Freehold Estate Management Fees

Once a number of the houses had been occupied, the drainage system failed, which led on some days to raw sewage backing up in residents’ gardens. Sherwood Homes Ltd had not taken out the section 104 agreement required in the planning permission, and not only was the arrangement dysfunctional, but the connection to the Welsh Water sewage network was illegal. In addition, neither the road lighting nor footpath was completed.

In December 2019, Sherwood Homes Ltd went bust, and Shropshire Council could not take planning enforcement action against the company. The residents of the Brambles, who were the successors in title to the private company that was established to manage the development, had been the subject of the enforcement process. The truly shocking reality is that they have been required to accept five-figure charges on their properties to rectify the £1 million issue of connecting the drainage to Welsh Water’s network. It is also worth noting that the saga has cost the rest of Shropshire’s taxpayers a considerable amount, because council officers have expended time and effort in attempting to rectify the situation.

Had the residents not been the owners of the shared areas, they would not have been liable. Perhaps if Shropshire Council had been expecting to bear the full costs of the clear-up, it would have taken out an injunction to prevent the final homes from being sold and occupied until the drainage was rectified, or indeed ensured that, in the first place, financial bonds had been in place under the section 104 agreements and the section 106 agreement for the drainage in the road.

That is the worst example, but it is not the only one that has come to my attention. Other cases from my constituency include a developer that is charging residents extortionate fees for the maintenance of a shared ground source heat pump, but has kept the Government’s renewable heat incentive by putting it in a private company. The developer runs the management company and has failed to hold an annual general meeting or provide detailed accounts for the residents.

In another example, there appears to be a total disregard of the Companies Act 2006. In this instance, once again the drainage and road are not at an acceptable standard, and the developer claims the management company is dormant, despite having contracted limited maintenance work to a third party. It has not held an AGM, and there is no opportunity for the homeowners to challenge the arrangement. The developer ignores all correspondence, and the homeowners do not have the resources to take him to court.

The problem is not unique to North Shropshire but impacts people across the UK. Indeed, since being granted this debate, I have been contacted by freeholders from across the country who have explained that they are being fleeced by management companies, having initially been told that they would simply have to pay for the upkeep of the grass. These people find themselves in an inescapable position. For many, there is no use turning to their original conveyancing solicitor for assistance, because that solicitor was recommended to them by the developer, which offered a discount if they used that solicitor. In addition, as I have mentioned, many homeowners are first-time buyers, and starting legal proceedings retrospectively is simply out of the question on a cost basis. As a result, freeholders are left with nowhere to turn, paying extortionate fees and with their dreams of a new home shattered.

It is important to note that the cost to the resident is not only financial. A support group called HorNet has explained to me that, on top of the burden of paying the fees, homeowners often come into dispute with other members of the public, who may abuse or damage the very infrastructure, such as the play equipment, that the homeowners are paying such huge annual fees to upkeep.

It is the responsibility of the Government to honour their promises made in 2017, 2018 and 2019. In March this year, when responding to a parliamentary question from the right hon. Member for Elmet and Rothwell (Alec Shelbrooke), the Secretary of State promised to legislate on this issue “when parliamentary time allows”.

I do not think I need to make it any clearer to the Minister that the delay in legislating is directly affecting people stuck in freehold arrangements. It is unnerving to think about how much money they have been forced to pay to scandalous management companies because of those delays. From where we are today there is no end in sight for them. They are chained to these agreements. They cannot dispute the payments legally, nor sell their homes. They are truly trapped.

We have been promised by the Secretary of State that the leasehold reform Bill will be introduced after the King’s Speech. There remains an opportunity to ease the situation, as the Levelling-up and Regeneration Bill passes through the other place. Could local authorities be encouraged to ensure that there is a plan for the adoption of roads, street lights and play areas, and that either section 106 or community infrastructure levy moneys are obtained from developers to ensure that they can be upkept in the future?

