Good morning everybody and welcome to the Housing, Communities and Local Government Committee. I am Florence Eshalomi and I am the Chair of the Committee. This is the first evidence session of our inquiry into the draft Commonhold and Leasehold Reform Bill. Pre-legislative scrutiny of a draft Bill is an important aspect of Committee work, and we are covering the effects of leaseholds on people up and down the country. It is important that the Government get the legislation right, so we are grateful to the Government for publishing the draft Bill and enabling pre-legislative scrutiny to take place. Over the next few weeks, the Committee will be holding evidence sessions considering written reports and evidence from stakeholders and the public about their concerns with the draft Bill. Once we have completed the evidence sessions, the Committee will publish a report on our conclusions and recommendations on the draft Bill. The Government are not required to accept our recommendations, but they are required to provide a formal response within two months, which will also be published. At some point after that, the Government will then formally introduce a Bill into Parliament, with or without any changes, and that Bill will go through the usual legislative process. We are grateful to everyone who has taken the time to engage with our inquiry so far, and for all the written responses we have received. To date, we have received over 5000 responses from homeowners from online surveys. All of that will help us determine our final inquiry and report. For anybody watching today’s session, we will share all our views on the proposed reform and the link on the Committee website. The survey for your responses and evidence is open until the end of March. Finally, on a procedural point, there is at least one ongoing legal case regarding the Leasehold and Freehold Reform Act 2024. Ordinarily, the House of Commons and its Committees would not discuss matters live before the courts. That is known as the sub judice resolution, and it is designed to respect the jurisdiction of the courts in such matters. We have asked for permission from Mr Speaker, and on this occasion, he has waived the sub judice resolution in order to allow Parliament to fulfil its constitutional role. Following the discussions between myself and Mr Speaker, the Committee is exercising a waiver to the sub judice resolution to enable us to undertake pre-legislative scrutiny. That means that this Committee, and the witnesses appearing before it, can discuss any relevant legal case. Any evidence given to the Committee, whether orally or in writing, will in any case be protected by parliamentary privilege in such a way. I ask my Committee colleagues to please introduce themselves.

I am Gagan Mohindra, the Conservative Member of Parliament for South West Hertfordshire.

I am Lewis Cocking, the Conservative Member of Parliament for Broxbourne. I am a leaseholder as well.

I am Chris Curtis, the Labour Member of Parliament for Milton Keynes North.

I am Will Forster, the Liberal Democrat Member of Parliament for Woking.

Good morning, I am Andrew Lewin, the Labour MP for Welwyn Hatfield.

I am Sarah Smith, the MP for Hyndburn and also a leaseholder.

I am Sean Woodcock, the Labour MP for Banbury.

I am Andrew Cooper, the Labour MP for Mid Cheshire and I declare an interest that I served on Cheshire West and Chester council with Katie Kendrick, who is one of the founders of the National Leasehold Campaign.

I am Maya Ellis, the MP for Ribble Valley.

Can I now ask our guests to introduce themselves?

Good morning. My name is Catherine Williams. I am one of the co-founders of the National Leasehold Campaign.

I am Liam Spender, a trustee of the Leasehold Knowledge Partnership. I am a leaseholder and also a solicitor.

Thank you. We finally have a Bill we can scrutinise. I know that many of you have been waiting for a very long time, and we are making some progress on this. We have a range of questions to ask and four different panels, so time will be tight and I will be very firm in chairing and cutting people off.

Can we start with ground rents? The Government say that the draft Bill will “bring the feudal leasehold system to an end”. What impact would this legislation have on ordinary leaseholders?

The first thing to say is that if the Bill comes to fruition and commonhold is the tenure of choice for flats, it will save a lot of people from being leaseholders, which is a good thing. It also sets out a framework for those who are currently leaseholders to convert to commonhold, for which we have been campaigning for nine years. That is good. We have some concerns about the non-conforming leaseholders in a block and how that will be managed. It appears that their leases will have to have a deed of variation for them to remain leaseholders in a commonhold block. We are concerned about the cost of that. If they could not afford to enfranchise to be part of the commonhold association, how will they afford to have their leases changed—and will they be charged to have them changed—so that they can be part of that block? The other group of leaseholders that is not really dealt with in the Bill is leaseholders in houses. On large estates, there is a mixture of flats and leasehold houses, so you could end up with a situation where the commonhold association manages its block and has control over managing agents, fees and all that, yet the residents in leasehold houses are still under the control of managing agents for the wider estates. That really needs to be looked at. What are the boundaries of the commonhold association? Where does its control begin and end on a larger estate? As an example, one of our leaseholders contacted our group recently because she had been in conversation with her freeholder about the Bill and the cap of £250 on ground rents. Her freeholder seems to be under the impression that it will apply only to the actual unit that she lives in, and that the car park, which is separate—it is not part of that building—will still have some sort of lease and ground rent attached to it. There is a lot that needs to be made very clear about where the boundaries are.

For new buildings, it is a long overdue reform that puts control where it belongs, which is with the people paying the bills. It brings England and Wales into line with the rest of the world. That is very welcome. However, although there are some measures in the Bill for existing leaseholders, such as reform of forfeiture, there are not a lot because we are waiting for the Leasehold and Freehold Reform Act 2024 to be commenced. Progress with that has been somewhat frustrating. There is frustration that there is a 40-year sunset period for existing ground rents. Although they are being reduced to £250 without any inflation protection, it is still money that people will have to find to pay for nothing. Perhaps a major shortfall in the legislation is that only existing leaseholders who have the right to buy their freehold will be able to convert to commonhold. That is not every leasehold block. The Bill is welcome and it is a big step forward, but there is more to do.

Liam, you mentioned the 40-year proposal. Is that a fair balance between freeholders and leaseholders?

Personally, I would prefer a shorter period. I don’t know why 40 years has been alighted on; Scotland, for example, did it in 30 years. I would have thought that 20 years was a fairer period. I can see that the Government need to strike a balance between the different interests of leaseholders and freeholders, but if the period could be shortened, I think it should be.

Catherine, do you have any views on that?

I certainly do. The initial response from our members on the £250 cap was quite positive. However, we realised that they were mainly London-centric leaseholders who have much higher ground rents than elsewhere in the country. However, it seems that the results of the ground rent consultation, which we had back in 2023, have actually been reported in one of your documents. It is in the “Addressing unregulated, unaffordable ground rent policy” policy statement, which came out in January, on page 6. The outcome of that ground rent consultation is in here. The document states that “the consultation responses demonstrate that leaseholders overwhelmingly supported a rapid move to a peppercorn cap”. It goes on to say that the freehold investors did not like any of the five options—not surprisingly. Our members—the members of the campaign—still find it very difficult to justify handing over their hard-earned money to a faceless freehold investor, who may have offshore accounts, for nothing. We need to make it really clear that ground rent is for nothing. There will be a 42-year sunset clause on it. You might as well call it a 42-year leasehold perpetuation clause. For some of our members, it will be a “till death do us part” clause. I would be 112 in 42 years.

What would you say to the Government? They have raised concerns about pursuing a cap on ground rent immediately. They have cited concerns that transitioning to a new system immediately would “risk significant market disruption, with adverse impact on freeholders and investors”.

Okay. They must be not very good at business then, because with all the freehold investors, it is just perspective, isn’t it? It is a gamble. When they bought up the ground rents, it gave them an extremely high return rate of—I believe—between 6% and 8%. But investments go down as well as up. They have had the benefits of those investments for a number of years now—a long time—whereas leaseholders do not get benefits from paying ground rents; they just pay them. To be honest, our members are not really concerned about the freehold investors at all, because the investors are running a business and they should have put things in place before. They knew change was on the cards; they should have done it.

Liam, I think you are on the record as saying that you were concerned that there is a gaping loophole and that ground rents might be included in head leases and service charges. Do you still have that concern? Do you think that the Government should have concentrated a bit more on the service charge element as well as on ground rents?

There are a lot of valuable reforms in the 2024 Act that have still not been commenced. They would go a long way to dealing with many of the issues we see with service charges and they should be brought forward as quickly as possible. However, my view is that, for as long as it is possible to create leasehold flats, it is possible to put head leases above them with things described as service charges that look like ground rents. That is very common in modern and complicated mixed-use sites, where you have retail, shared ownership and other types of housing. There is very often an estate service charge that is not linked to the cost of providing services, but it is linked to RPI and looks a lot like a ground rent. Those charges are buried in the head leases; the leaseholders have to pay them through service charges. The longer you allow leasehold flats to be created, the greater the risk of more of those sorts of estate service charges being created. We should move quickly to stop that.

