Baroness Gardner of Parkes
To ask Her Majesty’s Government what proposals they have with regard to residential service charges and other matters affecting leasehold blocks of flats.
Baroness Gardner of Parkes
My Lords, I have declared my interest in the register as a long-standing leaseholder. Having always seen the leasehold situation from a personal point of view and how I have been affected by changes, I had not appreciated that it is a vast subject which affects over 2 million people in the UK—half a million in the capital alone pay more than half a billion pounds annually in service charges. This March, the London Assembly produced Highly Charged, an 80-page report on residential leasehold service charges in London. The foreword states,
“the complexity of the service charges regime comes as a shock”,
and looks, in particular,
“at the way the transparency of service charges can be improved and leaseholders can be given greater control over the way services to their homes are provided”.
I urge your Lordships to study this report and the Lords Library briefing pack, most capably prepared by our Library staff, in detail.
There are many different issues in leasehold. Here is a brief list of some of the key ones: simplification of the law—a consolidation Act; regulation of managing bodies; transparency—complaints processes; closing loopholes—protecting leaseholders’ rights; easier change to commonhold; right to manage—tenants’ associations; standard of services—value for money; exit or transfer fees; and financing home ownership.
Regarding simplification of the law, many people who buy leasehold property have no idea what is involved. They are looking for somewhere they can afford to live and, generally, their focus is on buying the flat. They look at the service charge for that year but many will not be looking at this going up or at large capital outlay in the future for block repairs—these are often nasty surprises. They expect to be able to rely on managing agents—normally appointed by the freeholder or some other tier of landlord—to act fairly on their behalf. The leaseholder is always at the bottom of the pile.
As Act after Act has constantly altered sections in earlier Acts, ordinary leaseholders—and even lawyers—find it difficult to navigate through the morass of legislation covering leasehold in England and Wales. There is real need for a Consolidation Act and I support the views of the Federation of Private Residents’ Associations as set out in their paper Forgotten Leaseholders.
There is a strong call for regulation of managing bodies. I am ambivalent on the point as the necessary changes in the law are far greater and a Consolidation Act which could clarify and simplify would be better. Regulation may be a helpful first step. The Government do not seem to have sufficient data on the working of leasehold law. For instance, in 2009, the British Property Federation wrote to the then Government stating that it fully supported better regulation, yet it is often quoted by Ministers as opposing regulation. Sections 152 and 154 of the 2002 Act were due to be in force by now but the Government have not implemented these protective clauses. Residential tenants’ deposits are protected by the law but the much larger amount, the leaseholders’ money held by managing agents, has no protection.
Transparency, a major news topic in recent weeks, is vital in the matter of service charges, works and repairs. Leaseholders are entitled to know how their money is spent and to be confident that they are getting what they have paid for. Shocking cases of massive overcharging have appeared in the press. In 2011, the Daily Telegraph on 3 December and the Mail on Sunday on 11 December published reports. There was a September case settled almost on the doorstep of the leasehold valuation tribunal where residents of St George Wharf, opposite Parliament, had received a refund of £1 million after a battle that went on for some years.
In the Charter Quay case against the same landlord, Mr Tchenguiz, in December, the leasehold valuation tribunal found that many interconnected companies were entering into contracts with other Tchenguiz family-owned companies and in that case received an excessive commission of 23.5 per cent for insurance. The chairman said:
“The result of entering these contracts has been extremely damaging financially, because the break clauses are so onerous”.
Peverel, the management company owned until recently by the Tchenguiz family, had a very poor record of dealings with its leaseholders.
There are too many cases where intermediate landlords or management responsible for arranging services such as insurance have agreed contracts which mean that they are pocketing money themselves to the detriment of their tenants. Transparency is necessary to reveal these situations and stop this abuse. The organisation Leasehold Knowledge Partnership is actively working to ensure good practice.
Easier change to commonhold was included in the 2002 Act and it is sad that so little commonhold has been developed since. It is so clearly in the interest of the resident. It gives people real ownership of the home in which they live. It should become government policy to facilitate commonhold. The 2002 Act allows leaseholders to convert to commonhold, but only if they are 100 per cent in agreement on the matter. That is an almost impossible percentage—just one flat can thwart it. Reduction to a simple majority would make a great difference. When residents see the benefits, as I have myself in my homeland, they would appreciate the great advantages of such a system. I support the views in favour of commonhold held by CARL, the Campaign for the Abolition of Residential Leasehold.
The right to manage and tenants’ associations can each be very beneficial. The difficulty arises in getting sufficient leaseholders in a block to agree on any option. This is particularly difficult in cosmopolitan areas where many tenants live only part time or property is in foreign ownership. At least some residents have to be willing to take on the work of handling contact with the relevant landlord or managing agent and this takes time and effort. There is no right to manage available if more than 25 per cent of the building is in commercial use. Procedures and percentages merit reconsideration.
