Leasehold and Freehold Reform Bill (Seventh sitting)
Thursday 25th January 2024
(3 months, 2 weeks ago)
Public Bill CommitteesRead Full debate Leasehold and Freehold Reform Bill 2023-24 View all Leasehold and Freehold Reform Bill 2023-24 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 25 January 2024 - (25 Jan 2024)
The Committee divided: - Ayes: 5 / Noes: 8 - Question accordingly negatived.
The Committee divided: - Ayes: 5 / Noes: 8 - Question accordingly negatived.
Matthew Pennycook (Greenwich and Woolwich) (Lab)
I beg to move amendment 6, in schedule 7, page 119, line 12, leave out sub-sub-paragraph (a).
This amendment would ensure that all leaseholders, not just those with residential leases of 150 years or over, have the right to vary their lease to replace rent with peppercorn rent.
Matthew Pennycook
It is a pleasure to continue our line-by-line consideration of the Bill with you in the Chair, Mr Efford. For the sake of probity, I declare once again that my wife is the joint chief executive of the Law Commission, whose reports on leasehold and commonhold reform I will continue to cite throughout my remarks.
Part 2 of the Bill makes changes to other rights of long leaseholders. Four of its five clauses are concerned with improving the right to manage, but as we touched on briefly at the end of the Committee’s previous sitting, clause 21, which brings schedule 7 to the Bill into effect, makes provision for a new enfranchisement right to buy out the ground rent and vary it permanently to replace the relevant part of the rent with a peppercorn rent, without having to extend the lease.
We welcome the intent of the schedule. The reform will ensure that leaseholders can enjoy reduced premiums and secure nominal ground rent ownership of their properties without the need to go through the challenge and expense of repeated lease extensions. In the Law Commission’s final report on enfranchisement rights, it considered in great detail whether there should be a range of lease extension rights in order to provide greater flexibility than is currently afforded to leaseholders as a result of the provisions in the Leasehold Reform, Housing and Urban Development Act 1993 that require them simultaneously to extend the terms of their lease and to extinguish their ground rent.
The rationale for providing greater flexibility in this area is that in allowing leaseholders to choose either only to extend their lease or only to extinguish their ground rent, leaseholders could avoid paying the landlord the value of the remainder of the original terms and the deferral of the reversion, with the result that premiums would be reduced accordingly.
While taking into account the clear benefits that greater flexibility would provide for in terms of reduced premiums, the Law Commission, in its reports, clearly wrestled with whether it was sensible to recommend a more nuanced approach to lease extension rights. It did so, because of the complexity that the availability of different lease extension options would inevitably create, and the corresponding opportunities that such complexity would present to unscrupulous landlords who might seek to take advantage of those leaseholders unable to access costly professional advice about the best choice to make from the available options.
Without doubt, allowing for choices other than a uniform right to a fixed additional term at a nominal ground rent will make the statutory right to a lease extension more complicated. I will return shortly to the implications of clause 21 and the schedule in that regard. However, on the principle of allowing for greater choice, the Law Commission ultimately decided that despite the increased complexity that it would engender, leaseholders who have a lease with a long remaining term should, on payment of a premium, be entitled to extinguish the ground rent payable under the lease without extending the terms of it.
The commission felt, rightly in our view, that that right is likely to be utilised mainly by those with relatively long leases who are subject to onerous ground rent provisions, or those with relatively long leases and ground rents that are not definitionally onerous but still entail, for a variety of reasons, a significant present or future financial burden. In such cases, even if the premium payable is not significantly reduced, the prescribed capitalisation rates provided for by schedule 2 to the Bill should make valuations simpler and enable the change to be made by means of a simple deed of variation, rather than a deed of surrender and regrant, as required to extend the terms of a lease now.
The schedule implements the Law Commission’s recommendation for that right to extinguish the ground rent only. As I have made clear, we support it. We have, however, moved the amendment, which would delete the Government’s proposed 150-year threshold, to press the Minister on the reason or reasons for which the Government have decided to confer that right only on leaseholders with leases with an unexpired term of more than 150 years.
To be clear, we understand fully the argument made by those who believe that the right to extinguish a ground rent without extending a lease should only be conferred on those with sufficiently long leases—namely, that the premium for the reversion increases significantly as the unexpired period of the lease reduces, and leaseholders with leases below a certain threshold should therefore be, in a sense, compelled to peppercorn their ground rent and to extend at the same time by means of the reduced premiums that clauses 7 and 8 of the Bill should enable.
However, what constitutes a sufficiently long lease for the purposes of conferring this new right is ultimately a matter of judgment. The Law Commission recommended that the threshold should be set at 250 years on the basis that the reversion is of negligible value at that lease length. The Government chose not to accept that recommendation and instead are proposing a threshold of 150 years. The Minister may provide us with a different answer in due course, but we assume the reason they did so is simply that this will make the new right to extinguish a ground rent available to many more leaseholders.
However, if that is the case, it obviously follows that setting a threshold of, say, 125 years or even 100 years would make it available to even more of them. The argument against doing so is that leaseholders with leases below a certain threshold should be, in effect, compelled to extend their lease at the same time as peppercorning their rent because not doing so would, in many cases, disadvantage them.
However, that obviously raises more fundamental questions, such as whether it should be up to leaseholders to navigate the wider range of options that will be made available to them if and when this Bill receives Royal Assent, and whether the fact that some leaseholders with relatively short leases may either advertently or inadvertently disadvantage themselves by extinguishing without extending their lease should mean that everyone below the 150-year threshold is prohibited from enjoying the new right introduced by the schedule.