I will move on to the Law Commission’s recommendations. The Government previously said that this draft Bill would enact the remaining Law Commission recommendations on enfranchisement and the Right to Manage, but it does not do so. What difference would enacting those changes make for leaseholders?

It would make it much easier for leaseholders to take over buildings. For example, one of the Law Commission’s recommendations was about sites like mine, where you have multiple blocks and the leaseholders cannot simply step into the shoes of the existing freeholder; they have to go block by block and get the requisite 50%-plus-one majority in each block. That makes it more difficult and drawn out to take over the site. If the Law Commission’s recommendations were enacted, that process would be easier. The Law Commission also recommended changes to the enfranchisement process and a restriction on the ability of freeholders to seek development value, which would reduce the price paid. Again, that is all bogged down in the problems we are having with the 2024 Act—this must be the third or fourth time I have mentioned it, but it is a major problem.

One of the omissions was a publication the Law Commission wrote, the management of housing estates framework 2025, which gives a very good framework—this is the point I made earlier—about the wider estates being able to take control back and manage their estates. That includes houses as well as flats. I do not know why that was not implemented or thought about. I know there is something in there about having “greater control” over the managing agents for housing estates. That is welcome—it is really good—but why can’t house owners have the same benefits that commonholders are going to have in flats? That is a strategy that could help.

I want to ask about managing agents. Regardless of whether it is commonhold or leasehold, we are still going to have to manage with managing agents, and we as a Committee have already had some discussions about the fact that there is not much mention of managing agents in the Bill. To what extent do you think the success of commonhold will rely on the effective regulation of property managing agents?

It is absolutely crucial that managing agents are controlled and regulated, but that has to be done by an independent body, with some teeth, that can impose meaningful penalties when things are not done. It does not matter whether it is commonhold or leasehold; I think that applies to anybody, on any tenure, if they have a managing agent.

I think commonhold will succeed because it will give the most important power, of hiring and firing, to the people who pay the bills. That is the most effective form of regulation there is. If managing agents are not up to the job, they will be replaced with someone who is. I do not think we should divert too much energy from improving this Bill into regulating managing agents at the moment, because there is a risk that that will push up prices in existing leasehold flats as the cost of that regulation is passed on through service charges. Until everybody living in a block of flats or on a managed estate has the power to hire and fire, I am not convinced that you will see any improvement in quality among managing agents.

Do you envisage the market of managing agents changing? Do you think new types of company will open up, or do you think it will be the same agents as now, just managed by different people?

I think in the future the agencies that will thrive will be the ones that are resident-centred and understand that commonhold puts the people who live in buildings in democratic control. It would be very disappointing if the likes of the current large managing agents—FirstPort is a name you will be familiar with—were still in business when there are a large number of commonhold properties, because they do not see the residents as being at the centre of what they do. I think they are dinosaurs looking at the asteroid heading towards them—I would hope so, anyway.

I would add that managing agents should never be self-regulated. They have proven to be very bad at that, and they have to somehow be regulated to give a better service. We are hearing that managing agents and other people in the sector—solicitors and so on—are getting training on commonhold. What we are not seeing is the residents, the people who are going to be managing the blocks in the commonhold associations, being offered any form of training or support to take this forward. That is another threat to the commonhold system.

I will call Sarah, and then I have two other Members who wish to speak, so could you make your questions very tight?

I want to push a bit further on whether there is evidence you can draw upon, in other systems or countries, suggesting that the democratic power of the commonholders would have the effect of improving the deal that they receive from managing agents. Is there evidence that that has been enough to make a difference, or should we be realistic about a cap on what change that will bring to the wider problem?

Fundamentally, there will have to be cultural change and changes in the market for both managing agents and people living in buildings. Managing agents are going to have to get used to putting residents at the centre of what they do, and leaseholders—residents of these buildings—will have to get used to taking responsibility for being in democratic control. The law and regulation can only take you so far. The evidence from other countries is that, where problems emerge, they are dealt with quickly, because the people who live in the buildings are aware of them. For example, in Australia, where they have strata title, there have been issues—as there are here—with buildings set up with long-term energy contracts for combined heat and power systems, which were unfavourable to the strata unit holders. That issue was very quickly nipped in the bud. There was statutory reform, and pressure on agents and energy companies to do something about it. If you compare the experience here, Ofgem has belatedly taken over regulation of heat networks, which is basically what we are talking about, but we are still no closer to solving the problem. It comes back to the point that the people who pay the bills are not in charge. Once you make that change, there is pressure for rapid improvement whenever issues are identified.

Catherine, you talked about the need for a regulator that is independent and has teeth. Do you think it needs to be a newly set-up regulator, or can it be done by an existing organisation?

We feel that it should be a totally new regulator, because with the existing organisations who claim to regulate managing agents, sadly, the evidence in our group is that that is not going very well. I think it is really important that we have an organisation that is totally independent and can give meaningful penalties—not just a couple of hundred or a couple of thousand pounds here and there.

Would you be able to write to us with the evidence that suggests that they do not fulfil a regulatory function, or some case studies of that?

Yes.

Developing Sarah’s question a bit more, Liam, you said that, if we have increased regulation, that will put up cost of service charge. I fully understand that, if we move to commonhold, those people will have the power to hire and fire, so that will improve some of the management agents out there—but if we do not have any regulation, how does that power improve anything for existing leaseholders? Do you not think that we need to give people the power to hire and fire, and regulation as well? All the management agents I come across are terrible.

Yes, the standards are uniformly low across the market. If we make it easier for existing leasehold buildings to take over, you start introducing that market discipline. I would be very wary of introducing a system of regulation without teeth, which only passes on cost to leaseholders and does not produce results. I am afraid that that is the model that freeholders and managing agents are advocating for. There is a proposal on the table for the regulation of property agents to certify senior managers. That will not deliver anything. The senior managers of these managing agents have nothing but contempt for leaseholders. You are going to need a very heavy regulatory system to achieve any results, which is going to be expensive and bureaucratic to implement. The best way to do it is to impose the discipline of the market. That is the only realistic way you will solve these problems.

Thank you very much. I think we could spend a whole session talking about managing agents. Thank you for coming before the Committee this morning. We will continue to engage with you as we go through this inquiry. Witnesses: Harry Scoffin and Halima Ali.

Could our two witnesses please introduce themselves?

My name is Harry Scoffin. I am the founder of Free Leaseholders. I am also the deputy chair of a residents’ association and director of a Right to Manage company of a block in east London.

My name is Halima Ali. I am the joint campaign co-ordinator for the Home Owners Rights Network. We campaign exclusively about privately managed estates.

I have a straightforward question to kick off. The Government say that this draft Bill will “bring the feudal leasehold system to an end.” Do you think it will, particularly with regard to ground rent and given that it does not regulate property management companies?

They also say that leasehold “will be a feature of the housing market for many years to come.” Also, if you are protecting ground rent until 2068, you are basically sending a big signal to people that have bought up the freeholds to other people’s homes that this system is okay. What we are worried about is that there is a crisis in the flats market at the moment. People cannot sell and cannot move on. There have been myriad articles in the press about how we now have the biggest gap between house and flat prices in 30 years. The first rung—and often the last rung for elderly downsizers—is toxic. No one wants to touch it. The Government are talking about 1.5 million new homes. The fact is, most of those homes are going to be flats, particularly because of immigration and the demand for housing. If you have a toxic tenure, you have got to get rid of it. That is what was promised in the manifesto. Yet, in the Bill it has been shorn of the Law Commission’s recommendations on enfranchisement and Right to Manage. For our supporters, commonhold is great for new builds, but for those of us already trapped in the system, commonhold is going to be a mirage—because you cannot buy your freehold or get Right to Manage under this legislation. It is also silent on the process for buying the freehold, which is already in law via the 2024 Act. The Government are hiding behind a judicial review, which they won in October. Our concern is that people are going to be trapped in a two-tier market. Everyone is going to rush to commonhold flats to juice developers’ profit margins—maybe on a Help to Buy 2.0 scheme—and the rest of us will be trapped. Just this Monday Hamptons has said that service charges for 37% of flats are now in excess of 1% of the property’s price. What that means is those flats are unmortgageable—they are unsellable. Our concern is that you are going to be trapped in leasehold; it is commonhold for new builds, but they are going to basically keep us trapped.

