“(1) The Secretary of State must publish a report outlining legislative options to ensure that all qualifying tenants in newly-constructed residential properties containing two or more flats have a proportionate share of the freehold of their property.

(2) The report must be laid before Parliament within three months of the commencement of this Act.”—

This new clause would require the Secretary of State to publish a report outlining legislative options to provide leaseholders in flats with a share of the freehold.

Brought up, and read the First time.

I beg to move, That the clause be read a Second time.

When making the case for new clause 2, which sought to ensure that all leases on new flats should include a requirement to establish and operate an RMC with each leaseholder given a share, I stressed that it was one of several ways by which we could lay the groundwork for a future where commonhold is the norm. New clause 29 seeks to press the Government to bring forward legislative options to enact another—namely, mandating that leaseholders in all new blocks of flats should automatically be granted a share of the freehold.

I want to be clear about what such a proposition entails. It is not an alternative to leasehold. If such a measure were brought into force, any leaseholder resident in a new block of flats would own both a lease and a share of the freehold. It would, in effect, ensure that all new blocks of flats were collectively enfranchised by default, without the need for leaseholders in them to go through the process of acquiring their freehold. The advantages of having a default share in the freehold is that it would give the leaseholder a direct say in what happens in their building, as is the case with those that have been collectively enfranchised. It would also provide for additional valuable rights, such as the right to a long lease extension on the basis of a peppercorn rent—or, in other words, the rights that will be accorded to existing leaseholders under clauses 7 and 8 but without the cost of paying a premium to the freeholder that is still required to exercise that modified right.

As we know, having flat owners with a share of freehold can cause tensions—for example, in agreeing how to proceed on crucial decisions such as whether to cover the costs of major works through service charges. That is why it is essential that proper management arrangements are in place as a matter of course, to reduce the likelihood of damaging disputes between neighbours, and why we proposed mandatory RMCs on new blocks of flats as a corollary to the new clause. Much like new clause 2, new clause 29 would also help give leaseholders greater control over their buildings and pave the way for commonhold as the default tenure.

Labour is unequivocal about the fact that commonhold is a preferable tenure to leasehold, in that it gives the benefits of freehold ownership to owners of flats without the burdensome shortcomings of leasehold ownership. As we have heard, the Law Commission made 121 recommendations on commonhold, designed to provide a legal scheme that would enable commonhold to work more flexibly and in all contexts. We share the concern expressed by Professor Nick Hopkins in our evidence sessions:

“With commonhold having failed once, there is a risk of partial implementation”—[Official Report, Leasehold and Freehold Reform Public Bill Committee, 16 January 2024, c. 39, Q84.]

of those recommendations and “a second false start” that could be “fatal” to the tenure. That is why we have not sought to persuade the Government to incorporate any subset of Law Commission commonhold recommendations into the Bill. We need to reform the legal regime for commonhold in one go, and Labour is committed to doing so if the British people give us the opportunity to serve after the next general election. Given your indication earlier, you are confident of that outcome too, Sir Edward.

We have also expressed a clear preference for commonhold to be the default tenure. That would be a policy decision distinct from the implementation of the Law Commission’s recommendations and would necessarily have to follow the legal scheme those recommendations would introduce. However, there will inevitably be a transitional period after the reformed legal regime for commonhold has been introduced, during which Government would need to consult thoroughly on the practicalities of making commonhold the default tenure for flats. The introduction of a mandatory share of freehold in all new blocks of flats, as proposed by the new clause, alongside the requirement to establish and operate an RMC with each leaseholder given a share, would be a sensible staging post on the path towards a commonhold future by making conversion to commonhold at a later date a far simpler process. We urge the Government to accept the new clause.

I am grateful to the hon. Gentleman for his new clause. As he has outlined, in share-of-freehold arrangements leaseholders will own the freehold in larger blocks; they are usually the shareholders of a resident management company from which directors are elected to manage the property. As such, there is no third-party landlord, but instead the leaseholders are themselves joint landlords. We appreciate that there are benefits to share-of-freehold arrangements, and obviously there is the opportunity for people, should they wish, to look at that when making decisions about the properties they live in.

Without seeking to detain the Committee, the reality is that although the new clause is well intentioned and understandable, it would be a significant building out of the Bill; it would be a significant additional framework. Again, it goes back to the point about the size of the Bill and exactly what it is able to do. I realise that we return to that often, and some colleagues in this room will wish us to go as far as we possibly can. That is understandable, but given the scale of the new clause—I realise that the hon. Gentleman probably will push it to a vote as a result of my comments—a pretty large and complicated legal framework would need to be put in place. I am afraid that at the current time it is challenging to have the space to do that, as much as I share the hon. Gentleman’s overall objective of trying to give people greater choice, and as a consequence we will resist the new clause.

I welcome the Minister’s response to the extent that he recognised the benefits of share of freehold. I am not surprised that he resists the new clause; there is no doubt that it would be a significant build-out of the Bill, as he put it. We hope that we will see other significant build-outs of the Bill and finally see a ban on new leasehold houses, as the Government have committed to, at some point. Maybe we will even get a couple of hours to debate that—who knows?

We think that this is an important provision that should be incorporated in the Bill for the reasons I have give, but mainly because—perhaps this is a point of disagreement between us and the Government—we think that we must be serious about paving the way for commonhold with the Bill and cannot leave everything to a future Government to enact. As I said, we should take some practical and specific steps to lay the groundwork for that future, which I think we all want to see. As we felt with mandatory RMCs, we feel that these two specific measures would enable us to go some way on that journey. For that reason, I will push the new clause to a vote—it will probably be the final one.

I want to make a brief remark in sympathy with the shadow Minister’s policy objectives. I will not be supporting his new clause, but I have had extensive discussions with the Minister, who knows that I feel strongly that we should have a pathway to commonhold in the future.

Commonhold is a system that works well. Commonhold, or a version of it, works extremely well in almost every other major developed country in the world. We are quite unique in the UK—for some bizarre reason—in having this leasehold system, which is to the great regret of me and the leaseholders who live in such houses and flats. Unfortunately, something like 1.5 million people live in leasehold houses and something like 5 million people overall live in leasehold dwellings. It does not need to be that way.

In 2002, the former Labour Government did try to legislate in this regard, but a number of those measures were not enacted—we are going back into ancient history. Nobody really seems to know why it did not happen, but we now need to seize the opportunity. This Bill has been a long time in gestation; it has benefited from the contributions of many Ministers to get it to this point. I know that the Minister is listening to me, and I think it is important that we do not miss the opportunity, even at this late stage, to introduce some of the commonhold framework measures that the Department has been looking at in great detail. I hope that the Minister has listened, and he and his officials will take that point away.

The hon. Lady is absolutely right to go back to the 2002 Act. In fact, I think in a speech on its Second Reading, I said that we would have to return to that Act in six or seven years’ time to amend the deficiencies in it. I am sad to say that here we are, 22 years later, still not having amended those deficiencies, and the Minister’s response, I am afraid, has indicated that we will not amend them again under this Bill. This is urgent, and leaseholders have been waiting for far too long for the remedy that my hon. Friend the Member for Greenwich and Woolwich has proposed. That is why I feel that it is vital that I support his new clause.

Question put, That the clause be read a Second time.

The Committee divided: Ayes 5, Noes 10.

Question accordingly negatived.