Leasehold Reform

I will call Ruth Cadbury to move the motion and then call the Minister to respond. I remind other Members that they may make a speech only with prior permission from the Member in charge of the debate and the Minister. There will not be an opportunity for the Member in charge to wind up, as is the convention for 30-minute debates.

I beg to move,

That this House has considered leasehold reform.

It is a pleasure to serve under your chairship, Dr Allin-Khan. This is a well-subscribed debate, but as it is only half an hour I have said that just a couple of hon. Members can intervene, and hon. Members understand that we are not accepting any speeches apart from mine and the Minister’s.

It is a pleasure to lead this debate on leasehold reform in England and Wales, one of many that I have already spoken in during this Parliament. I want to start by thanking the dozens of constituents who have written to me in the last week to let me know about the problems they have faced: high service charges, rising building insurance, safety problems, unclear management contracts and a wall of silence from their management companies and freeholders. Most of those issues have been raised with me by leaseholders in my constituency since I was first elected to this place 10 years ago.

The common theme, as hon. Members know, is a lack of control. Many leaseholders assume, when they sign their contracts, that they are moving into a home. They have to pay a service charge, but they expect that to mean that communal problems will be fixed and they will be able to get on with their lives. Sadly, that is not the case.

Many leaseholders are trapped in a complex, legalistic maze. I want to cover three things today: the situation for my constituents, how we got here, and how the Government are working to fix it.

I thank the hon. Lady for securing this debate, which I spoke to her about beforehand. Does she agree that issues with developers and management company rates can stem from the fact that the new homebuyers are often not informed about the nature of the leasehold agreements and the additional costs that come off the back of that for labour and materials? Does she therefore agree that estate agents and solicitors must have a duty of care to ensure that prospective owners are under no illusions as to how management companies and associated fees will be dealt with annually?

I am grateful to the hon. Member, because I was going to come on to that and to the insidious links between those selling the flats, particularly the developers, and the solicitors who they recommend to the buyers—often first-time buyers who are unaware of the challenges.

On how we got here, the answer, to be blunt, is greed. Hedge funds, investors, solicitors and developers—many based overseas—started meeting up at conferences about 15 or so years ago to learn how to use the weaknesses in English freehold law to fatten the golden goose. Members can see my rant on this subject on the Leasehold Knowledge Partnership website. Leasehold blocks of flats, often in urban areas, were valuable properties that guaranteed an extremely high return.

In one current case a freeholder called Oakdene, which is refusing to pay to fix fire safety faults, sent me a letter from a solicitor at a rather high-priced legal firm—the letter alone probably cost hundreds.

I have been working with some residents in Cavalier Way in Wincanton. They contributed £40,000 annually to Plymouth Block Management, their previous leasehold management company, which did not complete any repairs and deposited no reserves as it was transferred to the new company. The residents now have a 500% increase in their charges. Does the hon. Member agree that companies must be accountable to residents and mandated to hold annual general meetings to ensure financial transparency?

A lack of transparency is a theme that comes up again and again, particularly for the people who are effectively the victims. I will press on because I want to get to the end of my speech if I can.

The complex state of leasehold means that many different parties have realised that they can fatten the goose with ease, and often without scrutiny and enforcement as the hon. Member has said. First, that was often done through ground rent. Properties would often charge a ground rent of between £250 and £1,000 a year in London. I would call it money for old rope, but that would insult old rope.

That tactic was later replaced as more buyers and solicitors became aware of it, particularly around the sale of flats, so we then saw service charges being used as the new cash cow. A typical building in my constituency, which is often a flat built since 2000, has a service charge of £6,000, but some have charges as high as £7,000 or £8,000 without anything like that value of service being delivered.

For too long, it has been possible to raise service charges without limit—often vastly above inflation and with no clear breakdown. Leaseholders will buy a property and think that the service charge is paying for services such as—to take examples from my constituency—the post room, receptionist, home cinema, car park and security. In fact, they find that the post room and the home cinema are closed, the receptionist is not full time, the car park gets flooded and the security is non-existent.

If a person bought such a product on the open market, trading standards would have a field day—but leasehold is not a fair market. If we invented this market system now with its wide cast of cowboys and profit strippers, it would appear like something out of a Victorian novel. Ted Heath called it the “unacceptable face of capitalism”, but that is how we have got here.

I will not regale the House with the efforts to tame and reform leasehold over the past decade. As a member of the all-party parliamentary group on leasehold and commonhold reform, I know that many hon. Members have been working on it. The previous Government’s changes were welcome, and MPs from both sides of the House have stood up, spoken and acted, particularly thanks to the support of the APPG and the work of the Leasehold Knowledge Partnership and the National Leasehold Campaign. I know that the Minister gets this issue and knows it inside out too.

I thank the hon. Lady for securing this incredibly important debate. One of the issues in my constituency, which is very similar to hers, is that people are buying new flats or houses under the freehold system, but with so many covenants involved that they are also being charged the sort of service charges that she has mentioned. Does she agree that whatever the Government do— I welcome the good approaches in this place—they must also cover some of the covenant issues around freehold?

I agree with the right hon. Member. There are so many issues that the Government have been looking at, and are going to have to look at, particularly to ensure against unintended consequences.

