Leasehold and Freehold Reform Bill

Committee (3rd Day)

Amendment 64

64: After Clause 50, insert the following new Clause— “Power to establish a Right to Manage regime for freeholders on private or mixed-use estatesIn Section 71 of the CLRA 2002, after subsection (2) insert—“(3) The Secretary of State may by regulations make provision to enable freeholder owners of dwellings to exercise a right to manage in a way which corresponds with or is similar to this Part.(4) A statutory instrument containing regulations under subsection (3) may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.””Member's explanatory statement This new Clause would permit the Secretary of State to establish a Right to Manage regime for freeholders of residential property on private or mixed-use estates.

My Lords, the amendments in this group concentrate on yet another aspect of the regime that fleeces home owners with unexpected and extortionate charges, but in this case, they are levied on residential freeholders living on private and mixed-tenure estates.

I had one or two such encounters as a councillor. In one case, there was a five-year battle to get an estate through-road adopted as a public highway because the residents were facing extraordinary and unaffordable costs for highway repairs; and in another, a series of children’s play spaces were abandoned by developers as soon as their sales were completed, with no provision made for maintenance, health and safety checks or upgrading to meet the latest safety standards. But it was not until I campaigned for my honourable friend Alistair Strathern, now the excellent MP for Mid Bedfordshire, that I saw the volume of housebuilding that had gone on with the assumption that new residents would be responsible for a wide range of maintenance to highways and public spaces, and other exceptional costs that had clearly not been set out in a transparent way at the time of purchase.

As my honourable friend put it,

“Across the country, homeowners in a state of adoption limbo are being left exposed to exploitative and often unaccountable management companies. Despite their warm words, sadly the Government did not take any of the actions that the Competition and Markets Authority urged them to take in order to end the issue of fleecehold once and for all”.—[Official Report, Commons, 4/3/24; col. 631.]

My honourable friend pointed out that residents of estates across the constituency are trapped in extortive relationships with unaccountable private management companies, while their estates go unadopted.

My Lords, it is a pleasure to follow the noble Baroness, Lady Taylor. I shall speak to Amendments 87A and 87B, in my name. The first amendment seeks to prohibit future freehold “fleecehold” estates, where freehold home owners can be tied into expensive maintenance costs for public amenities and open space, without recourse. I recognise and welcome the provisions in the Bill that currently provide additional redress for people trapped in fleecehold, but it is important to make sure that no more people become accidental fleeceholders. Fleecehold has become prevalent not because of any policy decision by an elected Government but rather as a way for developers and managing agents to make more money at the expense of unsuspecting home owners. My honourable friend Neil O’Brien has spoken out many times about the fleecehold estate scandal. He has compared it to the Post Office scandal, in that it is an injustice that has ruined so many people’s lives, yet nothing has been done.

The way that the fleecehold system works is now well known. In recent decades, the builder would normally build a new estate, make sure that the roads and other facilities were up to spec and pay a Section 106 charge, and the council would then take over the running of it. Under the fleecehold model, however, the developer agrees to hand over the company to another company, which it may or may not own, to run many parts of the estate, such as roads, open spaces, play areas and even sewers. The developer thus pays less in Section 106 charges and the council abdicates the responsibility to maintain the road and other amenities but not, of course, council tax. The developer and council, in essence, split the profits while the residents and new tenants get the bill. This is not only collusion between the council and the developer but an extremely inefficient way to run things. Many of the people on these estates end up with a huge bill to sort problems that have arisen because the amenities were not sorted properly in the first place.

There are numerous examples of abuse, from residents being charged terrorism insurance for a fence or charged for work that never happened. The problems of the fleecehold model are all too apparent. We need to solve these problems for existing residents, which is why I welcome the current measures in the Bill, but we also need to prevent this model from being used in the future or we will be deliberately piling up problems for the new home buyers of tomorrow.

Amendment 87A would end fleeceholds; development should be only private estates, where that is a deliberate, known choice on the part of buyers. It builds on the CMA report on housebuilding, which called for new adoptable standards for amenities and mandatory adoption by the relevant authorities. Subsections (2) to (4) of the proposed new clause would give the Secretary of State the power to prescribe those standards and for local authorities to vary them in relation to open spaces, which is the recommendation of the CMA. Subsections (5) and (6) would give powers to prohibit councils from granting permission, unless public amenities meet those standards and are to be adopted. Subsections (1) and (7) would make clear that a tribunal can invalidate any demands for estate management fees that people receive in relation to services that should be adopted.

We need to end this outrageous fleecehold model, which has brought misery to the lives of so many. We need to protect them against extortion and corruption, which is essentially what fleecehold is. I hope that my noble friend the Minister will be able to reassure your Lordships that the matter is being considered carefully and that the Government will bring something forward on Report to address it.