Even assuming one believes it is the role of Government to set a long-lease threshold, it is not entirely clear to us why the Government have alighted on 150 years given that there could be all sorts of reasons why someone with a lease shorter than such a term might want to only buy out their rent, including simply that they are unable to afford the premium required to secure a 990-year lease. As such, we would like the Minister to justify in some detail, if he could, why the Government alighted on a 150-year threshold as opposed to either the Law Commission’s proposal of 250 years or a lower threshold that would give many more leaseholders the right to extinguish their ground rent. We would like to ask him to consider whether, as we believe on balance, there is a strong case for simply deleting the 150-year threshold entirely, given that the “remaining years” test that applies is inherently arbitrary. I hope the Minister will give amendment 6 serious consideration, and I look forward to his thoughts on it.
While we are considering this schedule, I also want to probe the Minister again on the Government’s intentions in respect of the recently closed consultation on restricting ground rent for all existing leases, and specifically how any proposals arising from that consultation will interact with this schedule given that it provides a right to peppercorn ground rents in existing leases. As I made clear when we briefly considered this matter in relation to clauses 7 and 8, I am obviously not asking the Minister to provide this Committee with an advanced indication of what the Government’s formal response to that consultation will be. However, we remain of the view that this Committee needs to know, if the Government ultimately do choose to enact any of the five options for intervention that were consulted upon, what the implications are for the provisions that are currently in the Bill that we are being asked to approve today.
On Second Reading, the Secretary of State was quite clear that at the conclusion of the consultation, the Government would
“legislate on the basis of that set of responses in order to ensure that ground rents are reduced, and can only be levied in a justifiable way.”—[Official Report, 11 December 2023; Vol. 742, c. 659.]
As members of the Committee will know, he was also open with the Levelling Up, Housing and Communities Committee prior to Second Reading about the fact that his favoured approach would be a peppercorn rent—in other words, option 1 from the consultation. I am conscious that many people across the country who bear leaseholders no ill will whatever have invested, almost uniformly on advice and in good faith, in freehold funds. I have constituents who have invested, for example, in time investments and other such funds that have invested in freehold properties. However, I personally share the Secretary of State’s preference not least because, while ground rents exist even at relatively low levels, they will be a major impediment to the widespread adoption of commonhold.
There is a more fundamental issue with ground rents that we need to grapple with. As we have discussed already, over the past two decades, the consequence of the kind of investment we have seen is a system increasingly focused on generating assets by gouging leaseholders through ground rents that are, in historical terms, high to start with and that escalate over the terms of the lease. Leaseholders who worked hard to purchase their own homes and did so in good faith are being asked to pay ever more money for no clear service in return and many are experiencing considerable financial distress and difficulties selling their property, all to sustain the income streams of third-party investors.
Unregulated ground rents of this nature in existing leases cannot be justified. Although we do not discount the risks involved in any of the five options outlined in the consultation, Labour is clear that the Government must act to protect leaseholders from ground rent exploitation and that they should be courageous in determining which of the consultation proposals should be enacted.
All that said, we obviously cannot pre-empt the consultation in question. What is important for the purposes of considering schedule 7, and clause 21, is that we get a clear answer from the Minister as to what the potential implications of any response would be for leaseholders. Specifically, will the schedule have to be revisited should the Government ultimately choose to enact one of the five options in the consultation? Are we correct in assuming that clause 21 and the schedule will have to be overhauled, if not removed from the Bill entirely, in that scenario? If not, how will the Government ensure that the various measures are aligned? It is a hypothetical question, as I am sure the Minister will indicate, but it is entirely reasonable, given that we are being asked to approve the inclusion of the schedule in the Bill. On our reading of the ground rent consultation, the schedule could entirely change the implications; indeed, it may well have to be removed entirely to ensure that the Bill is consistent. On that basis, I hope the Minister will give us a bit more detail. He gave us some on Tuesday, but we need a little more detail on that point.
The Minister for Housing, Planning and Building Safety (Lee Rowley)
I am grateful for the comments from the hon. Member for Greenwich and Woolwich, and for his amendment. I will say a few words in general before turning to some of his specific questions.
As he indicated, the ground rent buy-out right enables leaseholders with very long leases to buy out their ground rent on payment of a premium, without having to extend their lease. A leaseholder with a very long lease who does not need an extension may want to buy out the ground rent without extending the lease, but others may wish to do it in a different way.
I appreciate the hon. Member’s points about the amendment, and I understand why he is seeking to extend the right to vary one’s lease to as many leaseholders as possible, so I will try to answer some of his questions. Inevitably, as he indicated, there is essentially an arbitrary decision to take on any number, because moving it up or down would change the provision slightly and incrementally each time, so there is an element of having to put a finger on the scale. As he said, the right is an implementation of the Law Commission’s recommendation 3(2), which suggested that it should be available for leaseholders with 250 years remaining, but the Government have indicated that they want to set the term at 150 years. The reason given by the Law Commission for making this right available only to those with very long leases, which the Government support, is to limit it to leaseholders who are unlikely to be interested in, or do not need, a lease extension.
Making the right available to all leaseholders, irrespective of their term remaining, would mean that leaseholders who will need a lease extension at some point might opt first to buy out only the ground rent, but would need to extend their lease in due course. That would potentially disadvantage leaseholders in two ways. First, as the term on the lease runs down, the price on the lease extension accelerates. Secondly, a leaseholder who buys out their ground rent first and later extends the lease will pay two sets of transaction costs. It is entirely legitimate to say, “That is the choice of individuals,” and I have some sympathy with that argument. On balance, however, the Government recognise that there is a series of things within leasehold law that are permissible but not necessarily advantageous for some groups and sectors. By moving further in this regard, we might inadvertently create another one, which future iterations of Ministers and shadow Ministers might debate removing.
I should make it clear—the hon. Member knows this—that it is not the case that leaseholders with fewer than 150 years remaining do not have the right to buy out their ground rent: they buy out their ground rent when they extend their lease or buy the freehold, and that buy-out will also be subject to the cap. However, the right to buy out the ground rent without extending the lease is for leaseholders with 150 years or more remaining, for the reasons I have given.