My housing experience in GLC days showed me that the number of people willing to take on such a role on a voluntary, unpaid basis is very small and the work can be very demanding. A reputable managing agent has sent me interesting views about the need to train leaseholders to improve their knowledge of the system and obtain certification for this. He favours advisory bodies, alternative dispute resolution and mediation. He states that,
“many disputes could be avoided through early consultation”.
In an ideal world, he would be right, but many leaseholders find that whatever attempts they make fail to produce any response or necessary action from their managing agents. Agents change but are no better. Where routine inspections and long-term maintenance planning used to be the norm, little, if anything, is done now.
As regards loopholes, there is evidently a defect in the leasehold Acts. Some process exists whereby a landlord can avoid the obligation of offering their interest to the leaseholders in a block, by setting up what I think is called a sister company. In my block this has produced a very bad result for leaseholders who would, I believe, have wanted to buy in that head lease. It is wrong that we did not have the opportunity.
Exit or transfer fees have a very adverse effect on older people who wish to move to a retirement village home and when the time comes to move, perhaps to a care home. They find themselves faced with quite a high charge. This is often money that they need. If they have died, their family find that the property might be almost impossible to sell because of the high charges. This certainly needs to be looked at. It has a doubly bad effect in housing terms. Older people living in a house too large for them and who are keen to move to a sheltered housing facility are deterred from doing so because they have such a financial disincentive. This means that a large property is underoccupied and unavailable for a family in need of that size of accommodation. I support the Campaign Against Retirement Leasehold Exploitation—CARLEX.
As to financing home ownership, bridging finance—so common years ago—was short-term money advanced by a bank or building society to enable you to secure the home you wished to move to, and to give you time to sell your present home. This enabled people to move up or down in accommodation size or location, and it worked well. Today, lenders are clear that no such type of finance is available at all.
After a recent housing debate, the noble Lord, Lord Best, told me that Hanover Housing Association, of which he is the chairman, offers an older person the right to move into appropriate accommodation and gives them two years within which to decide whether they are happy and want to buy and stay, or to return to their original home. I find this a marvellous system. It should be more available.
Recently, I was involved in trying to help someone who wanted to buy a flat in a high-rise former council block—
The Deputy Chairman of Committees (Lord Geddes)
With apologies to the noble Baroness, a Division has been called in the Chamber. The Grand Committee stands adjourned until 4.51 pm.
Baroness Gardner of Parkes
I will repeat the first sentence of my paragraph: otherwise, it will not hang together. Recently, I was involved in trying to help someone who wanted to buy a flat in a former council block that had been bought under the right to buy. Application for a mortgage with a high-percentage deposit was approved in principle by the bank, and a valuation fee paid. The valuation report attached a zero value to the flat. Thinking that this must be an aberration, the prospective buyer went through the same process with another bank and got exactly the same response: the value was listed as nil. A valuer’s note said that no one was willing to lend on blocks that had a past or present connection with a local authority, particularly if they were high-rise. The two banks had been willing to offer terms, but neither would do so with a zero on the valuation report. Several other banks said that they would not offer mortgages on any high-rise blocks. The policy of Barclays is not to lend on property above four floors, with the exception of expensive new buildings such as One Hyde Park—and, I suppose, the Shard.
The implications of this are wide, particularly at a time when the Government are keen for more people to buy the flat in which they live. I sent details of the case to the Minister for Housing on 8 March, pointing out that people need to be able to move on if their circumstances change and they need larger or different accommodation, and asking who would want to buy if they were locking themselves in to a totally illiquid asset. His reply of 30 March stated that he had,
“contacted HM Treasury and they have agreed to accept responsibility for this correspondence”.
The acknowledgement card from the Treasury was dated 28 March. I await a reply. I hope that my response will be swifter than that to the consumer group Which? It has not yet had a reply from the Minister for Housing to its letter on leasehold property charges sent last October. I received the Which? article only today. I have no time to comment on it but I hope that other noble Lords may do so.
As I followed up on the high-rise case I was most impressed by how well blocks were managed by the local borough—a point made in the London Assembly report. The standard of consultation with tenants and of explanation of the work done was very clear, and far above anything that I had seen in private blocks. There are lessons to be learnt.
My brief time has run out. All I have been able to do is list some of the issues. They are complex and far-reaching, and affect many people. We all want to live in a fair and just society. We do not want to spend hours and days trying to get things done that should be done routinely and correctly. Having to complain, let alone having to do it formally through tribunal proceedings, is a slow and laborious process. Life does not need complication but simplification, and above all clarity. The issues need to be studied in detail for the benefit of all. I hope that the Government will consider the many points that I am sure your Lordships will raise today.
