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.
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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.