Turning to some of the hon. Member’s specific points, the ultimate number is a matter of judgment, and we determined that setting the term at 150 years would offer the right to an incrementally larger group of people. We think that is a reasonable place to be. I accept that others may choose a different number, but that is the number we are proposing in the substantive part of the Bill. I also appreciate his point about the outcome of the consultation being the missing piece of the jigsaw puzzle at the moment.
I will not go through my multiple previous caveats around that, because he acknowledged at least one of them. Recognising that I will not be able to answer all of this, it may be that—subject to the outcome of the consultation—changes are needed. I cannot, however, pre-empt that, and we will have to cross that bridge when we came to it. I realise that is not the ideal place to be, but given that we all share the aim of trying to move this as quickly as possible, I hope it is an acceptable position to move forward from. We can return to it in due course should we need to.
The Chair
Oh, I beg your pardon. I did not catch you out of the corner of my eye. I call Rachel Maclean.
Rachel Maclean
I apologise, Mr Efford. I was not quick enough on my feet. Thank you for calling me, and it is a pleasure to serve under your chairmanship.
I thank the Minister for his comprehensive answer to the shadow Minister’s questions. My point is somewhat in the same vein, and I am very much thinking of the witnesses we had from the National Leasehold Campaign, who talked about this point in quite a bit of detail. Their concern was about having to pay to buy out the ground rent. Of course, there are a number of elements, factors and variables dependent and contingent on the outcome of the consultation. There are people who might be watching this thinking, “Well, when will I actually know how much it is going to cost me?” A year can go by and they may tip over that threshold. Can the Minister give a bit of clarification to those leaseholders who have been trapped for so long and want to see some light at the end of the tunnel? What signpost can he give on when this right will apply to them and how much they will have to pay if they want to exercise their individual right to have their ground rent reduced to a peppercorn?
Lee Rowley
I am grateful to my hon. Friend for raising that point. She is absolutely right that this matter is important to a number of people, and that it is important that we provide the greatest transparency at the earliest opportunity. I hope she will forgive me for not being able to answer her very valid question directly. We are dependent on an appropriate and detailed review of the consultation, which is necessary—for some of the reasons we talked about on Tuesday—given its importance to a number of parts of the sector and others. We need to allow that to conclude, hopefully as swiftly as possible, and then we need to get it through this place and our colleagues in the other place, who can often slow us down. Hopefully, that will happen as soon as possible.
Matthew Pennycook
I thank the Minister for his response. Let me just deal initially with the three Government amendments, with which we take no issue. On the ground rent consultation, I will not labour the point, because I get the sense we will not get any further information out of the Minister. It is always easier to say this from the Opposition side of the Committee, but it would have been logical to have had the ground rent consultation well in advance of the Bill, as then we could have had a Bill with all the elements properly integrated. It is not like the Government did not have enough time. I think that the previous Secretary of State, the right hon. Member for Newark (Robert Jenrick), announced the second part of the two-part seminal legislation back in 2019, so the Government have had time—but that is where we are. By the sound of what the Minister is saying, we will have to significantly overhaul many clauses in the Bill if the Government do decide to enact one of the five proposals.
On amendment 6, I do not find the Minister’s argument convincing. The Law Commission recommended a 250-year threshold. The Government have clearly determined that they need not follow that recommendation to the letter, although they have implemented the principle of it. They have chosen to put their finger on the scale, as the Minister said, at a different threshold. I think trying to put one’s finger on the scale on this particular issue is likely to cause more problems than it solves. I hope the Government might think again about cutting the Gordian knot entirely.
The most common forms of lease are 90, 99 and 125 years. Leaseholders with the most common forms of lease will not be able to enjoy this right. The Government are in effect saying to them, “You must buy out under clauses 7 and 8—your lease extension and your ground rent at the same time.” From what the Minister said, it sounds like the Government think that is right because some leaseholders might disadvantage themselves by trying to exercise only the right in schedule 7. There is a case for giving those leaseholders the freedom to exercise their own judgment on that point—I am surprised the Minister has not agreed with it. A lot of leaseholders will be watching our proceedings who have leases of, say, 120 years and simply do not have the funds available to exercise their right to extend the lease and buy up the ground rent under clauses 7 and 8. This will therefore completely lock leaseholders with shorter leases out of extinguishing their ground rent provisions. We think that is inherently unfair.
Barry Gardiner (Brent North) (Lab)
Does my hon. Friend share my view that the Minister is a reasonable gentleman? [Laughter.] I know it may be specific to us and not widely shared. My hon. Friend having made such an eloquent case, the Minister may go away, reconsider this, speak to his officials, and perhaps, once the consultation has concluded, be able to come back with a different answer.
Matthew Pennycook
I thank my hon. Friend for that intervention, which tempts me to give a number of responses. As I am feeling generous this morning, I will say that I do think the Minister is a reasonable individual —far more reasonable in Committee than he is in the main Chamber—and I suspect that he agrees with me about the 150-year threshold. To encourage him to go away and think further, I think we will press amendment 6 to a vote.
Richard Fuller (North East Bedfordshire) (Con)
I want to take up the point the hon. Gentleman made about the timing of the ground rent review and the implications for subsequent change in the Bill. Has the Opposition looked at what the potential legal liability might be if we move forward with this Bill without clarity on what happens on ground rent, particularly as this is retrospective legislation, and whether there is a potential liability for the taxpayer if that co-ordination does not work effectively?
Matthew Pennycook
We have had access to the advice and opinion of a number of organisations and individuals, which have probably been sent to the whole Committee. We have also sought to engage the opinions of many relevant experts in this area. The honest answer is that we do not know. I think the Minister himself would say openly that there is a sliding scale of risk with each of those options. I fully expect any of those options, if they are introduced, to result in litigation against the Government that seeks to take the matter to Strasbourg under the relevant rules. That has to be factored in. The Secretary of State and the Minister will be getting the relevant advice. That is why I encourage the Minister to be courageous in the option they ultimately choose. We want to strike the right balance by addressing the problem as it exists for leaseholders—that is very clear—but ensuring that whatever option comes forward can stick and is defensible. That is a conversation we will have over the coming weeks and months, because this issue is going to rumble on for some time to come.