Baroness Maddock
My Lords, I should declare an interest: I am a vice-president of the Local Government Association. We should all be very grateful to the noble Baroness, Lady Gardner, for securing this debate on this very important subject. I am only sorry that it is such a short debate. I am sure that all of us have been paring our words, having been inundated with information.
There are 1.5 million leasehold homes in Great Britain. This means that between 2 million and 3 million people are living in long-term leasehold properties. As the noble Baroness, Lady Gardner of Parkes, showed—and as other speakers, too, will show—there are still considerable problems for those with homes in this sector. This is despite the many Acts of Parliament that have covered leasehold tenure, going back half a century. There were Acts in 1967, 1985, 1987, 1993 and, most recently, in 2002. I was involved in the 2002 Act and was surprised to realise that it was 10 years ago. There is much agreement, I think, about the need for helpful reform of leasehold across the parties. However, it is a complicated area, as we have already heard, and there is less agreement about how to make this reform a reality, and a reality that works.
The leasehold system that we are discussing today is almost a uniquely Anglo-Welsh system. The rest of the world has developed alternative approaches, to which the noble Baroness, Lady Gardner, alluded in her opening comments. The problems in the leasehold sector persist in large part because our present system is one of high legislation but low regulation. At the heart of most of the problems is the fact that the interests of the leaseholder—the one who usually has the most financial, practical and emotional investment in a property—are all too often excluded. As the noble Baroness, Lady Gardner, has pointed out, the balance of power between the freeholder and the leaseholder too often seems to be to the advantage of the freeholder. Furthermore, the root of many problems is that lessors are excluded from management decisions despite the fact that they are the people paying.
There is no independent or compulsory regulation. This situation allows unscrupulous and incompetent managers to continue operating and undermines the influence of those living in managed properties. The lowest source of redress for leaseholders is the land valuation tribunal, but it is often lengthy, expensive and bureaucratic. It is particularly detrimental for poorer households. Many living in leasehold properties are retired; in fact, more than a third of leasehold flats are occupied by economically inactive people—I believe that the noble Baroness, Lady Greengross, is going to talk about people in retirement and the problems that they have. In the short term, the existing infrastructure could be improved by focusing on levering in the interests of all leaseholders to the management process, with a compulsory ombudsman service, and improving the management of leasehold properties through licensing. This would incur some costs for leaseholders, and it would create limited hurdles for those entering as managing agents, but I feel it would improve the value and quality of the service. Greater leaseholder empowerment could be promoted by the Government taking steps to encourage the process of right to manage and the long-term expansion of commonhold.
Since 2002, complaints about managing agents have risen sharply; in fact they have more than quadrupled in the past 10 years. The number of people living in leasehold properties is growing. The Government are committed to unlocking the housing market, and leasehold properties will be an important part of this. We know that they will be particularly important in London, where the majority of new homes will be leasehold flats. In addition, the Government plan to reinvigorate the right to buy for social housing, and this is already creating more leaseholders. Surely leasehold reform should be a priority alongside increasing the housing supply. I am aware that the Housing Minister, Grant Shapps, has stated that the interests of freeholders and managing agents are balanced and that reform should be driven by a more proactive approach from the sector, not by greater regulation. However, it is clear that there are severe problems for leaseholders, and, as voluntary regulation allows companies to operate completely outside any regulatory regime, such problems will continue unless some action is taken.
The noble Baroness, Lady Hanham, who is here today, took part in debates on the 2002 Act, as perhaps did others in the Chamber. I do not know whether the noble Lord, Lord Best, was here at the time, but the noble Lord, Lord Rooker, was then the Minister. I can still hear him saying that the local valuation tribunals would improve matters for leaseholders. However, they are proving costly, lengthy and bureaucratic. What monitoring have the Government done of the operation of local valuation tribunals, and do they have any plans to improve the operation of the tribunals? What research have the Government undertaken on the take-up of commonhold? In 2002, it was supposed to take over from the old system, particularly for new build. I understand from the statistics that that just is not happening. People prefer to go to the old system. What are the Government planning to do to assist the take-up?
I conclude by saying that we have regulation across various areas where there is competition and the regulation is often there to try to look after the interests of consumers. We have not done that properly for leaseholders, and that is one of the best arguments for looking seriously at how we can regulate in the interests of leaseholders. I hope that this short debate this afternoon will assist the Minister in trying to bring home to the Housing Minister, Grant Shapps, how important this is if he really wants to ensure that we have more affordable homes for people.
Baroness Greengross
My Lords, I start by congratulating the noble Baroness, Lady Gardner, on securing this debate. It is a very important issue. I declare an interest as president of the Association of Retirement Housing Managers. I just want to make a few points about older people in retirement leasehold schemes, as the noble Baroness, Lady Maddock, suggested I might.
