

On the fourth question posed by the hon. Member for Greenwich and Woolwich, about the competent landlord, my understanding is that we are not changing the law in that regard.

[Richard Fuller]

I am listening carefully to the Minister and sort of accept what he says, but may I make a couple of points? First, he has talked about how the Bill has to go through the House of Lords, but we are the democratically elected Chamber. The interaction of the two provisions represents substantial transfers in value between different parts of our community—rightly or wrongly. Decisions should correctly be made with the full information by this House. We should not go through a procedure when information is presented in the unelected House, which then comes back to the Commons. With our remit as Back-Bench Members of Parliament, we are very restricted in what we can do to amend that.

Secondly, the Minister talked about how the points about value are hypothetical. That is the case only because the Government have not made a decision. Once they make a decision, those points of value can be forecast. They are no longer hypothetical but judgmental, so it really is within the Minister’s remit to be able to move from hypothetical to his own forecast. Having said that, I fully accept what the Minister has said so far.

[Lee Rowley]

I am grateful to my hon. Friend for his legitimate points. He is absolutely right that it is important that right hon. and hon. Members have an opportunity to debate at the earliest possible opportunity the complex interaction of what we may or may not choose to do with the consultation. I take his point about hypotheticals. My point was simply that there are a number of different options in the Bill. Some of them are substantially different, as my hon. Friend indicated in some of his questions last week. To go through all the elements of the potential outcomes in all of those different options would be a substantial amount of work and potentially not necessary on the basis that we are likely to choose some rather than all of them. None the less, where I have missed anything out, I will—

Leasehold and Freehold Reform Bill (Fourth sitting)

Richard Fuller Excerpts

Committee stage
Thursday 18th January 2024 Public Bill Committees

[Richard Fuller]

Q I want to follow on from the point made by my colleague, Mike Amesbury, about your November report. When it looked at estate management charges, there was a litany of abuses against residents who own their own home. As Mr Jones has just said, there was no information—or certainly not sufficient information—about obligations at the point of purchase. There was no transparency about the way in which information is provided. There were totally exorbitant charges for provision of basic things such as a bulb to go into a lamp post. There was an inability, or unwillingness, to provide annual reports to people, and limited to no redress for consumers.

I know that you are going to get to your final report in February. This Bill, helpfully in some ways, seeks to plug some of those gaps in the protection of people who own homes, but would it not be better for us to ban the lack of adoption right at the start? Should we not go to the source and find a solution as to why councils and housing estate developers are ripping off my constituents, and I am sure many others, who own their own homes? What can be done about that in this Bill?

George Lusty: Again, in our November working paper, we pointed to that very issue of there not being enough adoption by local authorities of those facilities. We put forward possible ways for that to be fixed, either through more mandatory adoption of those amenities or through some common adoptable standards that could be followed to inform the types of amenity that were suitable for adoption more broadly. As I say, we have not issued our final recommendations, but we have already said something about the options that might be available if there was a desire to try to tackle that now.

[Richard Fuller]

Q My concern is that you are going to finish your report, quite rightly, in the fullness of time—that will be February—and this Committee will not be sitting in February; heaven help us, I hope not. Please could you go away with a piece of homework for tonight to write to the Committee about what ideas from your report so far could be put in the Bill on the adoption matter? I think all of us would find that very helpful.

George Lusty indicated assent.

[The Chair]

Thank you. A very quick question with a very quick answer, please. Barry Gardiner.

--- Later in debate ---

[Barry Gardiner]

Thank you very much. In order to preserve both our reputations, I will not say that you agreed with me and I trust that you will not say that I agreed with you.

[Richard Fuller]

Q Let me attempt to get back on to Conservative territory, rather than Barry’s territory. There are many experts in this field, and campaigners have done some fantastic work. I am not one of them—I do not know about this—so allow me some naivety in the questions I pose. Is marriage value a real thing?

James Vitali: I think a lot of the reforms proposed in this Bill are an attempt to reflect better the fact that when the leaseholder purchases the leasehold, they are acquiring the majority value of the asset. In market terms, sure, I suppose marriage value is significant and substantive, but as it stands it seems to me that a leaseholder acquires the majority of the value of an asset when they acquire the leasehold, and that is slowly eroded. I think that is the thing that is wrong in the process.

[Richard Fuller]

Q That did not quite answer my question. My question was: is marriage value a real thing? It could be large or small. Can you describe what it is and do you perceive that it is a real thing? I read somewhere about some vases—I do not know why we have these vase analogies sometimes—and I kind of get it. There is vase A and vase B—apparently they have to be Chinese—and when you put the two together, they are more valuable than they are separately. Is that a real thing? Do you understand that as a source of value? If you do, can you explain to me the legitimacy of transferring, at a stroke, £1.9 billion of that from one group of people to another, and that not to be described as a windfall gain?

James Vitali: Tricky question. If you were to acquire some property that you have genuine rights and responsibilities for the management of, the ability to benefit from in the future and the ability to control, then that form of property would be greater than if you were subject to charges and ground rent. On the point about the £1.9 billion transfer value from freeholders to leaseholders, I did take a cursory look at the impact assessment. I do think that is a legitimate decision for you as parliamentarians to make about 10-year property rights in the UK. I think it is justified.

[Richard Fuller]

Q I have one final question, if I may. I know it is not quite at a stroke, because I think it is when they come up, but is there any way of mitigating? It seems to me that when you take something away from one person incompletely and you cannot actually say, “Well, the value wasn’t there”—I understand fee-for-service but marriage value is different from that—there is no other mitigation for the loss of that party, and there is not in the Bill. We can agree that marriage value needs to go; we are finally going from class A of people to class B of people. We could, however, then put in some mitigation for those who are having a loss, which would be usual if they had not done something materially wrong. What do you think about that?

James Vitali: I think that is where the dividing line lies between you and Mr Gardiner, and perhaps you and I and Mr Gardiner.

[Richard Fuller]

Oh, it is much wider than that.

James Vitali: Indeed. I think a balancing act needs to be struck in this Bill between spreading genuine property rights more widely and compensating those existing freeholders. If you seek to diffuse property ownership, but in the process undermine or dilute property rights, you are undermining the thing that you are trying to spread more evenly. That is a technical question for the way that you finesse this Bill, but I do not think it is a substantive issue with the desire to give leaseholders greater control and rights over their property.

[Richard Fuller]

Exactly.

[Barry Gardiner]

Q On the point of marriage value, Mr Vitali, let us go back to free market principles. You and I would agree that a free market is one in which properties are sold between a willing seller and a willing buyer—would you not?

James Vitali indicated assent.

--- Later in debate ---

[Matthew Pennycook]

That is all extremely helpful. Thank you very much.

[Richard Fuller]

Q Our previous witness, Mr Vitali, talked about potential concerns about the effect of regulation on people’s understanding of property rights. Do you have any significant concerns about how the Bill affects property rights? If you do, what should we do about them?

Philip Rainey: In a sense, that is a conceptual question.

[Richard Fuller]

You are a lawyer.

Philip Rainey: Yes, and one tends to avoid the philosophical points. Clearly, from a legal perspective the Bill interferes in an extremely significant way with property rights. Whether that is the right thing to do is a value judgment.