Amendment 87B aims to give leaseholders stronger powers over their estate management services. Residents who pay a service charge have a contract with a freehold management company to oversee problems in their properties. However, while consumers, under the Consumer Rights Act 2015, have the right to request compensation if a service is not delivered to a reasonable standard within an adequate timeframe, the same principles do not apply to leaseholders and the services that they should be able to secure from estate management companies. This amendment seeks to redress the imbalance. The amendment would give leaseholders a right to financial restitution or a proportion of their service charge should the management companies not, within an acceptable time period, address concerns that leave their properties uninhabitable. It would therefore create a financial impetus for management agents to act more quickly to address problems and fulfil their contractual obligations.

There are numerous examples of managing agents failing to fulfil their obligations, thereby leaving leaseholders without crucial facilities for weeks on end. In one new 31-home development, the residents were left without lift access, fire safety, security measures and basic amenities for over a year. The managing agent failed to issue demands for the service charge, resulting in a severe lack of funds to maintain essential services. As a consequence, residents were left paying for services that never materialised and liaising with service providers themselves to try to rectify the problems. It was only when the police and fire brigade intervened that the management company finally engaged. In consumer legislation, consumers have the right to the contracted service being provided with reasonable care and skill and in a reasonable timeframe; estate management companies should be required to abide by similar obligations.

There is also evidence of consistent poor communication between managing agents and leaseholders, who often have no clear channel by which to contact their managing agent when a service is broken or when they wish to raise concerns. This lack of communication often leads to basic amenities, such as intercoms and fire doors, being left unfixed for years. Equally, leaseholders have faced sharp increases in building insurance and service charge costs, but managing agents rarely provide cost breakdowns of the increased charges, despite being contractually obliged to do so.

The financial redress that the amendment would offer would place pressure on managing agents and freeholders to deliver an adequate service to leaseholders and provide a financial incentive for transparency to leaseholders on service charge cost breakdowns. Acting otherwise would lead the managing agent to incur costs. I hope that my noble friend the Minister will take back this amendment for consideration.

I am pleased to say the good news is that we are all on the same page in this regard. The noble Baronesses, Lady Taylor of Stevenage and Lady Finn, have set out the context and the evidence for this. Like the noble Baroness, Lady Taylor, I too had many meetings in my former role about the fact that this issue affected individuals, whether with regard to roads or, in one particular acrimonious case, to playgrounds. So I think we all know which way we are going.

I shall speak to the amendments in my name and make a few general comments about this whole set-up. Amendments 86 and 91 deal with what we now know as the fleecehold issue. As has been said, we all know exactly what that entails. The commercial substance of the arrangement that is eventually arrived at really is a leasehold. Homeowners are often fleeced by the management company, which charges exorbitant fees for maintenance, and may be unable to force directors to hold annual general meetings or provide proper accounts, which I feel should be a basic right. However, leaseholders do not want to publicise the issue because it will reduce their ability to sell the property when they leave, a matter that has not been touched on. You do not want to tell a potential buyer what they are letting themselves in for, which is why the transparency measures in the Bill are important.

Management companies are often non-profit-making, passing on costs of maintenance to owners of homes, but are controlled by the original developer and outsource maintenance work to businesses connected to that developer. There is a body of evidence showing that that leads to increased costs, as local companies could often do the work far more cheaply. A significant problem is that homeowners do not have the resources to take the company to court or force it to hold meetings or to get competitive quotes for required work. In many cases their conveyancing solicitor was recommended by the developer, so the initial advice given was not truly independent.

My Lords, the themes that have been touched on by the three noble Baronesses who have spoken to this group are familiar to me as a professional. They all pivot around these common realm assets—if I can call them that—that are left behind or, at any rate, put into some sort of park mode when the rest of the estate has been built out. These are things that have not been adopted and are placed in the care of an estate management company.

Local authorities may have all sorts of good reasons, within their own scope, for not wanting to adopt novel surfacing, additional lighting, planters or special features. But alongside this there are allied issues because, if they do not adopt, the construction cannot be guaranteed to meet adoption standards—by that I mean roads, drains and all the other things that would normally meet standards that are very often laid down in legislation.

This is an open goal for corner-cutting, which goes on. I cannot tell your Lordships how many times I have been asked to advise on the fact that there are defective drains outside the property, somewhere in the common realm—under the road, common parking areas or landscaped areas—and nobody knows what has happened. It can be not only drains and road construction but engineered embankments, landscaping and ponds: these do not necessarily get constructed to the right standards either, but it can be hugely expensive to try to fix them after the event, and that is where the problem is. The question of just parking them in a management company that then charges whatever it likes goes to the heart of standards, responsibility and the funding of the maintenance of them.

The accountability of management companies seems to be in many instances next to zero. The burden on the freeholders, where the costs charged to them reach that magic figure at which lenders start putting their ears back and question whether they want to lend, results in the sort of lock-in that we well know affects leasehold flats subject to remediation.