I start with the resolution of conflict situations, and there are quite a lot of them. As someone who for many years headed a charity which set up a mediation scheme for people in leasehold housing schemes, I was aware of the conflict. It is difficult, not least for the providers of schemes, who are dealing with people who are often prepared to spend 12 or more hours a day focusing on those issues and who can make amazing barrack-room lawyers—I do not want to be insulting—because they have so much time to concentrate on that. So it is a difficult as well as an important issue.
The industry might be better served in conflict resolution by stronger regulation through an independent regulatory body or, in the absence of that, some form of self-regulation underpinned by guidelines and codification—the sort of thing that the Association of Residential Managing Agents has proposed and supports. That is worth considering. To help residents avoid costly litigation processes, perhaps the Government could implement a dispute resolution structure based on compulsory mediation as a first step, as recommended by the London Assembly report on service charges. That might be helpful. We know that increased clarity is required on what is included in the annual service charges, what is not, and what is retained in reserve for contingency funds and what precisely those funds cover. People are often greatly lacking in knowledge about that.
On other charges, we know that the Office of Fair Trading is currently investigating transfer fees, which are payable to the landlord by the owner or their family once the property is sold. The level of fees is set out in the original lease, but the scale of the fee varies widely between property companies. Would the Government consider a scaled fixed fee of some sort, which might be helpful? There also appears to be some ambiguity on the issue of the house manager flat rental, charges for which are levied with the service charge. If people are dissatisfied with that charge, it is not entirely clear what can be done to resolve the issue. Might part of any new guidelines help to address that, and will landlords as well as management companies be expected to sign up to codes of practice which would cover allied issues such as the placement and cost of buildings insurance and any associated premium commission, which require a consistent and open approach across the industry?
Finally, older residents in retirement housing are much more likely to experience unforeseen events, such as a decline in health status or the death of a partner, than younger people and that might mean that they have to change accommodation or—more likely—have to make adaptations to their accommodation fairly rapidly. Codes of practice should include provisions to help older people and their families in those circumstances and to consider the additional provisions they may make to help older people in particular.
Housing designed for older people whose needs change as they age faces an almost built-in conflict of interest. They need more services as they age, so the costs are going to rise as more care is provided. Their income tends to be less over the years. They wish to reduce the cost but they need more services. Older and frailer residents are more costly, so when residents manage the schemes themselves they may wish to sell to active, fit and therefore younger people. There is a conflict in what extra-care housing is intended to do. It is there so that as you get older and, perhaps, more frail, the services increase to meet your growing needs but if only younger, fitter, stronger people are invited into a complex you are almost defeating the object. I do not know if this problem can be solved but it is there unless people massage the criteria for entry into this sort of housing. This is sad but it presumably happens from time to time.
These are issues which the Government and Members of your Lordships’ House who are expert in this sort of thing need to consider carefully.
Baroness Miller of Chilthorne Domer
My Lords, I, too, congratulate the noble Baroness, Lady Gardner of Parkes, because this is an enormously important issue. As she rightly said in her extremely good introduction, when people are looking at these flats they are just looking for something they can afford. They are not looking in great detail at the implications of becoming a leaseholder. I must declare an interest, having become a leaseholder in Kennington in 2002. What I say this afternoon is not because I am an expert but because our block is a microcosm of the issues raised by noble Lords in this debate. We have had the issue of residential service charges which have not gone up as much as some that I have read about but have nevertheless seen a steep increase.
In terms of capital repair charges, this year we have had a projection several years forward. As our managing agents have said, this is the first time ever for this and it is a terrific breakthrough. If there were going to be regulations, a five- or 10-year forecast should be obligatory and would help tremendously. Last year, the surcharge for external works was £2,000 on a two-bedroom flat. That is a huge amount when it has not been foreseen more than 12 months before. Not many people can just find £2,000 in a year.
If you happen to want to sublet your flat, there are charges for assignment of leases. This is an issue because if someone is marginal about subletting it might put them off. At a time when accommodation is at such a premium, we want to make sure that those charges are at least proportionate to the work done. I have come across charges for assignment of a lease where it was going to someone who was already a tenant in the block and was simply moving flats, so the taking up of references was pretty academic.
The issue of insurance was highlighted in the London Assembly report. Interestingly, it highlighted terrorism as one of the unnecessary things to insure against. Many insurance companies discount terrorism as something that you can insure against. However, in preparing for today’s debate I went back to the budgets for the block in which I live, and there was a £5,000 a year charge for insuring against terrorism. That is against the background of a number of restrictions. You cannot keep pets, you cannot keep bikes in your flat, you cannot have wooden floors and you cannot hang out washing. Perhaps all the prohibitions are reasonable. At least when we took on our leases we were aware of them.