One thing that is sometimes overlooked—I am not defending the leasehold system; I am on record as being in favour of commonhold, which is inherently a more satisfactory system for holding flats—is that a lot of people will be disappointed when commonhold comes in. They will still find that they are not allowed to remove the supporting walls in their flat or to have a noisy party on a Friday night, because their neighbours do not want that. A lot of the things you find in leases and the restrictions when living in flats are because, if you live communally in a block of flats, you owe duties to your neighbours. There are responsibilities, in communal living, that do not apply if you live in a small house in a field, 500 yards from your neighbours. The restrictions in the leasehold system are not as unique to leasehold as you might think; I would suggest otherwise. To go back to your basic point, clearly the Bill alters property rights. It is a value judgment as to whether that is the right thing to do.

Philip Freedman: I have heard a number of cases where the property industry is concerned about the transfer of value that will be effected by capping ground rents, removing marriage value and so on, in relation not just to the benefit to leaseholders but to the burden on those landlords that are pension funds and other organisations that will find that they are deprived of rental income that they have banked on and have thought will be reliable income over many years. They bought leases that were perfectly lawful, were not, so far as one can tell, entered into under any mis-selling, and the provisions for the ground rent are not necessarily unconscionable; the ground rents were invested in in good faith.

We must not lose sight of the fact that if there are winners, there are always losers. Some provisions of the Bill, which are fine, are to say that if the tenants are enfranchising, they do not have to buy the commercial bits of the building. Those can be left with the landlord under a leaseback, and therefore the value remains with the landlord. Both parties win: the landlord keeps the value and the tenants do not have to pay as much money. But where you are transferring value, there is always a loser, and there are lots of investors who appear to have bought in good faith and were not expecting retrospective legislation. Lawyers always do not like retrospective legislation. It is up to Parliament to decide whether the social benefit is sufficient to outweigh the concern about pension funds, and so on, that have invested in ground rents. The Law Society does not take sides between landlords and tenants, or different types of clients. We just want to make sure that Parliament focuses on the issue and makes the decision in the public interest.

[Barry Gardiner]

Q Mr Rainey, first, thank you for what you said about the preferability of commonhold to leasehold. Is it your view, therefore, that it would be good if the Bill were to make all new flats that are constructed leasehold with a share of freehold, as a staging post, in effect?

Philip Rainey: Yes. In a sense, that is the downside. It is possible to create what you might call commonhold-lite. It is a leasehold system—it is so encrusted with restrictions and requirements, although you own the freehold, that it is very similar. It would be only a staging post, because one of the problems with the current system is that it creates a “them and us” situation. You see it even when tenants own the freehold. Somehow they still think, “Well, it’s ‘my’ lease and it’s ‘them’”, which is them under another hat as the freeholder. Commonhold should eliminate that.

--- Later in debate ---

[Barry Gardiner]

Q Mr Spearman, since we have limited time, let me turn to what you are saying to the members of the public. You have engaged in a number of polling operations. You have told people that only 1 in 4 people in a block would be able to agree with each other about how to manage that block. The implication is that many leaseholders do not want to take on the burden of management and, actually, some of them are incapable of taking on that burden of management—almost as if you are providing them with this wonderful service that they would not want to get rid of. But the figure of 1 in 4 people that you quoted in your survey was 1 in 4 people in the United Kingdom, and not leaseholders at all, was it not? It included people in Scotland who are not involved in the provisions of leasehold in England and Wales. So you went out to people who had no connection as leaseholders and surveyed them, and then claimed that was an argument.

[Richard Fuller]

On a point of order, Dame Caroline. I am wondering whether my colleague, Mr Gardiner, is getting to a question rather than just expressing a view.

[Barry Gardiner]

I just did, but you interrupted.

--- Later in debate ---

[The Chair]

Order. We have time for only one more question, Barry. Can I move on to Richard Fuller, please?

[Richard Fuller]

Q Perhaps Mr Gardiner will call a point of order on me. I have been talking about this transfer of value. There are non-monetised here, but there is £1.9 billion of transfer. I think we have accepted from previous witnesses of all types that it is a political decision, but it is essentially taking from group A to group B. You just, I think, said there were ground rents that are not enumerated here, and I think you said they were not £1.9 billion, but £29 billion or £30 billion. Could you elaborate on that?

Jack Spearman: This is a bit of an issue we have with the way the impact assessments have worked, because the impact assessment for the leasehold and freehold Bill did not take consideration of the consultation impact assessment that came out on ground rent. They are not working together. That is part of the issue of you not being able to scrutinise the impact assessment within the ground rent consultation, where the Secretary of State is on record as saying he wants a peppercorn ground rent; in that it says the impact would be £27.7 billion. If you add that to the £3.2 billion in the Leasehold and Freehold Reform Bill impact assessment, that is where you get to.

[Richard Fuller]

Q So just to be clear, as the Committee considers this Bill, including what may come from subsequent secondary legislation, it is not £1.9 billion of transfer, but £1.9 billion plus £28 billion. Is that fair? So we need to bring it all in, not just—

Jack Spearman: I think it is a bit more, actually. Is it not £3.17 billion in this one?

[Richard Fuller]

Exactly—you have added them all up. I just did the first section.

Jack Spearman: Indeed.

[Richard Fuller]

But a bit like an iceberg, the transfer of wealth from group A to group B is somewhere else; it is not here in the impact assessment.

Jack Spearman: Agreed. Also, in terms of the people it is being transferred to and from, remember that while a lot of leaseholders are homeowners, there are also a lot of buy-to-let investors in that group—over 50% in our membership, of leaseholders are buy-to-let investors. That is a transfer from business to business being overseen by this Bill.

[Richard Fuller]

Very good. Does anyone else want to come in? I had another question, unless we have no more time.

[The Chair]

We have until half-past three.

[Richard Fuller]

Q Can I ask you about the discount rates that are used? We have the deferment rate and the capitalisation rate. Those will be determined in secondary legislation as well. Do you have any thoughts about what guidance should be given to the Minister about how those should be set?

Jack Spearman: Yes. It is very important that, at the very least, the primary legislation sets out what reference the Minister should look to—something dynamic would be helpful, so that you don’t have these ridiculously long periods of time where one party is out or in. I think people have talked about looking at some long-term ideas, whether that is the National Loans Fund rate or the longest Treasury gilt. You obviously don’t want to make it too dynamic, so that it is always shifting around, but I think it should clearly reflect market value. It should be done on a no-act principle. It should be enabled to be dynamic so that, as I said, you do not have this problem of the Secretary of State having to arbitrarily change it—it should be able to move with the market. It should be something that is available for reference.

[The Chair]

Thank you. That brings us to the end of that session. I thank our witness on behalf of the Committee.

Examination of Witness

Giles Grover gave evidence.

Leasehold and Freehold Reform Bill (Third sitting)

Richard Fuller Excerpts

Committee stage
Thursday 18th January 2024 Public Bill Committees

[The Chair]

We have just over 10 minutes left. I will bring in Richard Fuller and then we will try to get back to Barry and Andy.