Question put, That the amendment be made.
Lee Rowley
I beg to move amendment 79, in schedule 7, page 120, line 3, leave out from “to” to end of line 4 and insert
“—
(a) the landlord under the qualifying lease, and
(b) any other party to the qualifying lease.”
This amendment expands the range of persons to whom a rent variation notice must be given to include persons who are party to the lease (but are not a landlord).
The Chair
With this it will be convenient to discuss Government amendments 80 to 88, 99 and 100, 102 to 104, 106, 118 and 120.
Lee Rowley
These amendments mostly simplify and clarify the provisions in schedule 7.
Amendment 79 will expand the range of persons to whom a rent variation notice must be given, which should now include persons who are part of the lease but not landlords. Amendment 80 applies where a tenant is bringing a lease extension or a freehold acquisition claim. It sets out that the tenant cannot bring a ground buy-out claim while the preceding claim is still in play, because they do not need one and their ground rent will be bought out by the other enfranchisement claim.
Amendment 81 provides that a variation notice must specify the proposed premium and any variations to the lease consequential on the rent. Amendment 82 provides, first, that where a leaseholder has a ground rent buy-out claim and sells their lease, they may pass on the claim to the buyer, and secondly that where a ground rent buy-out claim has been brought and a landlord sells the reversion, the claim is binding on the purchasing landlord.
Amendment 83 applies where a rent variation notice and collective enfranchisement notice, where the leaseholder is not participating, are coincident on the same premises, irrespective of which was served first. It provides that the rent variation notice is suspended while the collective enfranchisement notice is current. It also provides that the landlord must inform the leaseholder of its suspension and must likewise inform the leaseholder if that suspension is later lifted because the enfranchisement claim has ceased to have effect. Amendment 84 provides that the landlord must specify an address at which notices can be given.
Amendment 85 makes technical amendments to remove unnecessary wording. Amendment 86 provides that the landlord must respond to the proposed premium and any variation to the lease consequential on the reduction of the rent in a variation notice in the counter-notice.
Amendment 87 makes technical amendments to remove unnecessary wording. Amendment 88 makes provision for the landlord or leaseholder to apply to the tribunal to determine the case where the landlord does not admit the leaseholder’s right to a peppercorn rent or disputes the rent to which it applies, consequential variations or the proposed premium.
Amendments 99, 100, 102 and 103 all make minor clarifications concerning circumstances when a variation notice ceases to have effect. Amendment 104 removes a provision for reviving suspended claims.
Amendment 106 provides for commutation following a ground rent buy-out, and the obligations and rights of superior landlords. It also provides for the sharing of copies of rent variation notices among landlords, and the application of superior landlords to the tribunal. A landlord in receipt of a rent variation notice must share a copy with anyone they believe to be a superior landlord and is liable for damages for any loss suffered by others should they fail to do so. Likewise, a superior landlord in receipt of a copy must share it with anyone else they believe to be a superior landlord, with the same consequences where there may be non-compliance. Amendments 118 and 120 are consequential on amendment 104. I commend the amendments to the Committee.
Amendment 79 agreed to.
Amendments made: 80, in schedule 7, page 120, line 5, leave out from “notice” to end of line 7 and insert
“is of no effect if it is given at a time when—
(a) a lease extension notice,
(b) a lease enfranchisement notice, or
(c) another rent variation notice,
which relates to the qualifying lease has effect.
(2A) Paragraph 3A makes provision about the suspension of a rent variation notice.”
This provides that a rent variation notice may not be given if another such notice is already in effect; and changes the provision dealing with cases where there is a current claim for collective enfranchisement under the LRHUDA 1993.
Amendment 81, in schedule 7, page 120, line 15, at end insert—
“(4A) A rent variation notice must also specify—
(a) the premium which the tenant is proposing to pay for the rent reduction, and
(b) any other variations which need to be made to the lease in consequence of the reduction of the rent in accordance with this Schedule.”
This requires a rent variation notice to specify the tenant’s proposals for the premium payable for the reduction in rent and for consequential changes to the lease (eg. relating to rent reviews in the lease).
Amendment 82, in schedule 7, page 120, line 20, leave out sub-paragraphs (6) to (8) and insert—
“(6) Where a rent variation notice is given, the rights and obligations of the tenant are assignable with, but are not capable of subsisting apart from, the qualifying lease or that lease so far as it demises qualifying property (see paragraph 2(5) and (6)); and, if the qualifying lease or that lease so far as it demises qualifying property is assigned—
(a) with the benefit of the notice, any reference in this Schedule to the tenant is to be construed as a reference to the assignee;
(b) without the benefit of the notice, the notice is to be deemed to have been withdrawn by the tenant as at the date of the assignment.
(7) If a rent variation notice is the subject of a registration or notice of the kind mentioned in sub-paragraph (5), the notice is binding on—
(a) any successor in title to the whole or part of the landlord’s interest under the qualifying lease, and
(b) any person holding any interest granted out of the landlord’s interest;
and any reference in this Schedule to the landlord is to be construed accordingly.”
This deals with the effect on a rent variation notice of an assignment of the lease or the reversion.
Amendment 83, in schedule 7, page 120, line 41, at end insert—
“Suspension of rent variation notices
3A (1) This paragraph applies if conditions A and B are met.
(2) Condition A is met if—
(a) a rent variation notice is current at the time when a collective enfranchisement notice is given, or
(b) a collective enfranchisement notice is current at the time when a rent variation notice is given.
(3) Condition B is met if—
(a) the rent variation notice relates to premises to which the claim for collective enfranchisement relates, and
(b) the tenant under the lease to which the rent variation notice relates is not a participating tenant in relation to the claim for collective enfranchisement.