What made the biggest difference over the decade was the revival of the residents’ association under the chairmanship of somebody who devotes a vast amount of time and energy, entirely voluntarily, to making the sorts of improvements that we should expect good regulation to make. She has made, single-handedly, a tremendous difference to the accountability of the management company. She has made it more transparent by asking lots of questions and then informing us on the structure of the freeholder and the management company, on the relationship between the two, and on the trustee whom the management company appoints. If anyone was going to speak this afternoon it should have been her, because she is a truly great expert on this. She also managed to end the perhaps unintentional divide-and-rule culture of the management company, whereby leaseholders did not come together to take on the management company over issues. Giving information about issues, and getting a consensus among leaseholders on how to resolve them, is tremendously important.
Given how difficult it is at the moment to form a residents’ management association, I hope that the Government will give at least some thought to making it easier to form one. Beyond that, I hope that they will give some thought to giving more resources to residents’ associations. I do not mean that the Government should give the resources. Perhaps the service charge could be top-sliced to give residents associations a minimal amount of funding to bring leaseholders together. That is the start point that is so difficult to achieve with no resources and few people willing to volunteer their time. If the issue is one of the David and Goliath—which is what it feels like most of the time for the management committee and the chairman of the committee—we should give a few stones for David to hurl at Goliath with his catapult. That would make an enormous difference. If we achieve anything as a result of this debate it should be in that direction.
Lord Best
My Lords, I, too, am very grateful to the noble Baroness, Lady Gardner of Parkes, for initiating this important debate on the management of leasehold flats. Since I agree with virtually everything she said, and virtually everything that everybody else said, I will not dwell on those points.
Since most leasehold property is managed by managing agents, we need to consider whether the current arrangements are satisfactory in ensuring that they do a good job. I declare my interest as chair of the property ombudsman TPO, which handles complaints by tenants and, significantly, by landlords about managing agents. I feel able to speak in this debate despite my interest because the property ombudsman TPO is principally concerned with estate agents that handle sales, where 95 per cent of agents are members, and managing and letting agents that handle rented properties, where the TPO accounts for some 60 per cent of the sector. There is another ombudsman service, quite separate from us, that handles the great majority of complaints about agents who look after leasehold property.
On ombudsman services in general, the resolution of disputes without the need to go to the courts, or in this case to take matters to tribunal hearings, has considerable advantages. Ombudsmen are not champions of consumers any more than they are on the side of providers. They must be entirely independent of both. They can in that capacity not only resolve disputes in individual cases but play a significant role in raising standards in an industry. For example, complaints against estate agents in relation to property sales have fallen, and the level of awards that agents have been required to pay has also fallen over recent years. It seems very likely that the pressure and publicity from the work of the property ombudsman in judging the behaviour of agents against a clear code of practice contributed significantly to this improvement.
Throughout their professional bodies, and in professional and trade magazines and journals, there is constant reference to the standards to be expected of agents in treating with consumers. Where the ombudsman's decision leads to an offending agent being expelled from the scheme, local publicity has a powerful impact. The ombudsman cannot deal with the more extreme cases, not least because his powers are limited to making a maximum award of £25,000 in the case of the TPO, and some matters must still go to the courts. However, the ombudsman service means that huge numbers of disputes can be resolved at low cost—indeed, at no cost to the complainant.
I recognise that there can be additional complications for leaseholders. An individual leaseholder may be insistent that the managing agent should take action, perhaps in accordance with their contractual agreement, where the cost of the agent doing so may mean that the management company, comprising the residents who will all have to pay, is not so keen for the managing agent to proceed in this way. In other words, there may be three parties engaged in a dispute: the individual leaseholder, the leasehold management company and the agent. This will require additional sorting out. One hopes that such cases are in the minority, and I would advocate much greater use of the existing ombudsman service to settle disputes and to raise standards for residential leaseholders.
We know that the Government are not keen on any new regulation in the private rented sector. The property ombudsman has argued for the same requirements on managing letting agents as exist for estate agents under the Consumers, Estate Agents and Redress Act, which would make it compulsory for all agents to belong to an ombudsman scheme. In the absence of such legislation, it seems that we must rely on voluntary action by agents to join an ombudsman scheme. The advantage to the agents will be that as consumers become aware of the difference between agents that belong to an ombudsman scheme where they can get their disputes addressed and agents that are outside such schemes, the market will ensure that few agents remain beyond the pale. In the private rented sector, a number of agents have got together with the National Approved Letting Scheme, and with the professional bodies representing agents, to launch a safe agents scheme that in particular requires all agents to have client money protection insurance. A publicity campaign by bodies representing leaseholders, such as the Federation of Private Residents’ Associations, to ensure that leaseholders choose only agents that belong to an ombudsman scheme, would certainly help to raise accountability and standards.