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

Q We have been talking a bit about regulation, which is often seen as some sort of answer to problems and frequently is not—or, at least, is different from simplification or standardisation, which each of you have mentioned at different points.

I am interested in your thoughts when it comes to property managers and managing agents, about where you think the interaction is between simplification and regulation, and whether regulation is a matter of regulating the process—“You must provide this set of information by this date”—or of regulating the people—“Thou must have this qualification in order to do x”—or whether it is about the process of redress: being able to get some compensation at the end; because we are going to be wrestling with all those things here. They all have a role to play, to a greater or lesser extent. But we run the risk of just vomiting out a whole new set of what we think is going to be the solution. As you said, Ms Higgins, we have a once-in-20-years chance. I said this to Mr Gardiner on the way in—he goes back to 1993 thinking about this, and he is an MP now.

What are your thoughts? Give us some guidance on simplification and standardisation versus regulation, and then regulation of people, regulation of process and the provision of redress.

Bob Smytherman: I would not reinvent the wheel. I don’t know whether you have had The Property Institute in yet, and Andrew Bulmer from the Association of Residential Managing Agents. They fill the gap as the main membership organisation for managing agents. Andrew will give you the figures, but I believe they represent about 50% of all property managers of leasehold property. That means that 50% of people are not members of ARMA and are not part of their regime, along with the Institute of Residential Property Management—obviously, ARMA and the IRPM have now merged to form The Property Institute.

They have done amazing work to fill the void, where there has been a lack of an independent regulator, and I think working with Andrew and with them would be a really good starting point for the Government to create a regulatory regime. Certainly we would stand ready as an organisation to help with that. I just think that giving leaseholders the confidence that there is an independent body that they can go to when they have disputes with their property manager or their landlord is really important—as people do with Ofwat or Ofgem or other regulators. Having that independent regulator is really, really important.

Ms Paula Higgins: You make a really interesting point, but there are things that I would not want to see happening. We also work in the new homes area. We have legislated for a New Homes Ombudsman—fantastic—but we have not enacted it yet, and we now have a more confusing landscape for people who are buying new homes, who are probably also leaseholders and probably also shared owners; they have another competing code. It is incredibly confusing. That is not what I want to see happening.

Regulation means enforcement. There are a lot of things that estate agents have to do now, and we know from our research that they are not doing what they should be doing. The problem is that people do not have the right of redress if something happens. We have heard about the managing agents, but it is the estate agents, the developers and the housing associations who are selling these dreams. You have seen lots of people on Tuesday who feel they have been mis-sold, and others will continue to be mis-sold. These estate agents are the first port of call for the people going into the process, and we have to remember that people are buying a home, and they have not done it before. They might have bought a couch or something like that, but this is the first time they are doing this, and they can get it so wrong. People need to be protected. The estate agent is the only part of the professional world of property that is not regulated. The estate agent is that person there who is alongside the person trying to get their dream, which could go massively wrong.

[Richard Fuller]

Q When you say “regulated”, do you mean they should have a qualification—that they can tick a box to say, “I was qualified to do this”—or redress, as in, there is a regulatory body above them?

Ms Paula Higgins: That is a really good point. I know the RoPA stuff—the regulation of property agents working group; in fact, we gave evidence to it. A tick box is probably not the right thing. Perhaps it is more about a proper single place for redress, but as I think Andrew Bulmer mentioned, that is the ambulance at the bottom, and what matters is what is at the top.

What we don’t want is people doing online qualifications and getting a tick, and then they can jump up as an estate agent and come back down again. So I appreciate the complexities and I look forward to seeing what your deliberations will be.

Sue Phillips: I do not have the expertise to speak directly to the regulation of property management, but I would like to pick up on a couple of related issues from a shared-ownership perspective. The first is that the evidence submitted to the Advertising Standards Authority’s inquiry into Black Friday marketing highlighted the fact that industry sector standards for the marketing of shared ownership are lower than other standards that are out there. For example, shared ownership is currently excluded from the New Homes Quality Board’s code of practice. That simultaneously reflects the complexity of shared ownership but also the fact that shared owners do not have access to the same level of protections as other homebuyers in relation to new build codes. That is slightly off to one side.

I also wanted to pick up on the matter of transparency of service charges. Transparency is clearly essential: people should know what they are paying for. However, shared owners and other leaseholders should not have to effectively take on an audit function where it falls upon them to scrutinise accounts. They should be able to place some degree of reliance on the accuracy and proportionality of the accounts that they receive. I cannot speak to how that will be achieved, but I think that the onus should be on the providers of services and service charge accounts to be better, rather than leaseholders and shared owners having more and more obligations to scrutinise and take whatever action is required if problems are identified in those accounts.

[Barry Gardiner]

Q Ms Higgins, do you agree that it would be appropriate to allow leaseholders to withhold service charges where there has not been compliance with the very extensive requirements in the Bill to provide accounts no later than six months after, and so on? Is that an appropriate and proportionate way for leaseholders to be permitted to respond?

Ms Paula Higgins: I fully agree with that. It is a bit like the situation where, if you are getting building work done in your home and the building work is not completed or whatever, you withhold money. That happens in all of the construction industry. The stuff in relation to the forfeiture is very disproportionate, is it not?

--- Later in debate ---

[Barry Gardiner]

Q Just to make you feel a little better about disagreeing with your Law Commission counterparts in England, of course they were constrained in what they could do by the parameters the Government set them.

Professor Hodges: Very briefly: modernise, because we are still living in the past; simplify, because we can easily do that on a comprehensive basis; and get it done so that people can plan, retrain and know what they have to do. You then get good behaviour throughout the system. I am very tempted to repeat facetiously the “Get it done” slogan, which crops up a lot.

[Richard Fuller]

Q My questions are for Professor Hodges. We have to deal with the Bill as it is—on the commonhold thing—so, “Get it done” is not particularly helpful, if I may say. It might be a good indication, but not particularly detailed, so help us on the detail of that. Often in Parliament, we regulate and think that that is the solution. I do not know whether you have had a chance to look at some of the regulatory details in the Bill, but what would be your guidance be to us about where it is pointing in the right direction, where it might be going wrong, and the pitfalls that we should look out for?

Professor Hodges: As far as the detail of the Bill is concerned, looking technically at what is in there without expressing a view as whether it is a good or a bad idea substantively, it seems to me to be fine. You asked a wider regulatory question earlier on—

[Richard Fuller]

I will come to that in a minute. But just in here, on this Bill, is there anything that we should look out for?

Professor Hodges: As far as the detail is concerned, there is nothing that stands out to me, as a regulatory expert, that says, “This is a problem”.

[Richard Fuller]

Okay, so more generally then, on regulators—Ofgem on energy prices and Ofwat on sewage and water—that approach seems not to provide the outcomes that perhaps were originally indicated when the legislation was passed. What are your thoughts about the political use of regulation? Is there anything from those general principles that you think might apply here?

Professor Hodges: I sat on Lord Best’s RoPA—regulation of property agents—working group, and there was strong consensus around the room that you need regulation of agents. Since then, how we do regulation has evolved. Regulation, in the broadest sense, is an all-encompassing idea, and looking at the problems with Ofgem, Ofwat and so on, there are two aspects that strike me. First, one historically gave specific regulatory bodies certain remits that turned out to be not wide enough, and there were not enough people involved in the conversation; they were not regulated or contributing to good behaviour.