Could local authorities be given clear guidance to outline where a shared management company may not be a suitable solution; how planning conditions can be used to ensure that suitable financial bonds are in place for the adoption of drainage and roads and pavements; and how injunctions should be used where a significant failure emerges on a development, such as in the case of the Brambles, which I have outlined? Will the Government bring pressure to bear on the legal sector to ensure that there is no conflict of interest when a homeowner buys a house, and outlaw sweeteners promoting the use of a connected conveyancer?

When the leasehold reform Bill is introduced, will cost-effective legal remedies be made available to homeowners already trapped in these arrangements? For example, can they be released from their obligations if annual general meetings are not held, detailed accounts not laid or competitive quotes not obtained for maintenance work? Or could those arrangements be outlawed altogether?

I know the Government are keen to resolve the issue, so I look forward to hearing the Minister’s response. I very much hope she will commit to working with MPs from across the House to ensure that our concerns are fully addressed in the leasehold reform Bill.

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.

To go back into history a little and give some context, the Georgian development of London squares did extend the role of the private developer. Service charges included access to those private squares, those private gardens, and some shared communal spaces in lieu of front gardens. However, a growing trend has been to sell freehold houses with freehold gardens but also with shared, communal external spaces and facilities—car parks and the like—that attract these new service charges. Unlike flats, with tightly defined communal space, or indeed those London squares, which are private and used only by adjoining residents, these recent developments have had the appearance of normal modern housing estates, with open access, and yet the communal assets are paid for by a select number of residents. We are talking about the roads, pavements, verges, play areas, balancing ponds and often, as the hon. Member for North Shropshire said, the sewerage and water supply. No one ever conceived in the past that those would be anything other than local authority managed or water company managed.

It is not obvious what is driving the cause of freeholder service charges. Is it driven by councils simply not being willing to adopt assets that they see a very high cost base in maintaining into the future—I would suggest that that is certainly part of it—or by developers keen to create a specific style or ambience that creates in its own right a unified development that just happens to be open to the general public: is it a sales pitch? Or is it driven by developers pushing to lower standards in the public realm where councils do not want to be landed with the liabilities.

Since before being elected in 2019, I have been contacted by countless residents living on such new build developments and estates. They are exasperated by the developers that have failed to complete what we would believe to be the fundamentals, the basics, of a development. I am referring to roads not completed—the final layer of tarmac not laid—footpaths yet to be laid, landscaping that has been forgotten and, in many cases, mounds of soil fenced off and awaiting redistribution.

We must ask what is causing these issues and what changes we can drive to deliver reform. Often, the problems that I just outlined have been deliberated designed to prevent transfer to another management company. They have been deliberately done to ensure that residents cannot get control themselves and that it remains in the hands of these management companies. The recent, growing concerns about freehold service charges are a result of many of those management companies being sold off to the third parties I mentioned earlier, which see the opportunity to increase charges way beyond the initial nominal amounts, further adding to the problems of freeholders, who, as hon. Members said before me, must still bear 100%—the full amount—of their council tax bill, with not even the slightest hint of a fair discount.

One could say that freeholders might expect service charges if they bought into one of the high-end, exclusive gated developments sold in some parts of the country, which aim at exclusivity and have additional features that standard council tax would never normally pay for. We are talking about things that very few in the country are able to have: private clubhouses, tennis courts, gyms, private leisure facilities, extravagant landscaping and the like. However, we are rarely talking about those developments, as section 106 and community infrastructure levy taxes developers to provide facilities to the council—facilities that are rightly used by the wider community.

That leads me to a philosophical question about the right to retain as private assets that are actually public, and that should be adopted and maintained by council tax payers—and, potentially, other taxpayers, through Government grants. We have not recently had a debate on where the line should be drawn—on encouraging new communities to take responsibility for their new assets, versus new assets being paid for by a new development, but being open to all.

