My Lords, I thank noble Lords for their various amendments on the freehold estates and for the thoughtful debate.
Amendments 86 and 87 tabled by the noble Baronesses, Lady Thornhill and Lady Taylor of Stevenage, seek to prevent costs being passed over to home owners. Amendment 87 from the noble Baroness, Lady Taylor, seeks to prevent home owners having to pay any contribution towards the costs where work is required to rectify defects during the estate’s original construction. I fully agree that it is important that communal areas, whether a new road, a playground or open space, are built out to a proper and reasonable standard.
In some cases, elements of construction and maintenance that are subject to an estate management charge may have been delivered via a Section 106 planning obligation or through a planning condition. The local planning authority has enforcement powers to ensure that the relevant infrastructure is built out to the required standard, and it will discharge the obligation when it is satisfied that it has been properly delivered. Some Section 106 agreements may have in them a remediation clause, which will confer responsibility to rectify any problems back to the developer. When there is no remediation clause and management of the estate has been transferred to an estate manager, it will be for that manager to resolve the issue and take legal advice as to the best way forward, when appropriate. This may involve recourse to legal challenge in the courts.
In some cases, it may be relevant if the estate manager has an extant insurance policy that covers the particular issue—for example, subsidence—in which case the insurer might pay for the remediation works then pursue the developer itself. There may be some facts and circumstances where the home owner is not directly liable even though the costs of insurance, for example, may ultimately be passed on to the home owner. However, in cases where remediation or construction issues are not dealt with in a Section 106 obligation and this is not covered by building insurance, it will be for the home owners to pursue any claim for negligent construction through the courts. Furthermore, the potential financial and reputational damage of being challenged through the courts should provide a deterrent so that the developer delivers construction of the site to the required standard.
There are also some unintended consequences that mean I will not be able to accept this amendment. The first concern is the burden of proof. It may be very difficult to prove that the construction defect is the responsibility of the construction company, especially if it has been signed off by the local authority. Secondly, during the period of a dispute, what is expected to happen to the alleged defect? Without any means to raise funds to remedy it, there is a risk of those defects remaining unattended to until the estate manager has concluded the dispute with the construction company. While this litigation is under way, it could mean that the defects on the estate are not being rectified, potentially pushing the estate into further disrepair. This in turn
could intensify the problem, creating more disputes between the home owner and the estate manager over whether costs are payable, because they are not relevant costs.
We also need to consider the safety of all those who use the estate. There may be a higher risk of injury to members of the public during a period in which defects are not resolved and, in the event of an incident, the estate manager may be liable. This liability could also sit with the residents themselves where they are members or directors of an estate management company. I recognise that there are, sadly, cases in which initial work is not of the expected quality. However, I hope that the noble Baroness, Lady Taylor, is aware that there are significant challenges to consider with regard to preventing estate managers reclaiming costs from home owners.
Amendment 86 from the noble Baroness, Lady Thornhill, would clarify that an estate management charge is a relevant cost only if it covers services or works that ordinarily would not be provided by the local authority. The impact of this amendment is that home owners on a new or existing managed estate would not be liable for any costs that a local authority would normally carry out. This might include maintenance and the improvement of roads and public open spaces. However, this term is difficult to define. For example, would it include insurance costs of the local authority?
I recognise the many concerns expressed here and in the other place about the fact that local authorities are not required to adopt new developments. I know that mandating adoption of new estates is a key recommendation of the Competition and Markets Authority as part of its recent market study into housebuilding. The question of adoption is very important, but unfortunately it is not something that this Bill can fully address. This is because legislation governing public amenities, such as roads, drainage and open space, is covered by other legislation outside the scope of the Bill.
Furthermore, on its own this amendment has considerable implications. For example, while it may stop payments by existing home owners, it does not take away responsibility for the upkeep of the area under the terms of the property deeds. These home owners would not have any means of raising funds to pay for such upkeep, because they would cease to be treated as relevant costs. This would prevent home owners complying with their legal obligations.
It would also be detrimental to existing home owners, as the condition and upkeep of communal areas may rapidly diminish, impacting on the condition of the area and the well-being of all the residents. This could make it very hard to buy or sell these properties. I should also stress that there would be no contractual obligation for local authorities to take on the management of an existing estate. They are extremely unlikely to do so unless they can ensure that they have sufficient finances to manage and maintain it.