First, it is important to make the distinction between us and leaseholders. We are not leaseholders. Our issues are related not to tenure, but to land and property law. We need that conflation to stop. What we have are two separate issues that require different remediation. We are dealing not with communal spaces, but with public spaces and infrastructure, which homeowners like myself are left to deal with. That is unfair, exploitative and unacceptable. The only way to help us is to legislate for a retrospective universal adoption. Our position is supported by the CMA and is an evidence-based position. For us, managing agents are a symptom, not the cause. Merely regulating managing agents will not help us at all. We have gathered from our campaign that our situation is being led by developers.

Thank you both for that. It has been really helpful. I assume that the Government have come to a compromise position with this Bill because they are mindful of a legal challenge over existing property rights. Would you like the Government to be more aggressive in clamping down on ground rents, among other things, even though that could risk a legal challenge?

If you send a thank you card to the freeholder lobby, they will sue you. The fact is, Parliament is sovereign and Labour have the second biggest majority in their 126-year history. If they promised voters one thing, they have to deliver it. This is not a partisan point. We saw it with the Conservatives. They gave us partial legislation that they dragged out to the end of the Parliament. We are really worried about Labour playing the same game, because No. 10 and the Treasury have been captured by these cartels, these interests—it is huge.

Do you have evidence of that?

You can see it in the media. The Treasury has been pushing back against this. If you look at the ground rents policy statement, they are not publishing the full results of the consultation that everyone filled in in good faith. They have not done that, and they are using all the lobby lines about pension funds. Yuan Yang did a great thing when she was scrutinising the Housing Minister a few weeks ago—

We have asked the Minister for that information, and hopefully it will be forthcoming, so we will be able to share it.

Great, but less than 1% of pension funds are involved in residential property. That is get-out-your-microscope territory, yet they are worried about the guys who own 2.5% capital value. You are going to hear from Charmaine shortly, so I do not want to pre-empt her evidence, but that is the Residential Freehold Association. Those guys own a tiny fraction of value, but they have got the whip hand over the running costs of people homes. That is wrong and we need to move to commonhold. We are worried about being sent down a wild goose chase with the draft legislation when we have already got law. Parliament, beyond your Committee, is not holding the Government to account on that legislation. There are powers in that legislation to set the rates to make it cheaper for leaseholders to extend the lease or buy the freehold. We were promised by the Housing Minister in November 2024 that that would be coming forward for a public consultation because they do not want to be sued. It did not happen last summer because they said they had to wait for the High Court judicial review decision. That came and went in October—it was for the Government. It has not happened. That is really important because if we play the same game as last time, the reforms are not going to get done. Why are they not bringing forward the Law Commission’s recommendations? That, to me, seems as though the lobbyists have got their way and got the influence in the system.

We will come back to the Law Commission’s recommendations.

You are very passionate: succinctly, in a couple of sentences, what do you want to happen or what do you think is not in this Bill?

You have got to set the deferment rates and the capitalisation rates high because, at the moment, the freeholders are lobbying to set them low. It is in the 2024 Act that you can do that. You also need to make sure that people who do not qualify to buy the freehold at the moment can. Take mixed-use buildings—I have personal experience with that: if you have a shared plant room or a pipe that connects you to a commercial premises, you are out even if, under the 2024 Act, you have got a majority of floor space. A number of MPs and peers in the last Parliament raised that. The last Government looked at it and the election called out those reforms. Another thing: to get 50% of a block is almost impossible, particularly big blocks. Buy-to-let is a fact of life now; it is the most popular business. Let’s reduce that threshold. The Law Commission also originally recommended—before it looked as if it had been pressured by vested interests—was to make sure that, if you missed the boat to buy your freehold first, you could buy your share later under the Right to Participate policy. At the moment, if you do not join your neighbours to satisfy 50% support—say something has gone on at work or you cannot afford it at that moment—you are locked out from buying your share of the freehold later. With the Government mandating commonhold on new flats, mortgage lenders and buyers will look and think, “Oh, this block has got the freehold, but these flats are not part of the decision-making process.” That needs to change. That is a big thing. Set the rates high, because the freeholders will want the low rates and that means that leaseholders will be paying more than the current position.

That is not this Bill; it was the 2024 Act.

Correct, but Matthew Pennycook recognised that the 2024 Act was deficient in some ways—it did not guide the Secretary of State to set the rates high—so he moved an amendment, which was rejected by the Conservatives. Bring that amendment forward so that the base has to be something called Sportelli. Sportelli is freeholder-friendly case law. It gives a 4.75% deferment rate for houses, a 5% deferment rate for flats and goes to a 6% capitalisation rate. We want those rates much higher, but if there has to be a floor, have that as the absolute floor so that leaseholders are not paying more than the current position.

Halima, you have given a taste of your view on the draft Bill with regard to estate charges. I am interpreting from your response that you see adoption of estates as ultimately what is needed in order to end a lot of this injustice. The Bill does remove some of the possession threats that homeowners face. Have you, or the people that you represent, had experience of that?

Threats of one-to-one remedies were commonly reported to us four to five years ago. They were mainly directed at mortgage lenders, who then started insisting on deeds of variations for sales and remortgages. It is less often reported now. It is the bare minimum that we expected in order to help us—

Has it actually happened, though, or is it just a couple of extreme cases?

I would say it is the extreme cases. We are not hearing reports of it happening widely. We have heard reports of where, during the sale of homes, there have been threats to stop the sale, or people not getting their mortgages, but it is not something that is widespread.

Adoption aside, are there any other changes to the Bill that would improve it regarding private or estate management?

For us, the focus needs to move away from regulating managing agents. That is not going to help us—

So not regulating management agents?

Yes. For us, it will not help. It will keep us in the same situation. I am sorry, but I have been in mine for 16 years. I do not know how long I am expected to continue to be exploited like this, to be punished for buying a home. This is happening all over the UK.

What key change would you want to see?

If it is not regulating management agents, what change would you like to see, ultimately?

We need to see central Government provide support to local government, to have this conversation and accept responsibility. They have put us in this mess and they need to help us get out of it.

Obviously, one of the issues is that, in the draft Bill, the Government have not included the Law Commission’s recommendations. If you were to look at some of the recommendations in that, which one would you prioritise, Harry?

One of the key issues is the restriction on development value. That is why this is a systemic issue. The Conservatives promised it in 2021; it is in Robert Jenrick’s written statement to Parliament. Then we get the 2024 Act, which was presented as a Bill. The Government forgot to cover their tracks because, in the impact assessment, it is referred to as one of the policies in the Bill. It never made it into the 2024 Act. Why that is important is because, even though there are good policies in the 2024 Act—removing marriage value, restricting ground rents to 0.1% and not having to pay landlords’ legal and valuation fees—we understand that if the restriction on development value is not in this legislation, many flat leaseholders, if not a majority, will never be able to buy their freehold. That is important because, under the law at the moment, the freeholder can quite legally say, “You’ve got a right. I am selling the freehold, but I could build a skyscraper in the garden. You need to pay me £1 million extra”. That needs to stop, and the Law Commission recommended it in that 2020 report. It is what the Conservatives promised and it did not happen. Beyond that, there has to be simplification of Right to Manage. If the Government are saying that leasehold will remain a feature of the housing market, forget all this diversionary tactic of regulating managing agents, as I am sure we will come on to: you have to give control to the homeowners who are paying the bills, because as soon as you do that, the freeholders are not going to abuse them. That is the key thing. We were in tribunal last year and saw a case where leaseholders spent £150,000 defending their Right to Manage, which is a no-fault right. It should be easy. The barrister was licking his lips. He said he had worked on the Law Commission work and said, “We wouldn’t be having this hearing today if the reforms to Right to Manage had been brought in.” It was almost as if he knew the Government were not going to bring in those Right to Manage reforms. That is really important, because at the moment there are so many traps and so much red tape. If you file the notice on one leaseholder incorrectly, the tribunal has no power to waive it. We must get rid of that. We also must remove the onerous 50% participation threshold. The last Government were going to bring forward an amendment, had the election not been called, because people like Barry Gardiner had raised amendments; multiple MPs and peers raised this. We should not have 50%.