Secondly, the traditional way within which regulation is thought of, in the way that Parliament works, is that you make a number of requirements, rules and procedures. You then identify breaches of those rules and requirements and you then enforce. You can do that through traditionally public or private ways. Public ways in the property sector would be through trading standards authorities or environmental health locally, not a national regulator, as such. The private ways would be through the courts, but that has evolved in relation to the alternative dispute resolution ombudsmen being the best model at the moment and an integration between the tribunal and ombudsman, which is on the cards and may well occur. However, that is not enough because enforcement does not affect behaviour as such. We like to think that it does, but it is a myth, and there is an enormous amount of psychology and evidence published showing that it is not enough.

Therefore, if one stands back and says, “How do we get an effective regulatory system?”, it is about how one does it. That involves getting all the stakeholders together —again, that goes back to the first point about how it is not just a regulator telling people what to do, like an Ofgem or Ofcom—and saying, “How are we going to behave and how are we going to do it?” You need the rules, but you also need codes and systems involving data and support.

[Richard Fuller]

Rules, codes, systems, data, penalties, redress, different organisations—this is your answer as a better solution to caveat emptor?

Professor Hodges: Yes, absolutely. Now, let me give you one example only—

[Richard Fuller]

In all circumstances or specifically on this Bill? Well, we ought to stick to the Bill. I just want to be clear: you have just outlined the solution—this Bill is going part of the way to that—but the old way was, “I have personal responsibility,” “I am responsible for the decision I make,” “This is a very big decision about what I buy,” and so on. I just want to make sure that we are not trying to put too much faith—one of the last witnesses made some very good points on shared ownership and the fact that people may not have the encompassing knowledge—but I just want to make sure, from your expertise on regulation, that, in this field, you cannot see any damaging consequences for the principles of caveat emptor and personal responsibility by this regulatory structure that you have outlined?

Professor Hodges: Not at all. The most striking example—

[The Chair]

Please answer briefly if you can, because I want to get some more people in.

Professor Hodges: There are various regulatory systems in this country that are now modernising. In many ways, the most outstanding example, which has been there for several decades, is aviation safety. Everyone works together, and they call it an “open and just culture”. They are actually collaborating. They have lots of rules, but you have almost no enforcement, because the Civil Aviation Authority does not need to do it—everyone is doing something.

There are various sectors where you do need public enforcement, and where I would say you need a national system regulator. But you can do a lot through ombudsmen, codes and support. That is now emerging in, say, information and data protection, food standards and various other areas. It is absolutely ideal for property and housing.

Economic Activity of Public Bodies (Overseas Matters) Bill

Richard Fuller Excerpts

3rd reading
Wednesday 10th January 2024 Commons Chamber

[Michael Gove]

I know, given the nature of the debate on this Bill, that a number of colleagues would like to intervene; I will try to answer questions briefly, because I know a number of colleagues would like to take part in the debate.

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

Hypotheticals are not always helpful, but I beg my right hon. Friend’s indulgence in this hypothetical on that particular point about the interaction between clause 3(7) and UK foreign policy. UK foreign policy is clear that illegal Israeli settlements in the occupied territories are against international law. This Bill would provide that, if a pension fund were given an investment policy for expanding, say, an infrastructure fund proposal in the occupied territories, it would have no moral basis for refusing to invest, although that investment would be expanding Israeli policies contrary to UK foreign policy. Can the Secretary of State explain how to unpack that so that what he has just said is what I believe is true?

[Michael Gove]

It is specifically the case that public bodies, including the local government pension scheme and local authorities, should not be taking decisions that conflict with UK Government foreign policy, and we are absolutely clear that it would conflict with UK Government foreign policy if they were to engage in freelance activity of that kind. However, it is perfectly open to any representative, including any elected representative, to express their personal disapproval of the activities of the Israeli Government or any organisation that operates within the settlements.

Leasehold and Freehold Reform Bill

Richard Fuller Excerpts

2nd reading
Monday 11th December 2023 Commons Chamber

[Michael Gove]

I won’t at this stage.

I freely admit that this Bill does not go as far as some in the House and elsewhere would like. Strong arguments have been made about how property agents can be better regulated and Lord Best in another place has made arguments that I find incredibly persuasive—so why not legislate for them now? Well, as I mentioned earlier, this Bill has many clauses, deals with technical aspects of property law, requires close scrutiny and is likely to face a lobbying exercise from deep-pocketed interests outside attempting to derail it. Legislating to give effect to Lord Best’s proposals and to set up a new regulator—I am always a wee bit wary about setting up new quangos but on this occasion he makes a good case—would require significant additional legislative time of a kind we simply do not have in the lifetime of this Parliament. There are changes we are making overall in order to deal with some of the abuses for which managing agents are responsible, but there is still some unfinished business. I happily grant that, and there are organisations like FirstPort, which many of us will be familiar with from our work as constituency MPs, that require some gentle direction towards behaving in a better fashion.

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

I am grateful to my right hon. Friend, my hon. Friend the Member for Redditch (Rachel Maclean) and Ministers for bringing the Bill forward. The Secretary of State spoke about leasehold improvements and improving the rights of leaseholders, but he will be aware that part 4 of the Bill looks to protect and improve the rights of families who hold the freehold of their property against the estate management charges about which he is speaking; the Bill does a lot to meet some of the requests of many of my Conservative colleagues on this matter.

One issue that is not addressed in the Bill, however, is the right to manage. In the 2019 response to the 2017 consultation, the Government said they would look at that and introduce legislation. What is the current Government thinking on giving people the right to manage, and therefore to take back control from the estate management companies?

[Michael Gove]

My hon. Friend makes a good point. I was going to say there are two other areas in particular that we should look at in Committee: the right to manage; and the abuse of forfeiture, which is sometimes used by freeholders to intimidate leaseholders. I am very open to improving the Bill in Committee; we will be improving it ourselves by bringing forward the legislation that will ban new leasehold homes in the future, so I hope we will have a chance to do that.

I mentioned earlier that we have been debating leasehold and freehold in this place for a long time. In the preparation of this Bill, one of the brilliant civil servants in the Department drew to my attention comments made by Harry Levy-Lawson, 1st Viscount Burnham and MP for St Pancras, as it happens, when the Leasehold Enfranchisement Bill 1889 was brought forward by another great reforming Conservative Government under the Marquess of Salisbury.

Freehold Estate Management Fees

Richard Fuller Excerpts

Thursday 13th July 2023 Westminster Hall

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

It is a pleasure to serve under your chairmanship, Dr Huq. I congratulate the hon. Member for North Shropshire (Helen Morgan) on securing this debate and on highlighting her residents’ concerns about estate management charges. She knows that her and her residents’ concerns are not unique to Shropshire—indeed, they are nationwide. It is perhaps a sign of the momentum that this is about the third debate in recent months that we have had on this issue directly or tangentially.

It is a pleasure to see the Minister in her place. I want to put on the record that I have had a number of interactions with her on this issue over past few months. She has been extraordinarily helpful and understanding about the issues and has kept abreast of everything that is needed.