I will also comment on the practices surrounding payments that are required of leaseholders or their successors when they leave or die. Some contracts in retirement housing stipulate payments to the freeholder, and these exit fees have been the subject of serious complaint. Here I declare an interest as chair of the Hanover housing association, which has taken on the freeholds of several thousand leasehold retirement flats. From this I know that practices in the sector can vary from the good to the bad. At the positive end it can be beneficial to offer to occupiers the option that some part of the service charge—usually that covering the building up of a provision for major repairs, the replacement of lifts and so on—should be deferred until the occupier leaves. This will mean that every month those on tight incomes will have more spending money, and the accumulated service charge will come out of the sales proceeds when they leave or die.
At the other extreme are cases of small print where the occupier—or their heirs and successors—is required to pay 5 per cent of the sales proceeds to the freeholder in return for no discernible benefit. There have been complaints that purchasers did not understand such requirements buried in their contracts. The Office of Fair Trading looked at these questions, and it would be helpful to have an update from the Minister on the action that the OFT intends to take—not to throw the baby out with the bathwater but to clamp down on unfair and misleading contractual arrangements that are discovered. Although I recognise the Government’s aversion to statutory regulation, will the noble Baroness comment on the value of extending the role of ombudsman services?
Lord McKenzie of Luton
My Lords, like other speakers, I thank the noble Baroness, Lady Gardner of Parkes, for the opportunity to reflect on a particular aspect of housing policy and I am grateful for the briefings that we have had. I start by declaring an interest because I am, jointly with my wife, a long leaseholder of a flat in London. This debate has, if nothing else, spurred me to be more diligent in reviewing the paperwork.
As others have said, issues of residential leaseholders touch on a particularly complex area of legislation. The noble Baroness has previously sought a view from the Government about whether they will consolidate landlord and tenant legislation and was told, back in November, that there were no plans to do so. However, that exchange at Question Time brought forward suggestions that the matter might be referred to the Law Commission. Has anything been taken forward in this respect? In the same exchange, the Minister indicated that a wide range of housing regulations were being looked at as part of the red tape challenge. How is that progressing, which particular regulations are being reviewed and what areas are being looked at? In a further exchange on 17 January, the noble Baroness, Lady Hanham, reaffirmed that there were no plans for a wide ranging review of leasehold law, but indicated that the Government were keeping a watching brief and would not rule out making changes. Have any changes currently been ruled in?
Issues of leaseholders are just one part of the housing problems facing our country and, to be frank, are not the most pressing. House building has fallen by 11 per cent in the first 18 months of the coalition Government, private sector rents have risen and are unaffordable for too many and home ownership has declined as people struggle to get mortgages. We know that the Government have set their face against further regulation, scrapping Labour’s plans for a national register of landlords and regulation of letting and managing agents. This is at a time when some of the most vulnerable are having their housing benefit cut and are being directed to the cheaper and shabbier end of the private rented sector. Nevertheless, the issue raised by the noble Baroness is important and, as others have said, is likely to be of increasing significance if more blocks of flats are built, shared ownership schemes are promoted and—as the noble Baroness, Lady Maddock, mentioned—the Government attempt to reinvigorate the right-to-buy programme.
It is not just private sector freeholders and landlords who are involved with leaseholders. Some quite outdated ARMA data from 1998-99 suggests that 20 per cent of landlords are social landlords. The same survey suggested that less than half of leasehold flats were using a managing agent. Can the Minister update us on those data? I do not have time to cover it today, but there were issues about social landlords, leaseholders and the implications for decent home standards where a lot of money was being applied by local authorities to upgrade their stock and the implications of that for people who had bought a flat.
It must be acknowledged that this area is not entirely unregulated. The law requires consultation with leaseholders before works above a certain value can be carried out; demands for service charges must be in writing; there is an expectation under the law that service charges are reasonable and there is a right for landlords and leaseholders to seek a determination from a leasehold valuation tribunal. Leaseholders are entitled to a summary of service accounts and to inspect documents. Service charge funds are deemed to be held on trust but do not have to be held in separate trust accounts: thereby hangs a problem. However, as I understand it, where there is a residents’ management company or a right-to-manage company, service charge moneys are subject to a statutory trust.
Apart from the law, managing agents who are members of RICS or ARMA—the Association of Residential Managing Agents—are required to adhere to the RICS code of conduct on service charges for residential management. There is a separate code for retirement housing managers. New best practice guidance has been introduced by the RICS in co-operation with the accountancy bodies, in the face of the Government’s refusal to implement what was previously proposed. Is that considered fit for purpose, and will the Government reconsider giving it some statutory backing?
Despite the voluntary code, as we have heard and seen from our briefings, difficulties abound. Barriers to the managing agent industry are low; and not all managing agents belong to the RICS or ARMA schemes and are therefore not bound by the code. There are no ombudsman arrangements to which all managing agents are required to adhere, and the noble Lord, Lord Best, made a powerful argument to change that. It has been suggested that some of the difficulties arise from the essential imbalance of power between freeholders and landlords on the one hand and leaseholders on the other—the David and Goliath syndrome. Notwithstanding this, it would seem that some of the conflicts arise because insufficient attention is paid when a lease is entered into or required in the first place.