Amendments 64 and 91 from the noble Baronesses, Lady Taylor and Lady Thornhill, seek to achieve the laudable aim of empowering home owners to take over management of the estates on which they live. While I support every effort to drive up the accountability
of estate managers and empower home owners on existing estates, I hope I can persuade the noble Baronesses not to press these amendments.
We recognise the benefits of Amendment 64 from the noble Baroness, Lady Taylor. It would mean that a new right for home owners on freehold estates could be introduced in legislation to take on the obligations and liabilities associated with running an estate. There would, though, be many detailed practical issues to work through to deliver a right-to-manage type regime, particularly as estates contain different tenure types, such as leasehold and freehold houses, leasehold flats and commercial units. These issues would all require careful handling as they affect not only property rights but existing contract law.
I would like to reassure Members that we are listening carefully to the arguments being made for the Bill to go further to empower residents on existing freehold estates and, before Report, I would welcome further contributions on this, if noble Lords have them.
Amendment 91, tabled by the noble Baroness, Lady Thornhill, would enable residents to take ownership and possession of the estate management company where an inadequate service is being provided. The grounds presented to invoke this, although well-intentioned, seem unreasonably narrow. Many of these failures are company law issues or are already being dealt with through the Bill. Furthermore, there would need to be solutions for important issues, such as how to address the legal costs of transfer, as well as consequences for the company’s solvency if its equity is removed and it is assessed at a nominal value.
I do not consider that the reasons set out in the proposal from the noble Baroness, Lady Thornhill, provide sufficient basis for a nil-cost transfer. We are concerned that this very simple and broad power is not an appropriate way to address the significant substantive policy issues involved in transferring responsibility. As Members of the Committee will know, we are introducing measures in the Bill to empower home owners and make estate management companies more accountable to them for how their money is spent, including the ability to apply to the appropriate tribunal to replace a failing managing agent.
Amendment 93 from the noble Baroness, Lady Taylor of Stevenage, would require the Government to carry out a review of the extent and impact of non-standard terms and charges imposed by estate managers in property deeds and leases. We are aware that there are many different types of language in deeds and leases, but I do not think this review is necessary. First, home owners will face different obligations depending on what amenities the local authority is or is not responsible for. Secondly, where home owners are responsible, we are driving up the accountability of estate management companies with regard to how they spend the money they charge home owners. These reforms bring in significant protections to prevent exploitation of home owners, and we will of course keep these arrangements under review. I fully recognise the noble Baroness’s desire to provide further support to help home owners living on these estates, particularly in light of the Competition and Markets Authority’s recent report.
However, I do not believe that these amendments are the right way of delivering the desired outcome, for the reasons I have explained, and I ask the noble Baronesses not to press them.
My noble friend Lady Finn’s Amendment 87A seeks to deliver the recommendation in the Competition and Markets Authority report that the Government prepare common adoption standards and mandate local authorities to take over responsibility for these public amenities once these standards are met. These are very important issues that must be carefully considered, but, as I mentioned previously, they are not things the Bill can fully address. Legislation on planning considerations and liability for governing public amenities are covered elsewhere and are outside the scope of the Bill. The Government’s thinking on this issue will be set out in our response to the CMA report.
On Amendment 87B, also tabled by my noble friend Lady Finn, it is right that estate managers should be held accountable for the poor delivery of services they provide. However, I do not think this amendment is necessary, as the Bill already contains adequate protections for home owners. Clause 72 makes it clear that any estate management costs must be reasonable and that services or works should be of a reasonable standard. Clause 75 grants home owners the right to apply to the appropriate tribunal for a determination on whether those charges are reasonable. Taken together, these clauses will incentivise estate management companies to charge the correct fees from the outset, thereby reducing the number of home owners being overcharged for works and services on their estate. However, I understand my noble friend’s concerns and those of other noble Lords who have spoken in this debate, and I can reassure them, as I said before, that we are carefully listening to these arguments. Given these considerations, I ask my noble friend not to press her amendments.
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