What should it be?

There should be a power for the Secretary of State to bring it down. There was almost a cross-party consensus around 35% or a third. Rachel Blake MP has even done a private Member’s Bill on this, which is rather good. It would also assume that leaseholders want the Right to Manage, creating a presumption in their favour. You could even do something called implied terms in leases, where you say that every leaseholder in that block has given consent to be a member of the company. That would be a huge game changer. So we need to move to Right to Manage in this Bill. The key thing is getting those rates set fairly. The fact that Pennycook understood that in opposition, and that it is not in this Bill, worries us. There needs to be clear guidance to the Secretary of State to set the rates high, or at least no lower than the Sportelli rates.

For us, I want to drive the point home that regulation of management agents will not work, because residents like me are left with open-ended liabilities. We do not even have that in our own property, so to have that expectation of us to maintain a wider estate is just fundamentally unacceptable and unfair. We cannot predict the costs of these open-ended liabilities. The only thing that can be capped is the managing agent fees, and we see no evidence of that happening. To give you an example, in just the past two years my estate managing fee has increased by £4,000. Nothing has improved, not even the basic service that we are getting. Regulating agents does not tackle the fundamental injustice of the fact that estate residents are paying to maintain public amenities and infrastructure.

Thank you both for coming, and for your passionate views and concerns in this area. As I said, we will continue to engage with you throughout this inquiry. Examination of witness Witness: Charmaine McQueen-Prince.

I will start by welcoming the witness from the Residential Freehold Association, who is here to represent its members. The Committee also invited TIME Investments and Grosvenor to give evidence this morning alongside the RFA, so that the views of both freeholders and investors could be heard. TIME Investments declined to appear before the Committee. Grosvenor also declined to appear but has since written to us that it will be able to attend in a few weeks. Both organisations have submitted written evidence, which we will be considering, but I just want to state on record that it is very disappointing that TIME Investments declined to attend and put its views forward. Charmaine, could you introduce yourself, please?

Good morning, Committee. My name is Charmaine McQueen-Prince. I am group counsel for the Wallace Partnership Group, who own approximately 100,000 leasehold properties. I am a solicitor; I specialise in residential property and building safety, and I have experience of 20 years. My job is to get the best outcomes for our buildings and for people living in our buildings. I am also the chair of the leasehold reform sub-committee for the Residential Freehold Association. The RFA is a trade body representing professional freeholders, and together we are responsible for 1 million properties across the UK. The RFA promotes upholding best practice and professional standards. I should also mention that the Wallace Partnership Group responded to the call for evidence and submitted its own evidence.

Good morning, Charmaine. In its comments after the draft Bill was published, the Residential Freehold Association said: “The inclusion of a ground rent cap in the draft Leasehold and Commonhold Reform Bill represents a wholly unjustified interference with existing property rights which if enacted, would seriously damage investor confidence in the UK housing market and send a dangerous and unprecedented signal to the wider institutional investment sector.” Do you stand by that? Which aspects of the draft Bill are RFA members opposed to, and which do they support?

The RFA supports the Government’s objectives to ensure that the housing sector is fair, responsible and helping ordinary people living in their homes with the cost of living crisis. That is what we support.

Does that include when residents’ and leaseholders’ bills increase overnight from £50 to £250 for ground rent, for which they receive no service?

I should probably explain, and I am sure the Committee are aware, that ground rent will increase periodically. If you have a ground rent that is £50, it is likely that your ground rent will then not increase for a period—it might be 20 or 25 years. It is important to understand that it increases periodically. In terms of ground rent increases, they will be detailed in the lease: when you buy a lease, your lease will specify your ground rent. It may well be a fixed ground rent, or it may be one that increases by RPI, but it will be detailed in your lease, and that lease would have been reviewed by the solicitor that you instructed when you originally bought your lease.

I will come back to ground rent, but could you state what aspects of the legislation RFA members are opposed to, and what they support?

We have deep concerns about the Bill and its unintended consequences. We have three main concerns, and they relate to the ground rent cap. First, the risk of insolvency: if a freeholder becomes insolvent, they will not be able to carry out their obligations. They have a number of obligations that are listed in the lease, but the most important are their obligations towards cladding and fire safety. If a freeholder is insolvent, they cannot carry out those obligations. Those works that are currently being undertaken across the country will come to a halt and leaseholders will be living in dangerous buildings. Secondly, pension funds will be impacted by the cap: it will create a transfer of wealth from small and large UK pension funds to buy-to-let investors. That cannot be what the draft Bill seeks to do. Thirdly, there will be an impact on investor confidence in UK plc: investors will be unsettled by the retrospective nature of this Bill. These cannot be the Government’s objectives, but they are the unintended consequences. If the Committee would like me to take it through the impacts of the cap on leaseholders, pension funds or investment in the UK, I am happy to do that.

Perhaps we will come back to that if there is time. Is it your contention that what leaseholders receive in exchange for their ground rent is the removal of combustible cladding? What else do they receive in exchange for their ground rent?

First, ground rent is a rent for the land that the flat sits on. Secondly, ground rent is also part of the purchase price of the lease, which is spread out across the lease term. In terms of what landlords do, landlords’ obligations are detailed in the lease and in legislation including the Building Safety Act, the Housing Act, the Fire Safety Act and the Landlord and Tenant Act. That is where you see what landlords do, but it is also important to understand what landlords do behind the scenes. At the moment, landlords are entering into and overseeing massive, complex building safety remediation projects.

For which they received over £1 billion in funding under the previous Government—Lord Gove is sitting behind you—and the Building Safety Act requires leaseholders to contribute towards that as well. Ground rent has been in place for quite a long time, so I am asking what people receive in exchange for their ground rent, because the Competition and Markets Authority could not find any persuasive evidence that it was commercially necessary or that consumers received anything in return. What, in your view, do you receive in exchange for your ground rent?

What leaseholders are getting is the competence of a professional freeholder—they are getting their expertise and teams of people who are committed to making sure that people are safe in their homes.

As MPs, our inboxes would say something very different.

I note there was laughter behind you when you said “competence” as well.

I understand that your inboxes will be full of complaints about managing agents and some rogue freeholders. I understand that and I am not denying it is the case. We do think that managing agents should be regulated. We often hold managing agents’ feet to the fire about poor performance, their financial management and their operational delivery. That is what freeholders do behind the scenes. I want to continue with more about what we do behind the scenes. Again, we are overseeing these massive remediation projects that last six to 18 months. Many landlords are also paying for remediation because the funds do not support fire stopping and compartmentation, and a lot of the buildings that we own have those problems. We are also holding developers’ feet to the fire and asking them to come to the table, whatever the size of the building. We are asking them to remediate the buildings that they designed and constructed, whether they be low rise, medium rise or high rise. That is what we are doing. We are sitting with MPs. We are attending residents’ meetings. We are also stepping in when Right to Manage companies and RMCs are finding it difficult to manage buildings, because it is pretty tough and that is not what they are trained to do. We are stepping in and taking over management at the request of RTM companies and RMCs.

Successive Governments, over several Parliaments, have made similar manifesto commitments on leasehold reform and ground rent caps. Do you accept that there is a clear mandate from the public, from the electorate, to pursue these reforms?

I think that some leaseholders want the Government to pursue these reforms, but the Government have their own evidence of where leaseholders have been quite happy with leasehold, or neutral about it, because they are not really interested in picking up the management. What they want to do is come home, live in a safe building and go to work. They are not interested in managing. One important thing is that if we move to commonhold, we are taking away people’s right to live in a building where they do not have management obligations, and there are some people who do not want them. They just want to live in their buildings and make sure they are getting a reasonable service charge and a safe home.

Would you argue that the majority of people receive that? The reason why many people make complaints is that they are not getting that service. They are being charged over the odds for services. They do not get a response from their managing agent until we as MPs haul those managing agents before Parliament. We have to raise it in the Chamber and write many letters, and in some cases make those letters public, before the managing agents have the courtesy to respond to those residents. That is why residents do not want to take on the stress of managing their buildings. Would you agree with that?

I do agree that there are some poor managing agents. I agree that managing agents should be regulated. We wholly support Lord Best’s ROPA report. We have been saying that managing agents should be regulated for some time.