So here we are again. As the hon. Member for North Shropshire said in her opening, the issue has been around for some time. Whether one is a member of the Liberal Democrats—we will wait to hear what the Labour party has to say—or the Government, everyone has a sense that now is the time. We all understand that the power to bring the measures into law does not reside just in the Minister’s Department. It is a matter for the whole of Government to decide. I hope that those who are considering the legislative agenda for the next parliamentary Session take heed of this debate and others, because a large and growing number of people are affected by estate management charges, and homeowners recognise that they have few rights, no rights or inferior rights to challenge the charges placed on them.

Many of my constituents find that they do not understand where the charges come from. Why were they charged a particular amount for the maintenance of lamp posts? Why is it correct that they are being charged for the maintenance of a pond? Why is an estate of 1,500 houses carved into little subsections, each with their own management company? People scratch their heads and then get angry, because they see the charges mounting up but they get no response from the companies and have no forms of challenge. I re-encourage the Minister to engage with the three Rs: rights, reasonableness and redress.

First, it is important that the Government come forward with measures that place the rights of freeholders on at least the same level as those of leaseholders. That means rights to manage or self-manage, rights to complain and other rights as well. Secondly, we need to find a way to ensure that the reasonableness of the charges levied on homeowners is understood. That is difficult to undertake in practice, but measures could be introduced. There could be a code of practice between property management companies that requires a certain amount of transparency.

As I have mentioned to the Minister before, I hope that she will consider the possibility of having a national register of the charges imposed, so that people in one area of the country can see what other residents are being charged for their communal spaces. Transparency is extraordinarily helpful in any market, and I point the Minister to a recent move by the Government on pricing transparency for fuel prices. If it is good to make sure people understand that they are not being ripped off on fuel prices, surely it is also good for homeowners to know that they are not being ripped off on estate management charges.

Since the last debate on this topic, I have been contacted by even more constituents who have had estate management companies speak to their mortgage provider in an attempt to put some restriction on the rights of the homeowner to sell their home. Regardless of whether that is legitimate—maybe it is; I do not know the details of each case—it is clearly a potentially tremendous impediment to somebody seeking to sell their home if they have to go through a process of investigating whether the charges placed on them were legitimate, or if they are not able to complete their transaction in time. We really need to look at the limits on what estate management companies can challenge. If an estate management company has legitimate, unpaid fees, they should be paid—no one is questioning that—but why is it appropriate to go to the mortgage holder and not to pursue the unpaid bills through the civil courts? It seems to me to be perfectly reasonable to separate the two and not combine them into one action.

While I am on the issue of the sale and purchase of homes, will the Minister please look at the role of solicitors in advising on the sale of new homes? Often, estate management charges are for new estates. People often come and talk to the housebuilder selling the houses, and the housebuilder recommends a solicitor to them. What responsibilities does the solicitor have to advise the purchaser about the charges for which they will be liable and what their rights might be if they wish to sell their house? Some clarity and transparency on that would be helpful.

The Minister has indicated previously that she is alert to the issue of redress and understands people’s frustration at the fact that they are not able to find an efficient route to get it. I would be grateful if she could advise us on whether providing adequate redress can be achieved through non-statutory means. Is that feasible or not, and is it preferable or not? My answer is that it is not, but I would be interested in what the Minister has to say on that.

Another issue in my constituency has been the willingness of certainly one of the two local authorities in the past to slough off their responsibilities for what would normally be public services, covered by council tax, on to these new schemes of estate management charges. It really is not on for local authorities to set up a two-tier charging system, where some people in the local authority area pay once for their public services—communal areas, lamp posts, parking facilities, ponds, grass verges being mown—while another group of residents in the same local authority pay their council tax in exactly the same way as everyone else and then is stiffed with another bill for services that other people are getting covered by council tax. This two-tier system is a growing anomaly in local authority areas. We need investigation by the national Government to see what limitations might be prudent for that.

We have heard in past debates—I fear I may hear it again—the phrase “when parliamentary time allows”. Well, I’m up for it. I think other political parties are up for it. I hesitate to put words in the Minister’s mouth, but I think she is up for it as well. Parliament clearly wants to look at this issue. We want progress to be made, so it is important that we should look at it.

I do not often like to talk about specific companies, but in this instance I will. I wonder whether the Minister has had a chance to look at the tribunal decision in May 2023 between FirstPort and the residents of St David’s Square. It is an interesting judgment that was obviously conducted by someone with tremendous legal knowledge, who was able to get through the whole morass of issues and have an effective case. If the news reports are right, £479,000 in overpaid service charges were required to be paid back to the homeowners at St David’s Square, and £55,000 of the money the Government had provided in energy subsidies that had not been passed on had to be paid for. I would like to applaud the decision in that case. I do not know the details, but it seems to me to be on the right track.

It is important that we understand that if we make changes to estate management charges, we should not let companies off the hook for charges that have been imposed unfairly and excessively before the point when the legislation changes. I ask the Minister to ensure not that we pass retrospective legislation, but that legislation that changes the facility with which people can seek redress is open to people, so that they can make claims on historical excessive charges—not just charges subsequent to any legislative change. If the Government are not prepared to put that in legislation, then I would certainly table an amendment to enable my residents, who right now are being charged excessively by estate management companies, to claim that money back.

This is an important debate. It bears repeating that residents across the country, including many in my constituency, are looking to the Government to bring forward the necessary legislative change to make effective what has been promised now for six years. It is time for the Government to take the action required.

--- Later in debate ---

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

It is a pleasure to serve with you in the Chair, Dr Huq. I congratulate the hon. Member for North Shropshire (Helen Morgan) on securing this important debate, and on the well argued remarks with which she opened it. I thank the hon. Members for North East Bedfordshire (Richard Fuller), and for Buckingham (Greg Smith), for participating. In their compelling and thoughtful contributions, they highlighted, among other points, how widespread across the country problems associated with estate charges and fees are.

As in the debate last week on freehold and leasehold reform, hon. Members usefully brought the issue to life by detailing the impact of estate charges on homeowners living in developments in their constituencies. The accounts we have heard today, and many others I have heard from colleagues over recent years, illustrate vividly the abundance of problems associated with new build estate charges and fees; they are well known and well understood. They 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 arbitrary administration fees; charges hiked without adequate justification; and charges levied when residential freeholders are in the process of selling their property.

There is often a startling lack of transparency about what services are covered by service charges, estate charges and fees charged to long leaseholders in blocks of flats, but residential freeholders on privately owned and managed estates clearly suffer from inadequate transparency in other unique respects. As was said at the start of the debate, it appears to be fairly common for residential freeholders not to be notified of their future liability for charges early in the house buying process, and many learn of their exposure only at the point of completion. I listened with great interest to the suggestions about solicitors and conveyancers. As the Minister noted in the debate last week, even where notification of future liability is given in good time, many contracts do not specify limits or caps on charges and fees.

As the hon. Member for North East Bedfordshire said, there also appears to be a particular issue with fragmentation on privately owned and managed estates, which further exacerbates the general lack of transparency and potential for abuse in respect of charges and fees. It is not uncommon in blocks of flats, particularly older ones, for ownership and management to become fragmented over time, but on privately owned and managed estates, even relatively new ones, residential freeholders frequently have to navigate scores of management companies, each levying fees for services.