(4) The operation of the rent variation notice is suspended during the currency of the claim for collective enfranchisement; and so long as it is so suspended no further notice may be given, and no application may be made, under this Schedule with a view to resisting or giving effect to the tenant's claim for a peppercorn rent.
(5) Where the operation of the rent variation notice is suspended by virtue of this paragraph, the landlord must, not later than the end of the relevant response period, give the tenant a notice informing the tenant of—
(a) the suspension, and
(b) the date on which the collective enfranchisement notice was given, and
(c) the name and address of the nominee purchaser for the time being appointed in relation to the claim for collective enfranchisement.
(6) The landlord must give that notice—
(a) as soon as is reasonably practicable, if a rent variation notice is current when a collective enfranchisement notice is given; or
(b) before the end of the period for responding specified in the rent variation notice in accordance with paragraph 4(7), if a collective enfranchisement notice is current when a rent variation notice is given.
(7) Where, as a result of the claim for collective enfranchisement ceasing to be current, the operation of the rent variation notice ceases to be suspended by virtue of this paragraph—
(a) the landlord must, as soon as possible after becoming aware of the circumstances by virtue of which the claim for collective enfranchisement has ceased to be current, give the tenant a notice informing the tenant that the operation of the rent variation notice is no longer suspended as from the date when the claim for collective enfranchisement ceased to be current;
(b) any time period for performing any action under this Schedule (including the response period) which was running when the rent variation was suspended begins to run again, for its full duration, from and including the date when the claim for collective enfranchisement ceased to be current.
(8) In this paragraph—
“claim for collective enfranchisement” means the claim to which the collective enfranchisement notice relates;
“collective enfranchisement notice” means a notice under section 13 of the LRHUDA 1993 (notice of claim to exercise right to collective enfranchisement).”
This provides for a rent variation notice to be suspended at any time when a claim for collective enfranchisement is current, and the tenant is not participating in the collective enfranchisement.
Amendment 84, in schedule 7, page 121, line 9, at end insert
“and which also specifies an address in England and Wales at which notices may be given to the landlord under this Schedule.”
This requires a counter-notice to specify an address for service for the landlord.
Amendment 85, in schedule 7, page 121, line 13, leave out “qualifying”.
This is a technical amendment which removes unnecessary wording.
Amendment 86, in schedule 7, page 121, line 19, at end insert
“and must also give the landlord’s response to the proposed premium, and any other consequential variations to the lease, specified in the rent variation notice in accordance with paragraph 3(4A).”
This requires the landlord to respond to the tenant’s proposals for the premium and consequential changes to the lease (see Amendment 81).
Amendment 87, in schedule 7, page 121, line 29, leave out “qualifying”.
This is a technical amendment which removes unnecessary wording.
Amendment 88, in schedule 7, page 121, line 36, leave out paragraphs 5 and 6 and insert—
“Application to appropriate tribunal where claim or terms not agreed
5 (1) This paragraph applies if the landlord is given a rent variation notice by the tenant.
(2) If the landlord gives the tenant a counter-notice before the end of the response period which disputes—
(a) that the tenant had the right to a peppercorn rent,
(b) that the right applies to the rent in respect of which it is claimed,
(c) the amount of the premium which the tenant is proposing to pay, or
(d) the consequential variations of the lease proposed by the tenant,
the landlord or tenant may apply to the appropriate tribunal to determine the matters in dispute.
(3) Any application under sub-paragraph (2) must be made before the end of the period of 6 months beginning with the day after the day on which the counter-notice is given.
(4) If the landlord does not give the tenant a counter-notice before the end of the response period, the tenant may apply to the appropriate tribunal to determine—
(a) whether the tenant has the right to a peppercorn rent,
(b) what rent that right applies in respect of,
(c) the amount of the premium which the tenant is to pay, or
(d) the variations of the lease that are to be made.
(5) Any application under sub-paragraph (4) must be made before the end of the period of 6 months beginning with the day after the last day of the response period.”—(Lee Rowley.)
This provides for the Tribunal to have jurisdiction where the tenant’s claim for a peppercorn rent or the terms of lease variation are not agreed by the landlord.
Lee Rowley
I beg to move amendment 89, in schedule 7, page 123, line 12, after “tenant” insert
“, and any other party to the qualifying lease,”.
This requires any third parties to a lease to join in variation of the lease to reduce the rent payable.
Lee Rowley
Again, these amendments mostly simplify and clarify the provisions in schedule 7.
Amendment 89 will require the new third parties referred to in amendment 79 to join in any variation of a lease. Amendment 90 removes reference to, and therefore the existence of, a payment period within which the leaseholder must pay the ground rent buy-out premium to the landlord after a rent variation notice has become enforceable.
Amendment 91 provides that a rent variation notice becomes enforceable once all aspects have been agreed or determined by the tribunal. Amendment 92 is consequential on amendment 91 and provides for a better description of the required rent variation.
Lee Rowley
I beg to move amendment 95, in schedule 7, page 123, line 43, at end insert—
“Reduction of rent under intermediate leases
7A (1) This paragraph applies if, at the time when a rent variation notice is given, there are one or more qualifying intermediate leases.
(2) For the purposes of this paragraph a lease is a ‘qualifying intermediate lease’ if—
(a) the lease demises the whole or a part of the property to which the rent variation notice relates,
(b) the lease is immediately superior to—
(i) the lease to which the rent variation notice relates, or
(ii) one or more other leases that are themselves qualifying intermediate leases,
(c) relevant rent is payable under the lease, and
(d) that relevant rent is more than a peppercorn rent.
(3) The landlord or the tenant under a qualifying intermediate lease may, by giving notice to the relevant landlord or landlords before the variation of lease to which the rent variation notice relates, require the rent payable under the qualifying intermediate lease to be reduced in accordance with sub-paragraphs (6) to (8).
(4) If—
(a) under sub-paragraph (3) the rent under a lease is required to be reduced in accordance with this paragraph, and
(b) that lease is superior to one or more other qualifying intermediate leases,
the rent payable under the other qualifying intermediate lease or leases is also to be reduced in accordance with sub-paragraphs (6) to (8).