Lace Hill in my constituency sits on the edge of Buckingham. It is a development of just over 700 homes. It comprises freehold houses with their own gardens, but residents must pay a service charge for playgrounds, landscaping, a balancing pond, the roads, the pavements and the verges. A casual visitor would imagine that they were regular roads, play areas, pavements and community facilities that the local council looks after, but it simply does not. The estate is also home to a primary school, a secondary school, play equipment and a multi-use games area that the whole town of Buckingham comes to enjoy, but they are wholly paid for—except for the core educational funding, clearly—by the freehold service charges placed on the residents of that relatively new estate.

Worse than that, Lace Hill faces the very issues that I described: there has been a failure by the developer to finish a lot of the features, not least the balancing pond. The area is very close to the Great Ouse river, which regularly floods; that brings a whole new dimension to the debate, which I will not go into now. That failure means that residents are unable to take control of the issue in the way that they should be able to. Also, the management company has sold and resold itself—and sold itself to itself in a different guise—which has led to mass confusion among residents about who they are paying the service charges to, and whom they can hold accountable for services that, for the most part, they have not actually had. I could give countless other examples, but I will not take up the time of the House by doing so; I will just briefly mention another particularly egregious example of this in my constituency: the Kingsbrook development, which sits just to the east of Aylesbury.

It is very hard to distinguish what counts as a facility that new homeowners may consider it worth paying more than the standard council tax for, because it is over and above the standard communal facility. However, from the way that homes are sold, it would appear that developers and the conveyancing profession have not been open and up front about the risks of some new estates being owned by third parties, and the service charge that would be made. That needs to be drawn more rigorously to the attention of home buyers, so that they are fully aware of what they are entering into, and of the risks of additional costs, increasing in perpetuity. In some circumstances, it would be reasonable for a development to wish to hold some assets privately, as they are over and above what is required by the national planning policy framework—maybe private sports facilities, such as the ones that I mentioned; or a concierge for security, key holding and parcel delivery. However, I suggest that those would be few and far between in the real world.

Some developers set up a residents’ management company, of which freeholders are members, so that they can have a say in the scale and quality of communal works needed or desired, and can influence the service charge fee, but in my experience, and from research in my constituency, that is all too rare. Sadly, freeholders have few controls if the developer retains the management, or sells it to a third party. It appears to too many developers that they can sell the management company as an investment, for it to be run by an uninterested third party. Ironically, as my hon. Friend the Member for North East Bedfordshire mentioned, though leaseholders have access to the first-tier tribunal, the right of freeholders to challenge the reasonableness of the service charge is still not defined in law.

I come on to some of the recent debates, and the delays in solving the problems over the past six years. The Government and the Minister are aware of the issue, and I am grateful for the time that she has taken to talk privately to concerned colleagues. The July 2017 consultation paper, “Tackling unfair practices in the leasehold market”, highlighted the discrepancies and issues for freeholders in section 6, but that is some years ago. The Government rightly announced their intention to legislate in this area. In October 2018, they published a further consultation, and the Government response to it was published in June 2019, but we are still waiting for the legislation; they had committed to equal rights for freeholders and the right to manage for freeholders.

I believe that my hon. Friend the Minister wants to move forward, but there is impatience in the country, and impatience and frustration among my constituents and those of other right hon. and hon. Members. People living in freehold properties are caught up in service charges. We need to move much faster. It is imperative that the issue be resolved.

To summarise my main asks of the Minister, first, freeholders must have the same right as leaseholders to challenge service charge fees. Secondly, freeholders should have the same rights as leaseholders to set up resident management companies. Thirdly, and more fundamentally, should traditional housing estates have service charges? Should they not be better designed and integrated into existing settlements, with ongoing maintenance of communal playgrounds, roads, parks, verges and so on being at council tax payers’ expense? There should almost be a requirement for councils to adopt new developments. Fourthly, we should ensure better management of critical infrastructure, such as access roads and surface water drainage. They should be designed to meet the standards of the local flood authority, be constructed and warranted by the developer, and in time become part of the public drainage system, to ensure that they are managed in perpetuity. Fifthly, in order to avoid there being site-wide service charges, a limited number of properties should be allowed to share responsibility for some areas, such as shared driveways and off-street parking areas.