Underpinning all those issues of concern is a fundamental absence of adequate regulation or oversight of the practices of estate management companies. They are deficient in many important respects, which is one reason why fundamental and comprehensive leasehold reform is urgently required. Leaseholders have at least some protections and rights that enable them to challenge the charges and the standard of service they receive, but residential freeholders have no equivalent statutory rights.

No hon. Member in this debate has claimed that the present arrangement is not inequitable, or suggested that there is anything other than a pressing need to give residential freeholders on new build estates greater rights and protections. Indeed, I would go so far as to submit that the House appears to be of one mind on the matter.

[Richard Fuller]

The shadow Minister is making some very good points, but in the spirit of evolving the debate, I want to ask him a question. My hon. Friend the Member for Buckingham (Greg Smith) talked about council tax, and mentioned, as I did, that people are being doubled charge. If there are reforms to be made, would the hon. Gentleman favour giving residents of estates that levy estate management charges the opportunity to hand back responsibility to the local authority in any circumstances?

[Matthew Pennycook]

The hon. Gentleman pre-empts a point that I will come to later. There is an issue with local authority adoption, but if he is not satisfied with my comments, he is more than welcome to intervene on me again.

The question is not, “Should we do anything?” but “Why have no concrete steps been taken over recent years to give residential freeholders the rights and protections they clearly need?” The Government have recognised publicly for at least six years that there is a problem, and that they need to act to address it. As has been said, and as the Minister clearly understands, in their December 2017 response to the “Tackling unfair practices in the leasehold market” consultation, the Government made it clear that they intended to

“legislate to ensure that freeholders who pay charges for the maintenance of communal areas and facilities on a private or mixed use estate can access equivalent rights as leaseholders to challenge the reasonableness of service charges.”

That commitment was repeated in the Government’s June 2019 response to the “Implementing reforms to the leasehold system in England” consultation, and successive Ministers have echoed it numerous times since then in the House.

Indeed, the Minister, who has responsibility for housing and planning, has been clear in several debates this year that the Government intend to create an entirely new statutory regime for residential freeholders based on the rights that leaseholders have. That would ensure that estate management charges must be reasonably incurred, that services provided must be of an acceptable standard, and that there is a right to challenge the reasonableness of charges at the property tribunal.

Given that there are almost certainly over a million residential freeholders across the country whose lives are being blighted because the practices of estate management companies are not adequately regulated, the Opposition urge the Government to find the time, in what remains of this Parliament, to legislate for freeholders’ protection. At a minimum, that legislation should ensure equivalence between the regulation of estate charges and the regulation of leasehold service charges.

This criticism is not directed particularly at the Minister, but it is incredibly frustrating for hon. Members from across the House, and for members of the public who have a stake in a given outcome, to hear Ministers assure us time and again that long overdue legislation will be taken forward “when parliamentary time allows”, especially as the House has frequently risen early in recent months because the Government’s legislative agenda is so light. There is a strong cross-party consensus on the need for urgent legislation to tackle the problem, so let us get on and progress that legislation.

Before I conclude, I will draw three important issues to the Minister’s attention, and I ask her to address them when she responds to the debate. First, on the Opposition Benches we take the view that we need to ensure that residential freeholders can more easily take control of their estate management company or companies. To be clear, that is conceptually distinct from the reform proposals made by the Law Commission in its 2020 report on exercising the right to manage.

There are a number of ways in which residential freeholders could be empowered to take over estate management functions on any given estate, but what is important at this stage is the principle. Could the Minister assure the House that when the Government legislate, it is their intention to provide residential freeholders on privately owned estates with a statutory right to manage?

Secondly, we believe that specific measures are required to protect residential freeholders from being evicted from their home due to a failure to pay estate charges and fees—or rent charges, as they were historically known. The Government committed in 2020 to repealing section 121 of the Law of Property Act 1925, which enables this practice to continue. Can the Minister confirm that the Government remain committed to doing so when they legislate?

Thirdly—this point has been raised by several hon. Members in the debate, and the hon. Member for North East Bedfordshire challenged me on it—we feel strongly that residential freeholders deserve far more certainty about the circumstances in which communal areas and amenities on privately owned estates should be adopted by local authorities, and by water companies in the case of sewage infrastructure, and the timescales within which such adoption should take place.

Let me be clear that we sympathise with local authorities that are reluctant to adopt roads and common services of poor quality. However, some authorities refuse to adopt areas and amenities, most commonly roads, that are built to an acceptable standard unless an excessive fee is paid by the developer. There is a general need to drive up built environment standards across new build estates, so that councils do not have to pick up the long-term cost of repairing and maintaining them. However, we also need further clarity from the Government on if and when local authorities are required to take forward adoption, thereby saving residential freeholders from the type of fees that the hon. Member for North East Bedfordshire referred to in his intervention. Does the Minister agree with us on that point, and if so, can she at least give us a sense of the Government’s thinking about what steps might be taken in that regard? I very much look forward to hearing the Minister’s response to those questions, and to the debate as a whole.

--- Later in debate ---

[Rachel Maclean]

I thank the hon. Member again for reminding us of this issue. I hope that she will bear with me, as I am coming on to our intended legislative remedy, through which we intend to drive up transparency for homeowners. Better transparency will help people to be better informed about buying a home on a managed estate and empower them to question or challenge the charges when they are billed. Alongside that, they must have better rights to challenge, as the hon. Member just said.

Freeholders on managed estates are currently at a disadvantage compared even with leaseholders, for whom the system is not perfect by a long way, regarding their ability to challenge costs and poor service. Leaseholders already have certain protections and rights that enable them to hold landlords and management companies to account, yet freehold homeowners have no such equivalent, although they may be paying for very similar services. The situation is clearly unfair, and we are committed to introducing legislation to plug the gap.

Let me come on to what we intend to do, which I am sure Members are keen to hear. We intend to create a new statutory regime for freehold homeowners based on the rights that leaseholders have. We will give homeowners the right to challenge the reasonableness of the estate management charges at the first-tier tribunal, and the right to change the provider of management services by applying to the tribunal to appoint a new manager. That will be an important power when a homeowner is unhappy with the service that they are receiving and there is a significant failure by the estate management provider in meeting its obligations.

The hon. Member for North Shropshire mentioned existing homeowner rights, which will depend on the ownership of the land and the terms of the transfer. People should seek independent advice on the options available to them. For example, if a management company is not complying with its obligations, homeowners may be able to use contract law and make an application to the county court for an injunction for specific performance. That will require the management company to comply with its obligations.

Resident-led management companies are independent companies to which residents are appointed as directors. Sometimes the articles of association, which set out how the company will run, will specify that homeowners are automatically part of the company and so can vote at the AGM. Homeowners may also be able to call extraordinary general meetings, and they can apply for an injunction for specific performance if the company is not complying with the articles of association of any management agreement. But we know we must do more, which is why we will consider introducing a right to manage for freehold homeowners. That will follow from our consideration of the Law Commission’s report and recommendations on changes to the right to manage for leaseholders.