(5) The landlord and tenant under a qualifying intermediate lease must vary the lease—
(a) to give effect to a reduction of the rent in accordance with sub-paragraphs (6) to (8), and
(b) to remove any terms of the lease which provide for an increase in the rent, or part of the rent, so reduced.
(6) If the whole of the rent under a qualifying intermediate lease is relevant rent, the rent under that lease is to be reduced to a peppercorn rent.
(7) If only part of the rent under a qualifying intermediate lease is relevant rent—
(a) that part of the rent is to be reduced to zero, and
(b) the total rent is to be reduced accordingly.
(8) But the amount of the reduction in a person’s rental liabilities as tenant is limited to the amount of the reduction in the person’s rental income as landlord; and here—
(a) ‘reduction in a person’s rental liabilities as tenant’ means the reduction in accordance with sub-paragraph (6) or (7) of the rent payable by the person as tenant under the qualifying intermediate lease;
(b) ‘reduction in that person’s rental income as landlord’ means the amount (or total amount) of the relevant reduction (or reductions) in rent payable to that person as landlord of one or more other reduced rent leases.
(9) In this paragraph—
‘reduced rent lease’ means—
(a) the lease to which the rent variation notice relates, or
(b) a qualifying intermediate lease;
‘relevant landlord’ means—
(a) the landlord under the qualifying lease, and
(b) any superior landlord who must be given a copy of the rent variation notice in accordance with paragraph 9D or 9E;
‘relevant reduction’ means—
(a) in relation to the lease to which the rent variation notice relates, a reduction resulting from that tenancy being varied in accordance with the other provisions of this Schedule;
(b) in relation to a qualifying intermediate lease, a reduction resulting from this paragraph.
‘relevant rent’ means rent that has been, or would properly be, apportioned to the whole or a part of the property to which the rent variation notice relates.”
This provides for rent to be reduced (commuted) under leases that are superior to the lease in respect of which a rent variation notice is given under Schedule 7 .
Like amendment 106, amendment 95 provides for commutation following a ground rent buy-out, and the obligations and rights of superior landlords. Amendment 95 provides for commutation for ground rent buy-out and the provision is identical to the commutation provision for lease extensions.
As we have discussed, commutation is the process by which a reduction in the rent of the inferior occupational lease—in this case, by a ground rent buy-out—triggers a reduction in the rent of intermediate leases sitting between the most inferior lease and the freehold. The amendment provides that, if commuted, the relevant rent payable by a tenant of an intermediate lease will be reduced to a peppercorn, but the reduction in rent payable by a tenant of such an intermediate lease must not exceed the reduction in the rent they receive as a landlord of an intermediate lease. I commend the amendment to the Committee.
Amendment 95 agreed to.
Lee Rowley
I beg to move amendment 96, in schedule 7, page 124, line 9, at end insert—
“(2A) An order under this paragraph may appoint a person to execute the variation of the lease on behalf of a party to the variation; and a variation executed in consequence of such an order has the same force and effect (for all purposes) as if it had been executed by that party.”
This authorises the Tribunal to appoint a person a execute the variation of a lease on behalf a party (eg. if they are absent or unco-operative).
Lee Rowley
Again, these amendments mostly simplify and clarify the provisions in schedule 7.
Amendment 97 provides that in the event that there is a failure to vary the lease in response to an enforceable variation notice, an application made to the tribunal for enforcement must be made within four months of the date that that notice became enforceable. Amendment 96 provides that the tribunal may appoint a person to vary the lease on the landlord’s behalf.
Amendment 98 provides that where the tribunal is satisfied that the landlord is missing and that the leaseholder has the right to a peppercorn rent, it may make an order to vary the lease and appoint someone to vary the lease on the landlord’s behalf. I commend the amendments to the Committee.
Amendment 96 agreed to.
Amendments made: 97, in schedule 7, page 124, line 11, leave out from first “of” to end of line 12 and insert
“four months beginning with the day on which the rent variation notice becomes enforceable (within the meaning of paragraph 7).”
This changes the period within which an application under paragraph 8 may be made.
Amendment 98, in schedule 7, page 124, line 12, at end insert—
“Missing landlord or third party
8A (1) On an application made by the tenant under a qualifying lease, the appropriate tribunal may make a determination that the landlord under, or another party to, a qualifying lease cannot be found or their identity cannot be ascertained.
(2) The following provisions of this paragraph apply if the appropriate tribunal makes such determination.
(3) The appropriate tribunal may make such order as it thinks fit including—
(a) an order dispensing with the requirement to give notice under paragraph 3 to that landlord or other party, or
(b) an order that such a notice has effect and has been properly served even though it has not been served on that landlord or other party.
(4) If the appropriate tribunal is satisfied that the tenant has the right to a peppercorn rent, the tribunal make such order as it thinks fit with respect to the variation of the qualifying lease to give effect to that right.
(5) An order under sub-paragraph (4) may appoint a person to execute the variation of the lease on behalf of a party to the variation; and a variation executed in consequence of such an order has the same force and effect (for all purposes) as if it had been executed by that party.
(6) Before making a determination or order under this paragraph, the appropriate tribunal may require the tenant to take such further steps by way of advertisement or otherwise as the court thinks proper for the purpose of tracing the person in question.
(7) If, after an application is made under this paragraph and before the lease is varied to give effect to the right to a peppercorn rent, the landlord or other party is traced—
(a) no further proceedings shall be taken with a view to a lease being varied in accordance with this paragraph,
(b) the rights and obligations of all parties shall be determined as if the tenant had, at the date of the application, duly given the rent variation notice, and
(c) the appropriate tribunal may give such directions as it thinks fit as to the steps to be taken for giving effect to the right to a peppercorn rent, including directions modifying or dispensing with any of the requirements of this Schedule or any regulations.”