The London Assembly report suggests a requirement for more specific advice at the point of agreement. Estimates of service charges for the next five years, I think, were suggested in that case. It was interesting to hear the experience of the noble Baroness, Lady Miller, currently. The concerns around service charges are inflated prices, not having to achieve value for money, undisclosed commissions, awards of contracts to related companies of managing agents, and the lack of security for leaseholder moneys. The report prepared by the London Assembly also raised issues concerning the leasehold valuation tribunal, suggesting that the process was getting increasingly complex, with an impact on cost. There was difficulty in getting information from landlords, who were increasingly employing counsel, reflecting on-costs. What is the Government’s assessment of how the tribunal is currently working?
There is a case for more regulation—if not by government, by industry bodies—but this must be effective. We have a policy review under way, and in this connection the principles that we would deploy to address this issue require ensuring good practice is promoted, improving transparency, supporting a register of competitive tendering processes for services, and having systems, perhaps mandatory, for the resolution of disputes.
The Deputy Chairman (Lord Geddes)
The noble Lord times it quite beautifully. A Division has been called in the Chamber. The Grand Committee stands adjourned until 5.37 pm.
The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Baroness Hanham)
My Lords, I thank noble Lords who have taken part in this debate—most especially the noble Baroness, Lady Gardner of Parkes, for introducing it. She has taken a long-term interest in housing and has great experience. It is therefore important to be able to deal with the issues that she has raised and those raised by subsequent speakers. I have a limited time, and I say at the outset that if there are areas that I miss, we will make sure that letters are written afterwards.
We believe and understand that most leaseholders are, in fact, satisfied not only with their property but with the way it is managed. However, I accept immediately that there are a number of exceptions to this rule. We also know that leasehold tenure can be complex, and problems and disputes arise, which cause concern, frustration and, in some cases, real distress to the people concerned. We have a statutory framework in place that aims to balance the different parties’ interests in the same property. The goal is to provide leaseholders with the rights and protections they need, while recognising the legitimate interests of landlords.
The current legislative framework, if properly dealt with, can deliver the right balance between the parties involved—but provided it is matched by an increasingly proactive and socially responsible approach by the professionals who are working within the sector. In taking this approach, the Government are, I recognise, presenting a real challenge to those professionals. I am therefore pleased to see this challenge being taken up by various professional bodies such as the Association of Retirement Housing Managers, to which the noble Baroness, Lady Greengross, referred. This can only help leaseholders and others concerned within residential leasehold.
The noble Baroness, Lady Gardner, referred to the London Assembly report, as did other noble Lords. We have noted that the London Assembly’s report on its investigation, Highly Charged, is a thorough and thoughtful contribution to these issues. Most of the report’s recommendations to government in fact relate to the procedures of the leasehold valuation tribunal. As such—although I will refer to the LVT later—they are issues for the Ministry of Justice, and it is up to that ministry to address these issues. It is also now for the Mayor of London and the Assembly to decide what steps they will take, but I suspect that as purdah is in place, I should not continue on that matter.
The noble Baroness, Lady Gardner, also raised the case for consolidation of legislation. This matter is unbelievably complicated. I do not know if the noble Lord, Lord McKenzie, had anything to do with consolidating legislation when he was in government, but it is not to be undertaken lightly at all. We recognise that sometimes it can be beneficial to bring together all relevant legislation, but it takes a long time. You have to bring not only the law but the regulations into one place. At the moment, it is probably not justifiable to spend time consolidating legislation in this area. The noble Lord, Lord McKenzie, referred to the Law Commission and asked whether we were planning to ask it to look at this issue. I said when we previously discussed this issue that we did not think that the Law Commission would be grateful for our recommendation, and that it was very much up to it to decide what it wanted to do. If the commission felt that there was a position or role for it, it would be in a position to take the matter up itself, but we are not at the moment planning to ask it to do so.
Service charges and the management of property were mentioned by the noble Baronesses, Lady Miller and Lady Maddock, as were the role of managing agents and their capability. Noble Lords will know that leaseholders have a range of legal rights concerning service charges and the management of property. They can hold managers and landlords to account if they believe that their service charges are unreasonable or if they are facing continuing poor management. Again, I recognise that this is not an easy area. It throws a lot of responsibility on to tenants’ associations and leaseholders’ associations. The noble Baroness, Lady Miller, referred to that.
However, I do not think that it is for government to intervene any further. People who buy leasehold properties first need to be very careful with the lease they are buying, to know what they are buying, to know what are the service charge implications and management implications. They need to know whether the managing agent has been appointed by the freeholder and what responsibility they take if that managing agent is not standing up to proper scrutiny. At the end of the day, leaseholds are the responsibility and under the ownership of the people who live in a block of flats and it is very much in their interests to have an organisation or association to use to help manage it. Although I accept that that involves a big responsibility on those who do that, there are some very determined leaseholders who manage to achieve it.
