Leasehold and Freehold Reform Bill

Wendy Morton Excerpts

2nd reading
Monday 11th December 2023 Commons Chamber

[Wendy Morton (Aldridge-Brownhills) (Con)]

There is much to welcome in the Bill. It is all too easy to believe that leasehold affects only London and the larger cities across the country, but that is not so. In the past 30 to 40 years in particular, many more properties have been built on a leasehold basis. Many leaseholders are now facing the dilemma of whether to extend. It is estimated that there are 4.98 million leasehold properties, equating to 20% of the housing stock. That includes properties in my constituency, and I have raised the matter in the House previously. I also have a personal interest as a leaseholder. Many years before coming to this place, I had the unpleasant experience of extending our own lease. The Government made good progress with the Leasehold Reform (Ground Rent) Act 2022, which limited ground rents to a peppercorn on all new leases. The Bill that we are considering today does not include the same limitation to protect existing leaseholders from onerous and potentially very expensive ground rents. Without that, up to 4.98 million homeowners will be left saddled with unfair ground rents.

My right hon. Friend the Secretary of State, who is no longer in his place, said that

“liberating leaseholders forms a vital part of the government’s long-term plan for housing.”

We cannot have a situation in which we are liberating future leaseholders while leaving existing homeowners trapped. This is an urgent problem. The Government’s own consultation in 2017 identified it as a trend leaving leaseholders facing significant and unsustainable increases in ground rents, which often affects the saleability of their homes, so I hope it will be addressed.

On new leasehold houses, I welcome the Government’s commitment to ending the creation of new leasehold houses. It is time we moved on from what other hon. Members have also described as an archaic system that holds homeowners back. However, I was concerned that measures to do that have not appeared in the Bill as drafted. My understanding is that the Government intend to bring forward amendments for that purpose, but I would also like an assurance from my hon. Friend the Minister at the Dispatch Box that that will be the case.

I am also concerned that new leasehold houses may still be permitted under exceptional circumstances. I ask my hon. Friend the Minister to tell me exactly what those circumstances cover, and to assure me that safeguards will also be put in place. We need to ensure that that exception is used sparingly, if at all, and does not become a loophole for developers who simply wish to push more leaseholds in through the back door.

Turning to the extension of existing leases or the acquisition of freeholds, an important and necessary part of the proposed changes will be the extension of the lease, with a new standard 990-year lease with zero ground rent. The removal of the marriage value from the premium calculation is also welcome and much needed, and potentially represents a fair and equitable change for leaseholders. As you may recall, Mr. Deputy Speaker, I raised my concerns in the debate on the King’s Speech that those reforms are long overdue. I am disappointed that they have come forward so late in this Parliament, especially when we promised reform as far back as February 2017.

I for one would not want to see current leaseholders, who have no choice but to renegotiate their current leases now, unfairly left out in the cold by our legislating so late in this Parliament. I therefore ask the Minister to consider a sunset clause in the Bill, to allow anyone who has had to negotiate since the start of the current Parliament to be afforded a right of passage under the reforms to extend their lease to the new standard.

Like my hon. Friend the Member for Redditch (Rachel Maclean), who is no longer in her place, I would welcome the introduction of an online calculator for calculating the cost of an extension. I believe that would make the process simpler and more streamlined for those who are seeking to extend their lease or acquire the freehold. However, it must also be quick and inexpensive for leaseholders to calculate and find out the cost of an extension, because currently that is not the case. Put simply, the current system of using archaic graphs is another way to set the system against the leaseholder—and, sadly, too much of the current system is weighted in favour of the freeholder. That is why this legislation is so badly needed.

The change to ensure that legal costs be shared, as opposed to the current system whereby the leaseholder bears all the costs, is also welcome. We also need to end the weighting of independent arbitration through the Tribunals Service in favour of the freeholder. In considering this Bill, we have the opportunity to shape legislation and create a level playing field for both parties.

On commonhold we also need to do more. Reform would give the leaseholders of flats the right to acquire and manage the common parts of the building. That is potentially a welcome change, provided that protections against the abuse of service charges are in place. However, when it comes to disputes, there is a clear need to revamp the tribunal system. It does not fulfil what it was set out to achieve. The tribunal system was created to strengthen the rights of long leaseholders, and to provide a cheaper and quicker way to resolve disputes, yet in reality it is the antithesis of that.

Leaseholders often avoid the tribunal system altogether, due to fear of becoming liable for the freeholder’s tribunal costs, and regrettably there are many cases where freeholder landlords recruit high-powered barristers and simply pass their fees on to the leaseholders, regardless of whether they win or lose. It is also fair to say that that leads to leaseholders worrying that they will be unable adequately to defend their position on, for example, raising a dispute over unreasonable administration charges. That needs to change. We need a renewed and refreshed tribunal system that empowers and protects leaseholders.

There are additional things that we can also do to see improvements now for those with leaseholds. The right to manage is an important part of our toolkit, and I welcome measures in the Bill to improve that process. The current claims process is complex, and leaseholders can find their attempts frustrated by rogue freeholders who block them from exercising their rights. I would like to see more of the Law Commission’s recommendations implemented, particularly where we can make the process cheaper and less complicated to implement. Let us be bold and include more measures to help our homeowners to take back control.

There is also a strong need for a new regulatory model for managing agents. Under the current system, anyone can become a managing agent, regardless of experience. Unfortunately, many leaseholders report countless problems with their agent, from high service charges to lack of transparency or exclusion from decision making. Of course, there are some managing agents who perform well and choose to sign up to standards of practice, but there are many who do not. This, for me, is a clear case of a moral hazard. It must be addressed, and we have the opportunity to do so through this Bill.

I am pleased that the Government have committed to regulating managing agents through a single, mandatory and legally enforceable code of practice. Managing agents will be required to have a nationally recognised qualification to practice, which will be overseen by an independent regulator. By requiring them to adhere to minimum standards through a professional body, we can expect to see higher levels of professional conduct among all managing agents.

Finally, I want to mention housing associations. I would hope to see under this new legislation a requirement for greater transparency on service charges and the replacement of building insurance commissions for managing agents or landlords, with transparent administration fees, to benefit leaseholders who have exercised their right to buy within the social housing sector and those within the leasehold retirement bracket. Recently, I have come across numerous examples in my own constituency where leaseholders in those sectors have been left with unexplainable and unjustifiable bills—something that this legislation must stamp out.

To conclude, we have an opportunity with this Bill to get rid of archaic processes and systems, to renew and refresh the legislation on leasehold and to create a level playing field. There is much to welcome, but I still believe there is more that we can do through this legislation.