The government has confirmed that its draft Commonhold and Leasehold Reform Bill does not currently include any specific measures aimed at dealing with concerns over so-called “embedded” management companies, despite increasing scrutiny from MPs and leaseholder groups.
These embedded management arrangements typically arise when developers or freeholders establish a management company at the point of construction. In many cases, this structure is built directly into the development from the outset, meaning leaseholders are automatically enrolled into a predetermined managing agent or service provider once they purchase a property. Critics argue that this can significantly limit residents’ ability to change management companies later on, even where service levels are poor or costs are high.
As a result, leaseholders can find themselves in long-term contractual relationships with little practical control over how their buildings are managed. This has led to ongoing concerns about accountability, transparency, and the balance of power between managing agents and residents.
The issue was formally raised in Parliament by Labour MP Neil Duncan-Jordan. In his written question, he asked whether the government would consider strengthening the proposed legislation to include retrospective powers allowing leaseholders to remove embedded managers. He also suggested that this could apply in cases where there has been historic structural neglect, and questioned whether leaseholders should be able to take action without having to rely on lengthy and costly legal proceedings.
Responding on behalf of the government, housing minister Matthew Pennycook said it would not be acceptable for a managing agent to refuse to vacate a site once it has lost a contract to another provider. He stated that, in such situations, landlords and relevant parties could seek legal advice on available options, which may include formal complaints through approved redress schemes or applying for injunctions through the County Court.
He also highlighted that leaseholders, including resident directors of management companies, are able to access support and initial free legal advice through the government-funded Leasehold Advisory Service (LEASE), which provides guidance on leasehold disputes and related matters.
However, despite acknowledging the issue in principle, the minister confirmed that neither the previous Leasehold and Freehold Reform Act 2024 nor the current draft Commonhold and Leasehold Reform Bill contains provisions specifically designed to prevent or directly regulate embedded management companies. This also includes arrangements where managing agents operate through subsidiary, sister, or associated organisations within a wider corporate structure.
In effect, this means that the legislative framework being developed at present does not directly address the practice of embedding management companies into developments at the construction stage, nor does it introduce new mechanisms for leaseholders to more easily remove them.
The government also noted that the draft Bill is still undergoing pre-legislative scrutiny by the Housing, Communities and Local Government Select Committee. This process will allow MPs and stakeholders to examine the proposals in more detail before any final version of the legislation is introduced.
Ministers have said they will consider the committee’s findings carefully before publishing a substantive version of the Commonhold and Leasehold Reform Bill. This means that while the current draft does not include changes relating to embedded managers, the position could still evolve depending on feedback received during the scrutiny process.
The announcement also comes alongside wider reforms affecting leaseholders, including measures such as a cap on ground rents in England and Wales, which will be limited to £250 per year. While this is seen as part of a broader effort to rebalance the leasehold system, campaigners argue that more structural issues, such as control over management companies, still need to be addressed.
For now, however, the absence of specific provisions on embedded management companies leaves leaseholders reliant on existing legal routes and dispute mechanisms if they wish to challenge their current arrangements. This includes complaints procedures, tribunal processes, and court action where necessary, all of which can be time-consuming and costly.
As leasehold reform continues to move through Parliament, attention is likely to remain on whether future amendments will go further in giving residents more direct control over building management structures, or whether embedded management companies will remain outside the scope of the legislation.
For investors weighing up a short-lease flat, our guide on what really happens when a leasehold expires walks through the costs, the statutory route and what to do before the 80-year mark.
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