To conclude, it is simply an absurdity that the majority of developments granted planning permission in the public domain are not automatically adopted by local authorities. Ultimately, we could solve all the problems by making that a requirement.

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.

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.

In the past, as Members have highlighted, it was typical for councils to adopt local infrastructure and shared spaces, but the system has changed in recent years. I recognise that on more and more estates, it is common for the shared spaces to be owned and managed by another party. The ownership of the land varies between developments. On some estates, it is owned and managed by a resident-led management company, often with the support of a managing agent, which provides expertise and services to the residents in the running of the estate. On other estates, the land is owned and managed by private management companies. Some have connections to the original developers; others are third-party companies.

It is often not down to the homeowners themselves to decide which type of management arrangement is in place on the estate. Commonly, that is set by the developer before any of the houses are sold. Either way, as has been pointed out, homeowners on these estates must pay a charge to cover the upkeep of open green spaces, roads, sewerage, drainage and other shared infrastructure, such as balancing ponds and play areas, which have been highlighted. In such circumstances, we must ensure that homeowners get a fair deal and do not end up in a vulnerable position as a result of these arrangements.

My hon. Friend the Member for Buckingham and the hon. Member for North Shropshire called for local authorities to be compelled to adopt all communal facilities on a new estate. It is worth pausing to consider why that does not happen at the moment. Our current planning arrangements exist to support new developments. When a new development is granted planning permission, the local authority can obtain section 106 planning obligations to secure a commitment from the developer. That means that the local authority does not have to adopt and maintain the land at its own expense. Local authorities no doubt take such financial considerations into account when they make these decisions, but it is up to developers and the local planning authority to agree on specific issues such as timescales for development and appropriate funding arrangements, and it is clear to me that, in a lot of cases that have been brought to our attention, that process is breaking down.

The local authority has powers to ensure that the developer builds and maintains communal facilities to the standards and quality set out in the planning permission. It is worth noting that the maintenance of communal areas, and of roads in particular, can be a significant financial burden. This is why it is right that the decision about adoption should rest with the local authority. The Department for Transport has recently issued guidance on the circumstances in which local authorities should be adopting roads. Again, I note that this can be a fraught area in some situations; I have seen that from my correspondence.

We need transparency. We need a system that consistently delivers clarity to potential purchasers and arms them with information about the arrangements for the maintenance of shared spaces on private estates. That information should be set out as part of the conveyancing process. Many already use the freehold management enquiries form, the FME1, published by the Law Society. I know that the form is used widely across the sector, but I have heard that for some buyers the information was not provided, or perhaps not drawn to their attention, at the point of purchase. That may have been the experience of some of the constituents my hon. Friends and colleagues have spoken about.

If a homeowner is unhappy with the service that they received from their conveyancer or solicitor, and the internal complaints process cannot resolve the issue, the legal ombudsman may be able to help. That needs to happen within six months of the homeowner’s final response from their conveyancer or solicitor. My hon. Friend the Member for North East Bedfordshire highlighted the issues with buying and selling homes, the process for which in England and Wales can be expensive, time-consuming and stressful. For that reason, we committed to improving the process in the levelling-up White Paper.

We have committed to work with industry to ensure that potential buyers have access to the critical information that they need in an accurate and timely format. That will help them to make an informed decision about whether to purchase a property, reducing the likelihood of the sale falling through. Some of that work is already taking place, but the Government are committed to continuing to create a fair and just housing system for everybody.

Too often, once a homeowner has moved into their home, they are asked to pay charges without an effective breakdown of what they cover. This is a matter of basic fairness and justice. Homeowners deserve to know what they are paying for on their estate. As with leaseholders, a lack of transparency, both at the homebuying stage and when people are settled in their property, leaves homeowners in an unfair and often vulnerable position.

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.