It is not only estate management charges that need to be reasonable. As I mentioned in last week’s Westminster Hall debate, the principle must also apply to the administration fees that individual homeowners may face in their dealings with estate management companies. Therefore, we will legislate to require that all administration charges must be reasonable, which will mean that they may be challenged at the first-tier tribunal.

I want briefly to mention the Competition and Markets Authority’s house building market study.

[Richard Fuller]

Before the Minister moves on from charges, I wish to make the point that I made earlier, although she may not wish to comment now. If those changes are made, is it the Government’s intention that people who have been charged excessively, or can make the case that they have been, prior to that legislative change will be provided with access to those tribunal options?

[Rachel Maclean]

My hon. Friend’s point is very much in my mind. He is right to make it—he has made it to me multiple times—because it is a very important point. While the legislation is being prepared, I cannot comment specifically on the individual measures that will be in it, but I have no doubt that when we bring it forward, he will probe and challenge every part of it. I very much hope that we can achieve a successful situation at the end of that process.

In February, the Competition and Markets Authority launched a market study on house building, as part of which it will examine the fairness of estate management fees charged for unadopted roads and amenities. It will make recommendations about policy and regulatory changes. My hon. Friend the Member for North East Bedfordshire may be interested to find out about those.

There is also an issue of redress in relation to the fit and finish of residents’ homes on new estates. Invariably, the problems are the result of inadequate quality control. People have encountered unfinished roads, half-built playgrounds and a lack of recourse to resolve those issues, all of which are unacceptable. We have been clear that new housing developments should be finished on time and to a high standard. If things go wrong, homebuyers must be treated promptly and fairly.

There are existing routes to redress, which we are strengthening through the Building Safety Act 2022. We have included a provision for a statutory new homes ombudsman, which will make developers more accountable and make it easier and simpler for new home buyers to seek redress when things go wrong. We are considering the arrangements for the statutory scheme and are working on the next steps, which we will set out in due course. In the meantime, the independent New Homes Quality Board has established the voluntary new homes ombudsman service, which launched last autumn. It can handle complaints from homebuyers about new homes built by developers that have registered, and it is 100% free for homebuyers to use.

Let me turn finally to the most important matter for hon. Members: the timing of these changes. Unfortunately, I do not have much to add to what I have already said, which is that legislation for the next Session will be set out in the King’s Speech. Everybody in the Chamber will have heard the Secretary of State and I say that it is our intention that the King’s Speech will contain a Bill that will address the issues that have rightly been raised. That remains our priority.

Fairness needs to be at the heart of the housing system. The arrangements for the upkeep of open spaces and roads on freehold estates should always be clear to potential homebuyers, and costs charged must be transparent and reasonable. Homeowners need to have access to redress when things go wrong and be empowered to hold their estate management companies to account. That is why we remain committed to legislating as soon as we can. I thank all colleagues for their consistent advocacy and campaigning on this vital issue, which, as has been said, affects a million people around the country.

Oral Answers to Questions

Richard Fuller Excerpts

Monday 10th July 2023 Commons Chamber

[Michael Gove]

The Bill, as you know, Mr Speaker, is beautifully formed, but the impact assessment that goes with it, as I pointed out earlier to my hon. Friend the Member for Christchurch (Sir Christopher Chope), needs to be read in the round to see what a great piece of legislation it is. One thing that would enable us to bring forward legislation is if the Labour party were to end its pointless opposition to our Illegal Migration Bill. It is curious that the Labour party seems keener on being on the side of people smugglers than it is on the side of the private rented sector.

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

T5. The recent transfer of the administration of home equity loans from Target to Lenvi has gone appallingly badly, with my constituents reporting unanswered emails and phones that ring out with no reply when they are looking to transfer their home in a time-critical phase. Will my right hon. Friend update me on what is going on with the administration?

[Rachel Maclean]

I have been having daily meetings with Homes England and the service provider. It is the case that there have been some issues with the transfer, as my hon. Friend highlights. I want anyone listening to this to know that they can contact either their local MP or the service line, and we will resolve it. I have insisted that additional call centre staff are available and extended working hours. We are very much seeing the issues being worked through at pace now.

Freehold Management: Service Charges

Richard Fuller Excerpts

Thursday 20th April 2023 Commons Chamber

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

I am grateful to the House for being able to call this debate to draw attention to the problems with the current framework of legislation and regulation covering estate management and service charges that are placed on freeholders. I do so on behalf of the thousands of homeowners in my constituency who are being charged for services that ordinarily might be covered by their council taxes, who frequently are not given easy access to the scale of charges they face and who have inferior rights of legal challenge or redress when something goes wrong. I do so to support the efforts of local councillors, especially Councillor Jim Weir, from Great Denham, in my constituency, who has done so much to draw attention to these issues, and to support the efforts of those in local resident associations, such as Tom Middleton, the chair of the New Cardington residents’ association. He has doggedly pursued estate management companies to get clarity and promote accountability. I also do so on behalf of 30 other Conservative colleagues who cannot be here today but joined me in writing to the Prime Minister to urge action. I want to put on the record my thanks to the Minister for her thoughtfulness in listening to the concerns I have raised with her ahead of this debate. I look forward to her response to some of the points I wish to make.

Let me set out a bit of the background. Freehold service charges can cover the provision of a variety of services on housing estates, such as the upkeep of play areas, communal gardens, unadopted roads and communal parking areas, such as parking courts. The requirement to make a financial contribution is most usually defined in the deed of transfer when the property is first sold by the developer. Alternatively, a liability might arise as a result of an estate rent charge that forms part of a purchase contract. The developer then usually enters a contract with a management company to organise the necessary work on the estate and to recover costs from homeowners. Sometimes the developer will set up a residents’ management company to take ownership of the communal areas. Where that happens, the residents’ management company can appoint a management company to work on its behalf. That may sound a little confusing, as it did to me as I said it. I was surprised to learn that in what one might think would be a single housing development area there can be 10, 20 or 30 individual companies handling small areas, such as little parts of roads or smaller communal areas. For my constituents, that is a confusing issue if they ever want to follow up with an inquiry. I am going to talk about some of those problems in this debate.

Based on my research, what is clear to me is that after the completion of a purchase these costs to homeowners can often increase significantly; that there is no clear or effective accountability; and that these arrangements have created a mini-industry of companies providing services of varying quality and charging often high fees, many of which relate to administration rather than to the services provided themselves. For the homeowner affected by estate management charges, these raise some pertinent issues that I know the Government are considering.

First, the notification to home buyers of their future liability for charges is not made clearly. Secondly, when bills arrive, it is often unclear what the charges relate to or why they are being applied to a particular property. Thirdly, it is often difficult for residents to obtain information about the charges, to challenge their reasonableness or to effect change when the work is being completed inadequately. Fourthly, the regulation or oversight of the practices of the management companies is very weak, creating problems for homeowners and, increasingly, creating reputational damage to many of our major housing developers, which it would be wise to address now.

It is also clear to me that the voice of homeowners is absent at a crucial stage. It is right at the start, while planning approval is going on, when the developer and the local planning authority determine who is responsible for the costs to maintain shared areas in the proposed development. In the room, there is the local authority planning authority and the developer. The people not in the room are the homeowners who will subsequently have to pay those charges. That structure means that the incentives are stacked too heavily for the developer and the local authority to stick the bill to those not represented—the homeowners themselves.