This enables the Tribunal to deal with the situation where the landlord or third party to a lease cannot be found or identified.
Amendment 99, in schedule 7, page 124, line 15, after “landlord” insert
“, before the lease is varied in pursuance of the rent variation notice,”.
This clarifies that a notice of withdrawal can only be given before the lease is varied.
Amendment 100, in schedule 7, page 124, line 17, leave out from “is” to end of line 17 and insert
“varied in accordance with the notice”.—(Lee Rowley .)
This provides that rent variation notice ceases to have effect when the lease is varied in accordance with the notice.
Lee Rowley
I beg to move amendment 101, in schedule 7, page 124, line 19, leave out paragraph (c) and insert—
“(c) a lease enfranchisement notice or lease extension notice which relates to the qualifying lease is given;”.
This is consequential on Amendment 119.
Lee Rowley
Again, these amendments mostly simplify and clarify the provisions in schedule 7.
Amendment 101 provides that where a leaseholder has made a ground rent buy-out claim but, before the claim is settled, later makes an extension or acquisition claim, the ground rent buy-out claim ceases to have effect. Amendment 117 provides that the regulatory powers given to the Secretary of State by paragraph 12 are subject to the negative procedure.
Amendment 119 will insert a definition of “lease enfranchisement notice” as a notice for a freehold acquisition for a house or collective enfranchisement for a flat, and a definition of “lease extension notice” as a notice for a lease extension for a house or flat. Those definitions support amendments 80, 101 and 83. I commend the amendments to the Committee.
Amendment 101 agreed to .
Amendments made: 102, in schedule 7, page 124, line 21, leave out paragraph (d) and insert—
“(d) any order setting aside the notice is made by the appropriate tribunal or a court;”.
This is a technical amendment to correct the reference to kind of order that would be made.
Amendment 103, in schedule 7, page 124, line 22, at end insert—
“(da) the appropriate tribunal determines on an application under paragraph 5 that the tenant does not have the right to a peppercorn rent;
(db) the period of six months mentioned in paragraph 5(3) or (5) ends, where the application mentioned there could be made, but is not made before the end of that period;
(dc) the period of four months mentioned in paragraph 8(3) ends, where the application mentioned there could be made, but is not made before the end of that period;”.
This sets out additional circumstances in which a rent variation notice ceases to have effect.
Amendment 104, in schedule 7, page 124, line 28, leave out from “effect,” to end of line 16 on page 125 and insert
“except for any obligation arising under any provision of the LRA 1967 or the LRHUDA 1993 that applies by virtue of paragraph 11.”—(Lee Rowley.)
This clarifies which obligations continue after a rent variation notice ceases to have effect.
Lee Rowley
I beg to move amendment 105, in schedule 7, page 125, line 16, at end insert—
“Tenant’s liability for costs
9A (1) A tenant is not liable for any costs incurred by any other person as a result of the tenant’s exercise of the right to a peppercorn rent, except as referred to in—
(a) sub-paragraph (4),
(b) paragraph 9B (liability where claim ceases to have effect), and
(c) paragraph 9C (liability where tenant obtains the variation of the lease).
(2) A former tenant is not liable for any costs incurred by any other person as a result of the former tenant’s claim to the right to a peppercorn rent, except as referred to in sub-paragraphs (4) and (5).
(3) A lease, transfer, contract or other arrangement is accordingly of no effect to the extent it would provide to the contrary.
(4) A tenant or former tenant is liable for costs incurred by another person in connection with proceedings before a court or tribunal if—
(a) the court or tribunal has power under this Schedule or another enactment to order that the tenant or former tenant pay those costs, and
(b) the court or tribunal makes such an order.
(5) A former tenant is liable for costs incurred by a successor in title to the extent agreed between the former tenant and that successor in title.
(6) In this paragraph and paragraphs 9B and 9C—
“claim” includes an invalid claim;
“former tenant” means a person who was a tenant making a claim to the right to a peppercorn rent, but is no longer a tenant.
Liability for costs: failed claims
9B (1) A tenant is liable to the landlord for a prescribed amount in respect of non-litigation costs if the tenant’s claim ceases to have effect by virtue of paragraph 9(1), unless it ceases to have effect by virtue of—
(a) paragraph 9(1)(b), or
(b) paragraph 9(1)(e) because of the application of section 55 of the LRHUDA 1993.
(2) For the purposes of this paragraph—
(a) “prescribed” means prescribed by, or determined in accordance with, regulations made—
(i) in relation to England, by the Secretary of State;
(ii) in relation to Wales, by the Welsh Ministers;
(b) “non-litigation costs” are costs that are or could be incurred by a landlord as a result of a claim under this Schedule other than in connection with proceedings before a court or tribunal;
(c) where a claim ceases to have effect by virtue of a person who was a tenant assigning their lease without assigning the claim under paragraph 3(6), “tenant” includes that person.
(3) A statutory instrument containing regulations under this paragraph is subject to the negative procedure.
Liability for costs: successful claims
9C (1) A tenant is liable to the landlord for the amount referred to in subsection (2) if—
(a) the tenant makes a claim to the right to a peppercorn rent,
(b) the rent is reduced in consequence of the claim,
(c) the premium payable by the tenant for the variation of the lease is less than a prescribed amount,
(d) the landlord incurs costs as a result of the claim,
(e) the costs are incurred other than in connection with proceedings before a court or tribunal,
(f) the costs incurred by the landlord are reasonable, and
(g) the costs are more than the premium payable.
(2) The amount is the difference between—
(a) the premium payable by the tenant, and
(b) the costs incurred by the landlord, or, if those costs exceed a prescribed amount, that prescribed amount.
(3) In this paragraph “prescribed” means prescribed by, or determined in accordance with, regulations made—
(a) in relation to England, by the Secretary of State;
(b) in relation to Wales, by the Welsh Ministers.
(4) A statutory instrument containing regulations under this paragraph is subject to the negative procedure.”