A number of colleagues would like to ask questions, but I will let Andrew finish.

I have one final point because I know we are short on time. You talked about the risk to pension funds. Analysis from the predecessor Department to MHCLG showed that less than 1% of pension fund investments were in residential properties. Is the risk of the collapse of pension fund investments not overstated?

I am not a pension fund investor expert, but I can say that there are loads of different types of pensions and pension investors. You have your big institutional investors, your charities, your small investors, and your husband and wife team who may have bought a building with three flats as their pension. It is about the impact of this piece of legislation across the board, not just on the big institutional pension funds. The legislation is likely to ensure that there are huge losses. Some funds have already suspended activity and trading because of the uncertainty around ground rents. There will be huge write-downs because of this legislation if it goes forward. Some pensions will not be able to meet their liabilities and funds may become risky. Can I just give you some statistics?

If there is time, Chair.

Very quickly.

The Government’s stats confirm that 41% of leasehold properties are privately rented. That means that they are owned by buy-to-let investors, not people living in their own homes. Freeholders, including pension funds and their savers, will see a huge transfer of wealth to buy-to-let investors—very wealthy domestic and overseas leaseholders and property investors. I would like to share some really good examples to give you an understanding of what that looks like.

Because we are short of time, it would be helpful if you could write to the Committee, and we can include those examples in our evidence and submissions.

I have two quick questions.

One, please.

Okay, one; I will make it a big, key one. My colleague, Mr Cooper, asked twice about what aspects of the Bill RFA members support. You were very quick to label three things you oppose. Should I take from the fact that you did not answer that RFA members do not support any aspects of the Bill?

We are concerned about a number of aspects of the Bill.

Is that a yes, then—you do not support any aspects of the Bill?

There are not many aspects of the Bill that we support. We are concerned about the unintended consequences of the Bill, and we think that it is really important to get those out and share them now that we are scrutinising the Bill.

As a leaseholder who is involved in a property where we also have to oversee the managing agent ourselves, please tell me what I am doing wrong in seeking any service from my freeholder. All they do is write to me every year to tell me how much I owe them. There is zero service being provided to me and, no doubt, to many people sitting in the Public Gallery. It is rare that we have this many people turn up to a hearing, but there are many members of the public in attendance today because the level of frustration with the operation of the current system is so palpable. Please do explain how I, and no doubt many others, am missing out on this magical service we can receive from our freeholders.

I am sorry to hear that your experience with your freeholder has been really difficult, but I do know that I am coming from a background where I have worked with this particular freeholder for nearly two years and we really try hard. We go to residents’ meetings. If we get complaints, we answer them. If we get letters from MPs, we answer them. We often try to meet up with MPs to talk about how living in buildings could be better. Earlier, I discussed what we do behind the scenes, and I think it is really important to talk about what we do behind the scenes. I have talked about building safety. I have talked about funding remediation measures and alternative accommodation in terms of building safety. However, we support Right to Manage and RMCs in building safety situations.

Okay, we have to move on.

First of all, Charmaine, thank you for coming to give evidence. As the Chair set out, there are others who might want to be defending a similar position who were not brave enough to do so. I think that should be recognised at least. I want to take us back, though, to fire safety, because there is a really important point of clarification. I thought you were giving the Committee the impression that paying ground rent is somehow equivalent to paying into a sinking fund that contributes to remedial works. That is not the case, and it is really important that we establish that. Can you confirm that ground rents do not go in a sinking fund that pays for remedial fire safety work?

No, what we are saying is that there are buildings that, for example, have unsafe external walls, and yes, we are benefiting from Government funding, but those same buildings have fire safety issues internally; they have compartmentation issues. Those defects are not covered by the funding. They have to be paid for, and those are the things that we are paying for. We are paying for waking watches of people to guard to buildings.

If you have any evidence of examples of where freeholders have taken the financial hit themselves and not charged the leaseholders in order to provide—

It is in the Building Safety Act.

Okay. You had an interesting phrase about the transfer of wealth in respect of buy to let. It was an interesting and perhaps courageous choice, because I think most of the evidence we have heard today suggests that the real transfer of wealth at the moment is going the other way: it is from the leaseholders who live in these buildings to freeholders. We have had a lot of questions. I think there is a feeling is this room, and more broadly in this debate, that there is perhaps some scaremongering coming from your side of the argument and this is a good example of that. How do you respond to that?

Can I give you an example of the winners and losers? These are real world examples. Example one is expensive flats in London valued at £4 million, Hanover Terrace. The ground rent is £5,000. The ground rent cap will mean that is reduced to £250. The leaseholder who owns that flat will gain £420,000 over the transition period. Example two: an RFA member holds a 125-year head lease of a trade union building. The ground rent is £12,000 per annum. The ground rent will be capped at £250. The trade union will lose approximately £3.8 million over the life of the lease. That is what this Bill will do.

If that is the case, why did the RFA wait until a week before the Bill was published to raise these concerns? You have had all this time and had all this information.

With respect, Chair, we were not aware of what the Bill was going to say. We have now been told that there is a ground rent cap of £250 with a transitional period of 40 years. What we are now doing is understanding what the legislation would be, and working out what the impacts are going to be.

Even though the former Government floated that, and there were widespread press reports about it? Obviously you have to go by what the Government lay, but even with that you did not feel it was right to raise any relevant concerns?

I think we have raised concerns about the ground rent cap. We have responded to the consultation on ground rent. I think we are still awaiting the response to that, but a ground rent cap has been raised several times by the RFA and its members.

It was quite a good manifesto, and it would be nice if some of your members had read it—this was definitely in there. If this Bill were to pass in its current form, do you expect your members would seek to bring a judicial review regarding any of its provisions?

The RFA wants to focus on making this Bill workable for freeholders and leaseholders. That is why we are here and that is why we have responded. We want to assist Government with this.

Let us simplify the argument. If the Bill passes in its current form, do you think there would then be a judicial review?

We are deeply concerned by the unintended consequences. I have managed to lay some of those down today.

We have heard that. Let us assume that you are not successful in winning that argument; I am sure many of your members would be frustrated by that. What do you think their next step will be? Do you think it will be going to a judicial review?

We have a number of members. I am not in a position to comment on whether they will seek judicial review. They will take their own advice. I think they will look at the legislation and see how it impacts their business and what they do.

Okay. So let us imagine that the legislation does go through in its current state and a judicial review is brought by your members; I appreciate you are not in a place to say they will do that. As a lawyer, do you think their case will be substantially different from the case that freeholders brought against LAFRA?

I am not a public lawyer so I cannot comment on that and I would want to take advice on it. What I will say is that LAFRA sought to cap enfranchisement premiums. This Bill seeks to cap ground rent. When freeholders purchase buildings subject to long leases with ground rent provisions, they expect those ground rent provisions to be available for the lifetime of the lease, but this Bill is going to stop that.

Is the Wallace Partnership Group seeking permission to appeal the ruling from October?

Yes.

Which other claimants are pursuing further litigation concerning LAFRA?

Are you referring to the JR?

Yes.

I think it will be all the claimants on that list.

It is again notable that, as the Chair started by saying, we have found it difficult to get freeholders to come and sit before us. Why do you think we find that so difficult? To come back to the previous question, do you think it is because these people, rather than dealing with the legislative process from democratically elected Members of Parliament, are instead trying to use the legal system to undermine the decisions made by democratically elected Members of this Parliament?

We often speak to Members of Parliament and have meetings.

When you are here. It is unfortunate—

I am just answering the question. We often speak to Members of Parliament and have meetings. I volunteered to come today, and one of the reasons why is that I know how hard I work, and how hard some of my team work. I know how hard we are working to make sure that buildings are safe, and that people are safe. That is why I am here today.

A question was asked earlier about the will of the people. What percentage of the public do you think oppose the changes that we are making to leasehold reform?

I do not know.

It is 10%, according to YouGov—that is one in 10. There is overwhelming support from the British public for what we are trying to do here.

Sorry, where can we find that detail?

The poll results are available on the YouGov website.

He’s an ex-pollster, so I wouldn’t argue with him.

A short question: what value does ground rent offer to people?

Again, I think it is what freeholders do in our stewardship role, and our careful and responsible management.

You are getting a management fee through your service charge, but it is presumably—

We do not get a management fee. That will be received by the managing agent. All the freeholder will get is the ground rent income, and any income they might get from enfranchisement.