With prices of upwards of half a million, even with the help of the bank of mum and dad, many of my constituents have no choice but to buy a leasehold flat, even when they have a good income and perhaps help with the deposit. That means that a whole generation in London risks getting trapped as leaseholders.

The key problem is that at first the terms can seem straightforward. A person pays their mortgage and then they pay their service charge and ground rent, and for the first year, it might be okay. They might notice some problems in the communal area, but the real kicker comes when they get the first increase in their service charge. I have seen constituents whose service charge has increased by 50% or even 100%.

Does my hon. Friend agree that when we talk about leasehold we have to include fleecehold as well? In Priory Vale and St Andrews in my constituency, residents pay astronomical fees without receiving the services that they should receive for such fleecehold charges.

My hon. Friend is absolutely right. Again and again, bills for service charges come in that are not properly itemised. There are items that do not actually exist, such as landscaping maintenance, and there is a refusal to open up. Some leaseholders are even getting charged by solicitors for what should be a right.

Does my hon. Friend agree that such service charges are an outrage? There should be some form of guarantee associated with what services are in fact provided. I, too, have had many constituents complain to me about the complete lack of services that they pay for. As she says, if those services were something that was being paid for on the open market, trading standards officers would be involved.

My hon. Friend is absolutely right. I am sure that the Minister is noting these points and will address how we can ensure transparency and a minimum quality of standards in the billing of service charges and the other activities of management companies.

I now want to get to the end of my speech. Given the popularity—sadly—of this debate, I hope that there will be many more debates on it in this place where everybody will be able to make a strong speech about these issues that are so important to many of our constituents.

I will give some examples from constituents. In one case, a constituent was rightly concerned about the costs they faced and asked for a breakdown of them, but was refused. They issued the necessary legal action to get the breakdown, but six months later they are still waiting for it. There is also the specific problem that many constituents are frankly outgunned when they get into legal disputes. Another constituent faces a legal bill in the thousands because they have to represent themselves.

One Hounslow resident who lives in a badly converted office block summarises the issue well:

“Our building’s service charges and insurance costs average just over £2,000 per flat annually”—

which sounds all right—

“yet the quality of service is alarmingly poor. We have regular incidents of theft, with leaseholders having to rely on personal security measures”.

They say that is because the management company are not interested. They continue:

“The service charges increase each year with little transparency, covering inflated management fees, audit fees, and security charges, with no consultation with leaseholders on providers or costs. This imbalance of control leaves us vulnerable to arbitrary charges without accountability.”

It is a pleasure to serve with you in the Chair, Dr Allin-Khan. I congratulate my hon. Friend the Member for Brentford and Isleworth (Ruth Cadbury) on securing this debate, on the case that she made and on the passion with which she spoke. This degree of turnout is uncommon for a half-hour debate, which shows the strength of feeling on this matter across the UK. Anybody writing legal letters to my hon. Friend with the idea that it might stop her using her platform to advocate for her constituents is likely to be deeply disappointed. Nevertheless, the debate has reinforced the case for major reform of the leasehold system. My hon. Friend highlighted the broad range of issues faced by leaseholders every day. We are committed as a Government to honouring the commitments made in our manifesto and to doing what is necessary to bring the feudal leasehold system to an end.

I will cover the legislation as it is, how we are going to commence those provisions, legislation that we committed to in the King’s Speech and, hopefully, some other elements at the end. We heard from my hon. Friend and other colleagues that there are unfair and unreasonable practices that require urgent relief. As my hon. Friend said, the Leasehold and Freehold Reform Act 2024, with the cross-party support that it garnered, provides scope for some of that relief. In November, the Minister for Housing and Planning, my hon. Friend the Member for Greenwich and Woolwich (Matthew Pennycook), made a statement on the next steps for leasehold and commonhold reform that set out our intended sequencing for bringing those provisions of the Act into force, including an extensive programme of secondary legislation and consultation.

The parts of the Act that can be implemented quickly have been implemented. A number of provisions relating to rent charge arrears, building safety legal costs and the work of professional insolvency practitioners came into force in July 2024. In October, we commenced further building safety measures. In January, we commenced provisions to remove the two-year qualifying rule in relation to enfranchisement and leasehold extensions. In March, we switched on the right-to-manage provisions, which allow for expanding access, reforming costs and voting rights. Some things in the Act require secondary legislation, and we have been able to turn them on.

I welcome the early pace that the Government have shown on this, but given the urgency of the issues that the leasehold scandal is causing for my constituents and those of many hon. Members, does the Minister agree that we need to bring forward further, more substantive solutions at pace, including answers for existing leaseholders, to ensure that we are doing justice to the urgency of this moment?

I do. I appreciate that there is frustration about consultation, but some of the challenges within the Act show why it is important that we get this right, and that we have a process that delivers the relief that people are so desperately waiting for. One such consultation that has now concluded is around insurance commissions, which relates to service charges. We are consulting on how to replace that with a fairer and more transparent permitted insurance fee.

This year, we will also start the consultation on relevant measures related to service charges and litigation costs more generally. On new consumer protection provisions, as my hon. Friend the Member for Swindon North (Will Stone) mentioned, for the up to 1.75 million homes on private and mixed-tenure housing estates that are subject to estate charges, we will bring the measures into force as soon as possible once we have the correct model.