[Fiona Bruce (Congleton) (Con)]

My hon. Friend is making an excellent speech on an issue that affects many of my constituents. Does he agree that another issue is that, when the local authority is in the room at the start of a development, there should be some way of agreeing a time-bound point at which that local authority takes over, making certain the services or the facilities within some of these developments, otherwise a situation can arise whereby the residents can be responsible, for years sometimes, for covering the costs through service charges that should actually be taken over by the local authority?

[Richard Fuller]

My hon. Friend, with her great expertise in these and other matters, is absolutely right. This question of the timeframes in which certain common services might be adopted can create a number of concerns. This issue was raised for me by Councillor Phillipa Martin-Moran-Bryant, who has a number of residents affected by this issue. There is also the period of time that it can take for an estate management company to be handed over to the residents themselves. There is a double source of risk of delay, and my hon. Friend is absolutely right that the Government should consider whether there is a reasonableness in terms of the time limit that could be put in place.

[Fiona Bruce]

There is also the situation of some homeowners buying early on in a development and then finding that they are bearing charges for the subsequent development of the site or the maintenance of the site during its development, which, realistically and fairly speaking, should be borne by the developer itself.

[Richard Fuller]

I am grateful to my hon. Friend for saying that. I know the Minister will be listening, because she has been listening to all the points that I have previously made on these issues.

Just to cap the concerns, at the end of it, a person might want to sell their property. What we find increasingly is that, as they are going through the sales process, they hit a snag, because the estate management company is saying, “You haven’t paid charges.” Sometimes, they are charges that the homeowner was not even aware that they were liable for. This is the reality for many homeowners living in areas with estate management charges: they have no voice, no explanations, no transparency, no redress and, potentially, no ability to move house.

Let me give a couple of specific examples to bring those points to light for the Minister—they will largely be from my constituency, but they occur in many places. I return to Councillor Jim Weir in Great Denham, who conducted a survey to which 300 residents replied, and which identified multiple instances of excessive administrative fees. A number of my local councillors have done the same.

In one scheme, the anticipated maintenance work to be carried out and the charges for electricity comprised 30% of the total charge to the residents, while 70% of the charge was fees, reserves and overheads. In a second scheme in his ward, the anticipated maintenance was 10% of the total charge, with 90% of the charge going on fees, reserves and overheads. In a third scheme, the estate manager had just one job: the management of seven lamp posts. Jim and his team compared the costs charged per lamp post with the standard cost of the local council for doing the same job and found that the management agent is charging twice the standard rate.

When residents challenged the estate management company to see the electricity bills, they were informed that the bills could not be shared electronically and someone would have to visit the offices of the agent 170 miles away if they wanted to inspect them. One good resident said, “I’m up for that,” and that he would go and have a look. He arranged an appointment, which got cancelled and cancelled and cancelled. After more pressure from residents, the company finally admitted they did not have any electricity bills to show. No individual should have to go through that level of turmoil to try to find out something so simple about why they are being charged something in their own area. It is ludicrous.

I have a couple more examples from New Cardington of other issues relating to handovers and conflict of interest. Tom Middleton, the chair of the New Cardington Residents Association, wrote to me:

“Residential management companies (RMC) are set up by developers to look after the various open spaces not placed for adoption. The directors of the RMC are usually senior directors at the developer. This means the managing agent is effectively the developer’s client until handover. This is usually prolonged. Here in New Cardington the RMC was incorporated in July 2010, 13 years later the developers are only NOW starting the handover process. This means for 13 years residents have paid a service to an agent of some description but over which they have had no control.”

My hon. Friend the Member for Wyre Forest (Mark Garnier) has a similar problem in the Silverwoods development in Kidderminster. He cannot be here today, but he wrote to tell me:

“Multiple iterations of the estate management company has resulted in absolute opaqueness in accounting and use of funds generated, whilst failure to enforce planning conditions by Wyre Forest District Council has passed on a financial burden to rectify failures onto residents. This is not good enough.”

There is a further point about conflict of interest that, on balance, I want to make. The Association of Residential Managing Agents has 10 standards in its consumer charter, the seventh of which is, “Avoid conflicts of interest”. Concerns have been raised by the New Cardington Residents Association that their estate management company, RMG, has created a conflict of interest by establishing a wholly owned subsidiary, Osterna Ltd, to conduct annual fire risk assessment processes.

I have kindly been copied in to a letter from RMG that explains its rationale, and I am in no way asserting that there is any wrongdoing here, but it clearly changes the arm’s length nature of an estate management company hiring services if some regular services, such as fire risk assessments, go untendered to related companies. Will the Minister write to companies reminding them of their obligations and calling for greater accountability and transparency?

I will canter quickly through the history of Government reviews. In July 2017, there was a consultation on tackling unfair practices in the leasehold market. In December 2017, the Government said that they would legislate to ensure that freeholders who pay charges for the maintenance of communal areas and facilities on a private or mixed-use estate can access equivalent rights as leaseholders to challenge the reasonableness of service charges. In October 2018, the Government confirmed their intention to

“replicate consultation requirements and obligations on the provider of services to provide information to the freeholder.”

In June 2019, the Government committed to equal rights for freeholders and the right to manage for freeholders. In December 2021, the then Minister told the House:

“The Government also intends to give freeholders on private and mixed tenure estates equivalent rights to leaseholders to challenge the reasonableness of estate rentcharges, as well as a right to apply to the First-tier Tribunal to appoint a new manager to manage the provision of services. In addition, we will ensure that where a freeholder pays a rentcharge, the rentcharge owner is not able to take possession or grant a lease on the property where the rentcharge remains unpaid for a short period of time. We will translate these measures into law when parliamentary time allows.”

May I ask the Minister to confirm, first, that there has been no dilution of those commitments by the Government, and secondly, that it is the Department’s desire to include this long-promised legislative change in the next session of Parliament? I say “Department” because, of course, it is the Prime Minister who has to balance the multiple claims on parliamentary time. That is why I—along with thirty of my colleagues—wrote to the Prime Minister to ask him to include the legislation in the King’s Speech.

The Prime Minister kindly wrote back and included the following comments:

“The Government believes that it should be made clear to potential purchasers what the financial arrangements and their responsibilities are for the upkeep of communal areas. It is also important that we hold these estate management companies more accountable on how they perform and how homeowners’ money is spent.”

He went on:

“These changes will be introduced when Parliamentary time allows, and I will carefully consider your call for it to form part of our legislative session for the next Parliamentary session.”

I put on the record that I am very grateful that the Prime Minister wrote back. I hope that he understands the purpose of this debate and the calls by 30 of my Conservative colleagues, including the contribution from my hon. Friend the Member for Congleton (Fiona Bruce). It is the time for the Prime Minister to take the action that has been promised for so long. We know that the issues preceded his time, but he has a great capacity for understanding problems and finding solutions. We are close—I think the Minister will be clear that the Department is ready to move—and I hope that the Prime Minister will take further consideration and action to help my constituents and those in many other places around the country.