I am still a bit confused, but I am sure we will have further evidence sessions on the value.

I would like to ask you about the Government’s estimates of the value transfer that they published in the policy paper. They estimate a value transfer, for a transitional period of 40 years, of between 55% and 61% from freeholders to leaseholders. They also set out modelling based on a 20-year transitional period and a 60-year transitional period, so that you can see the difference between the two. Do you agree or disagree with the Government’s assessment on the estimated value transfer?

It is difficult to comment without seeing the impact assessment or any detailed information that resulted in those figures. Again, I am unable to comment on the financial impact on RFA members. However, what I want to say about that table is that it does not show the different types of freeholders, such as the small investors or the pension funds, which I think is really important. It does not show the different types of leaseholders—whether that is the ordinary leaseholder who owns their own home or the buy-to-let investors, the wealthy and the super-rich. It needs to be more detailed and to drill down on that. It does not show the unintended consequences of this draft legislation, including the impact on leaseholders if freeholders become insolvent, or the impact on pensions and those who lose out. It does not show the windfall for buy-to-let investors or for the super-rich—domestic and overseas. It does not show the bad outcomes at the expense of ordinary leaseholders and UK pensioners.

Previously, Governments have considered an immediate peppercorning for existing ground rents. Do you consider the 40-year change to peppercorn to be a reasonable compromise?

No. We have concerns with the Bill. On the 40-year transition, some of our members may well have 30, 40, 50, 60 or 70-year loan notes, so having a 40-year transition period may not work for everybody. Also, if you are asking us to look at our business again, nobody is interested in ground rent any more. This is not something where we can just say, “Okay, let’s sort it out now.” As Harry said, it has been toxified—ground rent and leasehold are toxified. We will not be able to sort this out quickly.

I am curious to know whether you can think of any other area of public policy, ever, where the Government have offered a 40-year transition period for investors to adjust. It seems wildly generous—certainly to me and maybe to many members of this Committee. Can you think of any other examples?

I can’t, but if we wanted to make this Bill better, and if the Government is really intent on going down this road of reform, there are some improvements or things the Government should consider: indexation of the cap, RPI or CPIH, because it would retain its value and would be kept affordable. The cap should be indexed. Also, target support at owner-occupiers who benefit from the cap, but not at buy-to-let investors. Target support at ordinary people whose flats are in council tax bands A and B who benefit from the cap, but not at the wealthy and super-rich living in really expensive properties. And extend the transitional period so that we can try and unpick this.

Thank you, Charmaine. We do appreciate your coming; as I mentioned, we wrote to others, including TIME Investments, and they refused to appear. We look forward to hearing from Grosvenor when they appear before the Committee. Lastly, you mentioned issues around risk. We have many leaseholders who have put all their life savings into purchasing a home. Investments for your investors go up and down, so they should be fully aware of the risk. I think that 40 years is more than long enough for them to consider their investment. Witnesses: Lord Michael Gove and Angela Rayner MP.

Will our two guests please introduce themselves?

Yes, I am Michael Gove, currently editor of The Spectator, and I take the Conservative Whip in the House of Lords. I was Secretary of State at what was the Department for Levelling Up, Housing and Communities, now MHCLG, between 2022 and 2024. But I had 100 days off.

I am Angela Rayner, the MP for Ashton-under-Lyne. I changed the Department’s name to MHCLG as Secretary of State following Michael. I have been a Member of Parliament since 2015. It was one of my proposals that brought this legislation forward.

Thank you both for appearing before the Committee.

Angela, before the draft Bill was published, you called on the Government to take meaningful action to tackle ground rents in line with the Labour manifesto. Do you think the compromise position outlined in the draft Bill meets that manifesto commitment? The Government said that its draft Bill is to bring an end to the “feudal leasehold system”. Do you think the Bill, by doing what it has outlined but excluding ending the wild west of property management agents, does that?

There are two questions in there. First, I think the Bill is going a very long way. You will have seen, from the work that Michael did in the previous Government and some of the interactions we have had since we have been in this Session, the balancing act between getting these reforms put in and ending over 1,000 years of that leasehold system. I think it is getting there and striking a balance. There are clear vested interests—only one would turn up. The freeholders and others have not bothered to turn up. There were hints of where they want to go. You were quite clear, Chris, in trying to probe where they want to go on this. The Housing Minister has been really clear on what needs to happen. The lack of regulation for management agents is a real problem. I heard some of the evidence from others, but we need to go further and harder on Lord Best’s proposals. In summary, I have the world’s smallest violin for these organisations who think that ground rent, which is a freebie, is acceptable when people are in these conditions. We need to end it. I think we have struck the right balance and we should not be kowtowing or taking any lectures on this. We have got the mandate. The previous Government went as far as they could in the wash-up of the 2024 Act. We have to switch it on, and we have to move at pace.

Lord Gove, what do you think of the Bill? From your behind-the-scenes viewpoint, how far do you think the previous Government and this Government have got the balance right by tackling some of the vested interests that Angela has just talked about?

I am delighted that the Bill has been brought forward. There are many good things to welcome in it. Both the current Secretary of State Steve Reed and Angela as his predecessor are to be commended, but, as will be apparent to members of the Committee, the MHCLG Secretaries of State have been fighting against a rearguard action mounted by the freeholders and other financial interests, and supported by the Treasury. I witnessed that when I was in government, and I think that the institutional resistance of the Treasury remains. I recognise that there is a limit to what Angela as a supporter of the Government can say at the moment, but I am liberated from that obligation. I can say that it is striking, as Angela pointed out, that the freeholders will not show their face in front of this Committee. That is a clear invitation to defend their interests that they will not take up. The previous witness was brave in coming along, and made her case fairly and coherently, but it is unchivalrous at best and scandalous at worst that they ask someone else to make their case for them. As Angela pointed out and as the Committee is aware, for many years now they have benefited from a system whereby they get money for nothing. The ground rent system is essentially extortion, and it should end. The Government will end it; I would far rather that they ended it on an accelerated timetable, but I recognise that there is only so much that an individual Secretary of State can do when financial institutions exercise such a spell-binding hold over Treasury decision-makers.

Lord Gove, in early ’24, the now Housing Minister—Minister Pennycook—was quite critical of your policy when you announced that you were in favour of the £250 ground rent transition. Can you tell us the reasoning behind how you came to that decision when you were Secretary of State?

First, I should say again that Matthew Pennycook in opposition made very strong arguments, and in Government I know that he has—in so far as I know anything happening in Government—been fighting the good fight. But Minister Pennycook, like the Secretary of State and I, will face arguments mounted from outside Government and amplified within Government from people who say that, for example, moving to capped ground rents, or moving rapidly to peppercorn, will undermine certain economic strengths of the United Kingdom. We heard those arguments from Charmaine earlier; she put the case very clearly. But those arguments, no matter how well put, are bogus. The first thing to say is about the impact on pension funds. Overall, pension funds have less than 1% of their investment in residential property in the UK—that is residential property overall, never mind ground rents—so we are talking about a tiny amount of people’s pension savings being invested in this asset class. The second thing related to that is the concern about spooking or chilling future investment; I heard that argument a lot from the freeholder lobby and their allies within Government. Again, I think that is nonsensical. Investors make a judgment about the attractiveness of the United Kingdom overall according to a variety of factors, and people in the markets are big boys and girls; they will know that a Government have absolutely every right to say, “The party is over” when it comes to a return with no risk. Those investors will entirely appreciate that there are plenty of other areas that will be more productive, higher yielding over time and more defensible, into which they can put their investment money. These arguments seem to me to be bogus. The final argument that was mounted is the idea that freeholders are fairy godmothers and fathers when it comes to building safety. The truth is quite the opposite. We in Government had to pursue remediation orders against freeholders to get them to make sure that property was safe. Local authorities have had to do so since the general election, supported by Angela and Steve Reed. If only those freeholders had acted beforehand, without requiring legislation and public money to support them, the argument might carry some weight; as it is, it is valueless.

Angela, you have been very vocal and supportive of addressing the issues around building safety in your support for the Grenfell families and community and for making sure that all buildings are safe. Do you agree with the argument that all this wonderful ground rent that many freeholders have been receiving for many years is going towards remediation?

