Leasehold Reform

11:00:00

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.

11:01:00

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 want to talk about my constituents’ experiences. For many people in west London, the high cost of property means that buying a house is out of reach, but people on good salaries can, just about, afford a flat for upwards of £500,000.

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.” On top of ever-rising service charges, many people have also faced sky-high building insurance costs since the Grenfell tragedy. In one case, council leaseholders saw an increase in their costs of more than 500%. People who get the right to manage by setting up resident management organisations have the right to hire and fire managing agents, and to get rid of companies such as FirstPort, but that has not always been plain sailing. I hope that the Minister will address the issue of minimum standards for managing agents when he responds to this debate. When my constituents try to sell their flats, they often find out the major problems with leasehold: either the asking price has decreased due to the ground rent or service charges or—even worse—banks will not lend on their flats. When one of my constituents inherited a property, they found out that there was only 40 years left on the lease. They can extend the lease, but they have been told that doing so would cost a six-figure sum. They told me that “the only future I can see is that of a bleak one.” Another constituent wrote to tell me how, despite paying a record-high service charge, their lift is constantly broken down. At one point, excrement fell from a broken pipe through the lift shaft for a rather long time. I will leave Members to picture that scene. Another problem was raised by the resident of the converted office block who I quoted earlier. They said that “we have faced significant distress from ongoing attempts by our building’s freeholder to add two additional floors to our development. While Hounslow Council initially rejected the application due to objections raised by the leaseholders,” the decision was overturned on appeal. That was on the basis that the project was “aligning with wider housing targets, but disregarding the wellbeing and concerns of existing leaseholders. This decision now leaves us anticipating extensive disruption, with no realistic recourse or meaningful consultation. Put a little more colloquially, imagine if some UK millionaire had the right to build two additional storeys above your home!” Many local residents are trapped and unable to sell their homes because of the web that leasehold has left them in. I hope the Minister can address that, as I know that the Government are working on it. Whether it is capping ground rent, reforming service charges or making lease extensions easier and cheaper, we need to fix the blockage for those trying to sell. There are also problems for those who bought via Help to Buy. I have heard that the single provider that runs the service is still very slow in responding about valuations and about the other hoops that those who used Help to Buy have to go through when selling their property. Finally, I will move on to the Government reforms. I am proud that it is a Labour Government who have promised to end leasehold. However, I know that it cannot be done overnight. How is the Minister’s Department ensuring that fire safety reforms and leasehold issues go hand in hand? Constituents tell me that fire safety remediation work at developers’ cost via the developers’ building safety pledge is being done only to the mortgage lenders’ B1 standard, rather than the A standards delivered when using the Government’s building safety fund. The former not only pay high higher insurance charges but, if selling, do so at a massive discount, thus creating one of the two-tier splits in leasehold housing. That touches on another two-tier system that many leaseholders are worried about. The Government rightly plan to end new leasehold ownership, but what will happen to the 5 million existing leaseholders when that change happens? Will they get any retrospective benefit? In London, the gap between house and flat prices is already increasing rapidly, and I fear that we risk leaving many of my constituents with an asset that they cannot sell. The Government rightly have an ambitious housing target, and I want us to build more affordable homes. I am, however, worried that in London we will see more homes being built that are purely shared ownership, where the tenant-leaseholder part rents and part owns the flat but is liable for 100% of the costs. I am extremely sceptical of that business model as I have seen example after example where shared ownership looks attractive, but the service charge rockets, the rents surge and, when people try to staircase up or even sell, they face many problems. Shared ownership has a role, although I suggest that the name is a tad misleading. Can the Minister outline how the Government will ensure that the new homes being built do not simply create a new generation of trapped leaseholders? In conclusion, our leasehold system is an antique relic. It has left 5 million people trapped and now they are unsure of their future.

11:18:00

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.

I thank the Minister for the interest that he has shown in the issues we have in Stockton North at Queensgate, Willow Sage Court and Wynyard. I am pleased to provide the update to the Minister that, following my intervention, in Queensgate we now have 98% of the roads completed. Does he agree that the issue here is a lack of consumer choice? There is a market failure; in local areas such as Stockton, people who want to buy a house have very limited opportunity to do so without entering into one of these agreements.

I commend my hon. Friend for his work there; it will be of great succour to a number of his constituents. However, he is right, because this is a confluence a failure to build enough houses and a system that has been left to govern itself and act in the ways that my hon. Friend the Member for Brentford and Isleworth set out, leaving people with no choice but to enter into arrangements that lead to them having to live with these long-term consequences. That is why we must build more houses and address those behaviours.

Does the Minister agree that part of ensuring that we can take more control and offer more choice to residents is allowing residents to take greater control for themselves and, in the process, ensure better value for the services that they need on their estates?