I touched briefly on the question of the leasehold valuation tribunal, which caused some ripples early on. I know that there are leaseholders who have had successes with the London valuation tribunals. Although I appreciate that there are difficulties and discrepancies between the amount of costs involved and those who pay for them, it is a fact that the leasehold valuation tribunal is there to be the arbiter in cases where otherwise landlords and tenants cannot agree.
The current maximum fee payable to a tribunal is £500. Sometimes no fee is payable at all, but of course as cases continue each party is responsible for their costs of representation. Leasehold valuation tribunals are independent and do not seek to favour one party or another. They are viewed as the most appropriate forum for dealing with a wide range of leasehold disputes. Any research on the effectiveness of leasehold valuation tribunals would, I fear, be for the Ministry of Justice. It seems ridiculous that that has got out of our hands, but that is where it is. They are given jurisdiction to determine leasehold disputes and parties can of course go to court. Again, I appreciate that that is all quite daunting for people who think that they might want to just go to live a quiet life, but that is not always possible.
Yes, managing agents are appointed by the freeholder.
Baroness Maddock
Before the Minister leaves leasehold valuation tribunals, having said that it is the responsibility of the Ministry of Justice, I would be grateful to know whether it has undertaken any review. As I said in my remarks, I can still hear the noble Lord, Lord Rooker, telling me in 2002 how wonderful it was going to be for everybody. I realise that it is not the Minister's responsibility now, but I would be grateful for that information at some stage.
Baroness Hanham
May I get back to the noble Baroness in due course? I will have to find out whether that has been undertaken.
Managing agents, as I say, are put forward by the freeholder. The leaseholders have some rights if they consider that they property is not being properly managed, and can go to the leasehold valuation tribunal about that or begin to think about taking over the right to manage the property for themselves, which would mean that they were then fully in charge.
Service charges are an issue. All sorts of issues have been raised today about the protection of money and service charges, how much they are and what is involved with them. Again, I am afraid that that is a matter for the leaseholders to watch carefully. It is important that what the managing agents do and the costs that they put forward are transparent, and that the leaseholders have a number of rights. They can and must ask for a summary of service charges, and those charges should be consulted upon. They must be able to see the supporting documentation. They have a right to see insurance documents and the right to have a management audit carried out, albeit at their own expense. So they have some control over the service charges, although I think my noble friend Lady Miller mentioned capital charges and the fact that some people had not understood that they were going to come in.
There are two codes of practice, one from the Association of Retirement Housing Managers, mentioned by the noble Baroness, Lady Greengross, and one from the Royal Institute of Chartered Surveyors, which I think the noble Lord, Lord McKenzie, mentioned. These pay particular attention to the disclosure of commissions. Although the issue has not been entirely raised today, there have been concerns about the commissions taken on insurance. There are good codes of practice that ought to be adhered to. The Association of Retirement Housing Managers code is in the process of being reviewed—we expect that to come off quite soon—and we hope that RICS will also look at that issue and revise what it says.
The noble Baroness, Lady Gardner, and other noble Lords raised two or three other points. I shall comment briefly on commonhold, something that I remember debating with the noble Baroness, Lady Maddock, in 2002 when we were, it is fair to say, vigorously opposed and saw all sorts of pitfalls coming up. Those pitfalls are still there but we could make it easier for a leasehold property to be changed to commonhold. This would now be a matter for the Lord Chancellor, which slips it away from me, and the Secretary of State for Justice. They will be required to have a look at it, and I am sure that we will refer them to this debate so that they will know what has been said about it.
The noble Lord, Lord Best, and the noble Baroness, Lady Greengross, raised the question of exit fees. We could not possibly comment on the practice of any particular company, but we are well aware that these are causing practical issues and great distress. The Office of Fair Trading, as the noble Lord, Lord Best, said, has been considering whether the exit fees might breach the unfair terms in consumer contracts, and if they do indeed constitute a breach, the OFT can take action and can take such companies to court.
I have been advised by the Whip at my right hand that I have truly run out of time. The only point that I have not covered is that on the ombudsman, which the noble Lord, Lord Best, raised. May I write to him about that, since I do not now have time? I have a note of it. I shall also write regarding the red-tape challenge.
There has been too much in this debate for me to go into as much detail in my response as I would have liked. We will scour Hansard and, if we have missed anything, I will write to noble Lords who have taken part. I thank everyone for their contribution on this extremely important subject, and I assure noble Lords that I will draw the Housing Minister’s attention to this debate and the concerns that have been raised.
The Deputy Chairman of Committees (Lord Faulkner of Worcester)
The Grand Committee will adjourn during pleasure until 6.30 pm.