No. I think it is absolute rubbish. Michael set it out quite clearly. His Government were clear on this and had to take action. It’s like whack-a-mole. They all blame one another: “It’s not our fault; it’s the other person’s fault,” “It’s the people who built the building,” “No, it’s the freeholders that own the building.” All along, for years, people have been living in buildings that were inadequate and that were not built correctly. Then they say, “It’s not built correctly, but hey, it’s not our problem it wasn’t built correctly,” and try to push the costs on to everybody else. I do not accept that ground rents have given this mysterious amount of money that is remediating these buildings. I am sure that Steve Reed, who took over the role that I had, has been in the same rooms I have been in saying, “We expect you to do this. Why is it not being done quick enough?” That is why we came forward with more proposals for how we accelerate the remediation programme. I am sure Michael shares my frustration, when we are in those rooms, that these people are not actually looking at the human impact, after what happened at Grenfell—if it is your daughter or your son who lives in one of these buildings. The previous witness talked about having waking watches; no, we need these buildings remediated. It is unacceptable, and I do not see that ground rents are an issue they can hide behind. It is astonishing that they are trying to.

Lord Gove, it is lovely to see you, as always. When we were in government we were not talking about a potential 40-year transition but 20 years. Do you have any views on the proposed 40-year transition period?

Yes. Our former colleague Lee Rowley, who was the Minister bringing forward the legislation, worked hard to ensure that he could support leaseholders as effectively as possible. In the end it was judged, after conversations with the Treasury and, indeed, the welcome intervention of Rishi Sunak as Prime Minister, that 20 years was an appropriate period of time for the market to adjust. I think that 20-year transition period was quite generous. This Government have decided on 40 years. Again, I will not criticise MHCLG, but more broadly I do think, taking a couple of steps back, that it is understandable that this Government wish to send a message internationally that the UK is a safe haven for investment. The argument, which we heard earlier, will have been, “Don’t destabilise existing investments too much. Forty years sends the appropriate signal.” I think that is a mistaken argument. I can understand why people would be sympathetic to the argument for stability, but it is stability in the interests of those who are gouging money from our fellow citizens who have worked hard to acquire their own property. It is not the sort of investment that is productive—it is not the sort of investment in equities or innovation that any Government would want to encourage. I hope that this Committee will be able to persuade the Treasury that, in at least one area, the Tories were right.

Ground rent is obviously part of the relationship between leaseholders and freeholders. The glaring omission we have seen as a Committee is the lack of legislation coming forward on service charges and managing agents. Do you have any views on that?

Yes. Like I say, Lord Best’s proposals on the regulation of management agents are absolutely right. I give credit to Lord Gove for the work done in the wash-up to get the Act over the line in 2024. There are glitches in that legislation—the Housing Minister has accepted that—and we are in a highly litigable arena. We need to ensure that we fix those glitches and that we can take forward the areas relating to service charges. It can cause challenges when looking at enfranchisement, so it is not as easy as we would like it to be. I know from my time in government, and from the Secretary of State now, and certainly from my relationship with the Housing Minister, that this is something that the Government want to tackle with expedience, to avoid us being in a protracted situation. To come back to the issue that Lord Gove was talking about in terms of the cap and the period of time, one of the things we are trying to do is strike the balance to get this over the line and act immediately. We need to make sure it is not linked to inflation. You heard from the previous witness that they want that to be the case, but we should resist that. It is about striking a balance. On service charges, we should certainly be doing more to try to bring in the 2024 regs.

Michael, what are your views on service charges?

I think you are absolutely right. Many managing agents provide a shocking service. I know from my experience as a constituency MP—I am sure Will will share this, because the constituency that I represented and the constituency he represents are quite similar in lots of ways—that organisations like FirstPort, which boast about their managing expertise, are the bane of tens of thousands of people’s lives. Angela is right that Lord Best and others have done good work in this area, and there is more to do. The other thing I would say is that the faster we can move to a situation where, to coin a phrase, leaseholders can take back control, the better, and the more they exercise their Right to Manage and can have full control of their property and their investment, the better. That is why Harry Scoffin’s recommendations earlier are right. We should of course look at regulating managing agents—and there are people who are not leaseholders who suffer as a result of managing agents handling things poorly—but Harry’s points about tackling development value, which some freeholders will use as a way to try to extort more from leaseholders, and looking at the deferment and capitalisation rates are important. It is technical detail and it is not sexy, but it is vital, and I know the Committee has been looking at it.

I am mindful of the time, colleagues. A number of colleagues want to ask questions; can you be very brief?

On the time period, Lord Gove, forgetting the merits or otherwise of 20 years over 40 years, do you think there is a legal factor as to whether we should consider that time period, or do you not think the time period is relevant to the legal debate?

There will be a legal factor. The Government will have received legal advice that the freehold lobby will seek, as we have already seen, to judicially review whatever Parliament decides and will say, both within Government and outside, that the ECHR and the A1P1—article 1 of protocol 1—rights to the defence of property are touched on, so if you delay or smooth the process, the risk of losing a judicial review diminishes. I understand that, but it is better for a Government, rather than taking a defensive crouch in the face of lawyers and the courts, to state clearly, “This is Parliament’s will, this is what the public want and this argument is right.” The defence of property rights is there to ensure that we do not have the individual feeling the weight of the state against them. These are not individuals; they are vested corporate interests, and it is the responsibility of Parliament to take those on.

Thank you both for being here. I am enjoying this outbreak of political consensus—there is the serious point that a lot of people watching this will value seeing two people with huge experience and passion on this issue—but I am going to press you both a little further on the transition period. You have talked with great experience about the dynamics between MHCLG and the Treasury, but if each of you had the ear of the Prime Minister and the Chancellor today, what would your recommendation be on the length of the transition period? How many years?

I would have the shortest possible—

Come on, Michael; you are liberated!

Twenty.

I agree with Michael that we should have the shortest period, but it is not an ideal world and we know the situation we are going to end up in. My message to the Treasury is that the High Court rightly dismissed the freeholders’ attempts to challenge parts of Michael’s Leasehold and Freehold Reform Act, so although we know their appetite, we also know that we can and should win the battle. Our Government and previous Governments have said we are going to do it, so we should get on and do it. In response to the suggestions on pension funds and investment, as we have already said, the Government’s impact assessment suggests that this could be as low as 1%, and freeholders often have diversified business interests. So some of the arguments for not doing this completely fall away. Successive Governments have said they are going to do this, so there is the political will—you can see that in Michael and I being here today as a double act—and you have seen the will of the people in terms of the electoral mandate we had to finish the job. Action on this that is too slow will be damaging for us as a Parliament, because it would look like vested interests winning over the will of the people. Quite frankly, this is not a political point but a question of right or wrong. What is happening is wrong, and it is therefore our duty to put it right.

Angela, in response to Gagan’s question you spoke about action on service charges coming later, but if you were Secretary of State, would we have seen the regulation of management companies in the draft Bill?

There are a number of things that we could have put in the Bill; there have been consultations on that, and the Bill is already long. It is a balancing act between getting the Bill through and the other parts—like I say, in the 2024 Act—that can go some way towards that. There is a balance in terms of how much is in the Bill. We are clear on making sure that we implement the Law Commission’s recommendations. There are a number of avenues and ways to do it. I want to see a Bill that is not held up by vested interests, through us taking that forward, fixing the glitches in the 2024 Act that the Housing Minister identified, and taking those forward as well.

It feels to me, from my inbox, that people were hoping the Bill would be the panacea to fix the issues with managing agents and service charges. Lots of leaseholders out there will be disappointed that the Bill has not gone far enough, quickly enough.

Both Angela and I obviously want more action faster, but one issue, which is also a constraint on Government overall, is that, as the Committee knows, this is quite a technical area of law. There is also a limit—I think a wrongly artificial one—on the number of people who are employed to write legislation in the Office of the Parliamentary Counsel. They work incredibly hard, but there are people in government who keep that number deliberately low to reduce the pipeline of potential legislation. In a hard-pressed Department like MHCLG, which I think is responsible for more legislation and is making more changes than any other Government Department at the moment, there is simply that constraint. While I completely share your impatience, it is difficult for a Government Department to achieve everything that it wants so quickly.