I absolutely agree, and I will turn to that in a second. We will also be consulting on the valuation rates used to calculate the cost of enfranchisement premiums, and would welcome hon. and right hon. Members’ views on that. However, there are some deficiencies in the Act that need to be rectified in primary legislation, so we do need to legislate. That gives us the opportunity to bring forward, in line with what hon. Members have said, a new era of commonhold being the default tenure for new flats. That is why we committed in the King’s Speech to a leasehold and commonhold reform Bill. It is part of our commitment to bring the feudal leasehold system to an end. We have committed to publishing draft legislation on this in the second half of the year. It will make commonhold the default, and it began with the publication of the White Paper in March. Alongside that, in response to the question from my hon. Friend the Member for Brentford and Isleworth about the 5 million leaseholders, we want to make the conversion process easier. Once commonhold comes back into public prominence as a model, I think it will be more popular, but we want it to be easier as well. We want to reform the existing system by legislating to tackle unregulated and unaffordable ground rents, as was mentioned, to remove the disproportionate and draconian threat of forfeiture, to act to protect leasehold from poor service from managing agents, as many have said, and to enact the remaining Law Commission recommendations on enfranchisement and the right to manage. We will address private estate management in that.

I thank the Minister for his work for my constituents. I am sure that he will sympathise with the latest victim to have been in touch with me. He said that with an unsellable and unmortgageable flat, due to the charges that the Minister has mentioned, he is now on the verge of bankruptcy. Does the Minister agree that real change for leaseholders is now beyond urgent, and can he assure us that this year, residents will see not only legislation but real change?

I absolutely can. My hon. Friend is a doughty campaigner for buildings in Southampton. We are meeting later to discuss one of them. I assure him, and those residents, that we know that they need change and relief now. That is why we have made the changes that we have been able to make so far. We want to get the changes right so that when the relief comes, it sticks, does not get mired and has the right impact. However, we appreciate the urgency with which my hon. Friend speaks. Several hon. Members have mentioned service charges and managing agents. Service charges have become a particular pinch point, highlighted by the cost of living pressures in recent years. The LAFRA gives us measures to increase transparency and to remove barriers that prevent leaseholders from challenging them, including more standardised information. However, this year, we will consult on the Act’s provisions on service charges and litigation costs so that we can bring them into force as quickly as possible. We will also consult on reforms to the section 20 major works procedure, which landlords must follow when leaseholders receive big bills for large works, as has been mentioned in the debate. There is much more to do in that area. On the subject of managing agents, I reassure my hon. Friend the Member for Brentford and Isleworth that we have heard her call about minimum standards.

My constituents have been defrauded by Initiative Property Management, are suffering at the hands of Scanlans Limited, and have had to deal with the Residential Management Group, representatives of which I am meeting later today. I welcome this Labour Government’s action to hold companies such as those accountable, to challenge unfair charges and hidden fees, and to end leasehold. What is the Government’s message to rogue management companies? I ask so that when I meet the Residential Management Group, I can convey the will of the Government.

I am keen to say clearly from the Front Bench that we will legislate in this area to close the dark corners that unscrupulous managing agents use to maximise profits. However, they do not have to wait for that in order to do the right thing. They have a duty to residents. There are many great examples of managing agents and landlords doing the right things by their residents. That is good for them, their building and the individuals who live there. They can do that today. I know that my hon. Friend will continue his work until they do so. That brings me to an important point that was raised both by my hon. Friend the Member for Bournemouth East and by my hon. Friend the Member for Brentford and Isleworth when she opened the debate, about the regulation of managing agents. They play an important role, particularly in multi-occupancy buildings, and that role is likely to increase in importance as commonhold becomes the default tenure. Many provide a good service, but there are too many examples like those mentioned by my hon. Friend the Member for Bournemouth East. I know that all hon. Members here could tell me about similar examples. In 2018, the previous Government committed to regulating the sector. The report came back from Lord Best and they did not respond to it. We are looking at it closely and we will set out our position in due course. However, we have said that as a minimum, we will include mandatory professional qualifications for managing agents, to ensure that they have the skills that they need to carry out their role to a high standard. Finally, my hon. Friend the Member for Brentford and Isleworth mentioned building safety and fire, which are part of my brief. As a Government, we understand that as part of our remediation acceleration plan, we need to give clarity about what a remediated standard is. I have talked to insurers about it, including about what they are asking for. The cladding safety scandal is being addressed through remediation. That cannot lead to a half a dozen other issues for leaseholders. We are pushing industry in that area, but we have been asked for certainty and we will deliver it. There has been a lot to consider in this debate, and it could easily go on for another hour, which I think would be important. However, I know that colleagues will not let the matter lie. The subject is frequently on Parliament’s agenda, and rightly so. There are people living under intolerable strain. We are committed, as a Government, to giving them relief as quickly as possible, and in a way that sticks. I will be working on it with my hon. Friend the Member for Brentford and Isleworth and colleagues over the coming weeks and months. Question put and agreed to.

11:29:00