I have a question about the cultural shift from leasehold to commonhold. Earlier, the RFA said that people potentially do not want to manage themselves; I think it is fair to argue, given a lot of the testimony we have heard today, that it is a fair cost to manage themselves if that means they can avoid some of the horrible situations that have experienced. Equally, our culture is shifting towards people not engaging with their neighbours as much. The National Leasehold Campaign said earlier that commonholders are not getting any training or support. What do you see as the role of both local and national Government in delivering education and cultural support? This is a big shift and, in my view, a great shift. Do you think that the everyday person with a commonhold will feel comfortable engaging with their neighbours on a regular basis? How can we support that?

I think there is a lot we can do to support that. There are organisations out there already and, quite frankly, as Liam said—I think his description was of the dinosaurs looking at the asteroid—I would like to see the regulation of management agents and a new culture around commonhold and how we can support that. I get that people do not want to manage their building, but they also don’t want to be ripped off. It is not a binary choice of either/or. If we regulate it and get it right, people can do that. The tenacity and bravery of people like Liam, Harry and others who have given evidence today to take on, for years and years, the big interests that are willing to litigate and grind individuals into the ground shows that there is an appetite. I think we should encourage more of that.

The leasehold system has been described as feudal because of the way in which it operates, but this argument is literally feudal. It is saying, “You’ve gone to the trouble of buying this property, taking out a mortgage and acquiring your flat, but you are a serf, incapable of taking these really tough decisions about how to manage your property, so you need us to do it for you.” We are talking about adults. We are talking about their principal investment and their own home. The idea that they need to have FirstPort or someone else to ensure that their property is looked after effectively is for the birds. It is also saying that, uniquely, English people in flats cannot do that. In France and the Netherlands, you can of course have people working together to look after their flats, but in England you need to have the Duke of Westminster doing it for you. Look, I love dukes—that is one of the reasons why I am a Tory—but you do not need to have a Member of the House of Lords being responsible for your property in order for it to be managed effectively.

I want to follow up on Lee’s question, Angela, because you did not particularly answer it, and you are not usually shy of giving us your opinion. Let us roll back: what is missing from the Bill that you would have ensured was in there if you were Secretary of State today?

Like I say, I think there are fixes in the 2024 Act that will help with service charges. There is a challenge in respect of how that affects enfranchisement, so it is not quite as easy as one would hope, and that needs to be pushed forward. Lord Best’s proposals on the regulation around management agents need to be taken forward. But on balance, I commend the Housing Minister, who has been around for a long time and seen over a dozen Housing Ministers come and go, and has been consistent in this. I believe he is working in good faith and at pace to get the balance right to end this system. The evidence we have heard today crystallises and shows you where the debate is and where the challenges are. In the most binary way, we’ve got a choice between the vested interests or the people who feel like they’re being shafted and that we need to get on and do something about it. I am with the people who are saying—and I absolutely agree—“We’re being ripped off, and that has to end.” The Housing Minister and the Secretary of State are commendable, as is what Michael did in 2024, for taking on those vested interests and placing fairness at the heart of the Bill.

So at this moment in time, you would not have gone any further than what the Bill currently proposes?

If I had had a huge amount of time for the legislation, as Michael said—but when I was Secretary of State the proposed legislation was some of the meatiest and the largest to be brought forward. I do not apologise for that. The Renters’ Rights Act was incredibly important legislation. Of course it would be great to put more things in the Bill—I have just outlined some of them—but what is in there is going to be a game changer for people who have waited far too long for action to be taken.

Lord Gove, you have spoken on the record about the cautionary advice you received particularly in regard to the Human Rights Act and A1P1. Given where both of you stand now and the hindsight you can bring, what would you recommend that the current Secretary of State and Housing Minister do to stand up to some of that cautionary advice? What could we change in the Bill to get the best deal for as many people as quickly as we can?

I had a maxim in government: “If the legal advice says no, get a better lawyer.” The truth is that the stated aim of the ECHR is to protect the vulnerable, not the wealthy. The right legal advice will strengthen the hand of a determined Secretary of State and a reforming Prime Minister to make that change; it should not be a barrier. There may be a broader argument about the ECHR and Britain’s position within it, but never mind all that. Make the argument and use the weight of Parliament behind you, because you can always say that Parliament has legislated for this, which weighs very heavily with the courts. In terms of other changes, I mentioned briefly the points that Harry Scoffin and others have made on tackling development value. You need to tackle the fact that freeholders can say, “We can theoretically develop this property. It might then be worth more, so you need to pay us more.” The deferment and capitalisation rates will be set as a result of the Bill, so that is something in square brackets to be resolved; it does not require extra work, just the right judgment. Again, the freehold lobby wants the deferment and capitalisation rates set low so that leaseholders pay more—that is unfair, so tackle that. There is a restriction on people being able to fully enjoy commonhold rights because their properties are sometimes linked to commercial use. The Government need to make sure that everyone can exercise that right and then ease the path towards Right to Manage. I explained in response to Maya Ellis why I believe that is in everyone’s interests.

I appreciate what Michael is saying. The previous Government said they were going to do that, and we have gone much further. There are challenges, to be fair, and if we had a magic wand—but we’re not Secretaries of States in that challenge. What we do not want is to end up with a high probability of litigation. Of course you can get yourself a lawyer to say just about anything you want, but that does not mean you are going to win. What you want to do is mitigate the risks of that, so getting the right balance is prudent. Rather than just thinking, “If I get myself a high-class lawyer and pay them a lot of money, they will tell me what I want to hear,” it is important to do the work so that we can get where we need to be for the people who need it, with a low risk, and balance that risk in a fair way. When we do have lawyers and go to court, if we lose, that is obviously a cost. You have to weigh that up as well. You cannot be gung-ho about that.

To push back slightly, what we are weighing up here is the opportunity for millions of people across the country to access the rights that, as we have outlined, they deserve. What is the framework for the Secretary of State to consider when to take on that fight and take the risk that they may lose it in order to progress things, given that the urgency for progress is so high?

I agree with you. Angela’s argument makes perfect sense, and it is just a judgment call, but my judgment is that it is better to do the right thing and take the risk of JR, and even of losing at JR, to make that argument right. I know of a number of occasions when we flinched from doing the right thing in government because of the risk of JR. Generally, we regretted it. Sometimes, when we went ahead when there was a risk of JR, and we were told that we might well lose, we won because the arguments that were put forward were the right arguments, and we had Parliament’s backing. That is the critical thing. I do not speak for the Conservative party, but I think there is a groundswell of opinion in both Houses in Parliament that would support the Government taking the strongest possible measures to face down the freeholder lobby and help leaseholders. I think that should embolden the hands of the Prime Minister.

I have some questions on implementation. Thank you both for attending today. This has been an incredibly useful conversation, but we have enough political podcasts already, so please don’t the two of you go and start one. [Laughter.] Angela, will the Government be able to implement LAFRA and meaningful reform based on the draft Bill within this Parliament?

Yes, if they stick to it—and they need to, because millions of people are affected by this and it is what we said on the tin. As I said at the beginning, we are changing 1,000 years of history here. We are ending our current feudal system. We can start to do that with the measures in the Bill. We can be ambitious and we can do it. In the light of what Lord Gove said, if we could get the backing of the whole House, instead of what happened previously, and people supported the Government in taking it forward, we could make real progress.

But given the various constraints—the legal constraints, the legislative process constraints—are you not worried that we are going to run out of time?

I alluded to the amount of legislation, as did Lord Gove. One of the reasons why, as Secretary of State, I pushed hard with my colleagues to take up more than my fair share of the timetable in Parliament was that I felt we needed the lag time to put the legislation in place so that it could have the desired effect before the end of the Parliament. It is ambitious, but there is a lot that we could do to make sure it is implemented in time.

Lord Gove, you implied that one of the restrictions is limited budget or support capacity within the Office of the Parliamentary Counsel. My understanding is that one of the reasons for that is the cuts that were made during the previous Conservative Government. As somebody who was doing complicated bits of legislation towards the tail end of the previous Government, do you think those cuts were a mistake in hindsight?

Yes.

And do you think this Labour Government should fix that?

Definitely—not just restore, but expand.

Thank you both for attending. As I mentioned, this is a very complex and timely piece of legislation. The Committee is very much looking forward to hearing from more people and receiving more written evidence in the coming weeks. I should add that Grosvenor will be attending the Committee to give their side. It is important that we hear from them and other freeholders.