This provides for a tenant’s liability for costs incurred by other persons in connection with a claim for a peppercorn rent .
This amendment applies the reformed cost regime to ground rent buy-out claims. The amendment makes cost provisions for the ground rent buy-out right. These match the cost provisions for lease extensions for houses and flats. There is a general no-costs rule, but a tenant may be liable for fixed costs if their claim fails, and may be liable for a fixed amount of costs, which would be charged by reducing the value of the premium, if the ground rent buy-out claim is a prescribed low-value claim. A tenant cannot be required to give security for costs. I commend the amendment to the Committee.
Amendment 105 agreed to.
Amendment made: 106, in schedule 7, page 125, line 16, at end insert—
“Duty of landlord to give copies of the rent variation notice to superior landlords
9D (1) This paragraph applies if the landlord is given a rent variation notice by the tenant.
(2) The landlord must give a copy of the rent variation notice to any person whom the landlord believes is a superior landlord.
(3) But that duty does not apply if the landlord has been notified under paragraph 9E(5)(b) that a copy of the rent variation notice has been given to that person.
(4) The landlord must comply with that duty as soon as reasonably practicable after—
(a) being given the rent variation notice, or
(b) forming the belief that a person is a superior landlord (if that is after the rent variation notice was given).
(5) If the landlord gives a copy of the rent variation notice to a person under sub-paragraph (2), the landlord must, together with the copy, give that person the names of—
(a) all of the persons to whom the landlord has given a copy of the notice under this paragraph, and
(b) any other persons that the landlord is aware have been given a copy of the notice.
(6) If the landlord fails to comply with a duty in this paragraph, the landlord is liable in damages for any loss suffered by any other person as a result of the failure.
Duty of superior landlord to give copies of the rent variation notice to other superior landlords
9E (1) This paragraph applies if a superior landlord is given a copy of a rent variation notice under paragraph 9D or this paragraph.
(2) The superior landlord (the “forwarding landlord”) must give a copy of the rent variation notice to any person whom the forwarding landlord believes is a superior landlord.
(3) But that duty does not apply if the forwarding landlord has been notified under paragraph 9D or this paragraph that a copy of the rent variation notice has been given to that person.
(4) The forwarding landlord must comply with that duty as soon as reasonably practicable after—
(a) being given the copy of the rent variation notice, or
(b) forming the belief that a person is a superior landlord (if that is after the copy of the rent variation notice was given).
(5) If the forwarding landlord gives a copy of the rent variation notice to a person under sub-paragraph (2), the forwarding landlord—
(a) must, together with the copy, give that person the names of—
(i) all of the persons to whom the forwarding landlord has given a copy of the notice under this paragraph, and
(ii) any other persons that the forwarding landlord is aware have been given a copy of the notice;
(b) must notify the landlord that the forwarding landlord has given the copy to that person.
(6) If the forwarding landlord fails to comply with a duty in this paragraph, the forwarding landlord is liable in damages for any loss suffered by any other person as a result of the failure.”—(Lee Rowley.)
This requires notice of a claim for a peppercorn rent to be given to superior landlords.
Lee Rowley
I beg to move amendment 107, in schedule 7, page 125, line 18, leave out paragraph 10.
This is consequential on Amendment 109.
Lee Rowley
These amendments concern the provisions of the Leasehold Reform, Housing and Urban Development Act 1993 as they apply to the right. Previously, provisions applying to ground rent buy-out claims on houses and flats were in separate paragraphs of the schedule: paragraphs 10 and 11, respectively. Amendment 109 amends paragraph 11 so that the provisions therein apply to claims on both houses and flats. Consequently, amendment 108 will change the title of paragraph 11 accordingly, and amendment 107 will remove paragraph 10. “Schedule 12, paragraph 9 (inaccurate notices)” “Property which the tenant is, or is not, entitled to have demised under a new lease Property in respect of which the tenant has, or does not have, the right to a peppercorn rent under this Schedule The premium payable for the new lease The required premium payable under paragraph 7 of this Schedule A notice under section 42 to claim the right to a new lease A rent variation notice”
Amendments 114 and 116 will amend the provisions of the 1993 Act that apply to the ground rent buy-out right, so that the provisions are properly carried across. Amendments 113 and 112 make a provision in relation to mortgages that applies to lease extensions under the 1993 Act, so that it applies appropriately to ground rent buy-out claims.
Amendment 115 will add a provision for dealing with inaccurate rent variation notices, to the effect that small inaccuracies do not invalidate the claim. Amendment 110 will require the leaseholder to pay off arrears of rent or service charges prior to a ground rent buy-out. Amendment 111 will ensure that the provisions in amendment 110 refer correctly to the ground rent buy-out premium. I commend the amendments to the Committee.
Amendment 107 agreed to .
Amendments made: 108, in schedule 7, page 127, leave out line 1 and insert
“Provisions of the LRHUDA 1993 that apply for the purposes of this Schedule”.
This is consequential on Amendment 109.
Amendment 109, in schedule 7, page 127, line 4, leave out from first “Schedule” to end of line 5 and insert
“(whether in its application to a house or flat)”.
This provides for paragraph 11 to apply to all claims under Schedule 7, not just to claims where the qualifying lease is of a flat (and so it means that paragraph 10 is longer needed).
Amendment 110, in schedule 7, page 127, line 19, first column, leave out “and (4)” and insert “(a) and (c)”.
This alters the provision in section 56 of the LRHUDA 1993 which is applied to Schedule 7.
Amendment 111, in schedule 7, page 127, second column, leave out line 19 and insert
“The reference to any premium and other amounts payable by virtue of Schedule 13 has effect as a reference to the required premium payable under paragraph 7 of this Schedule”.
This modifies the wording of section 56 of the LRHUDA 1993 in its application to Schedule 7.
Amendment 112, in schedule 7, page 127, line 24, first column, leave out
“(1), (2), (5), (6) and (7)”
and insert “, except for subsection (4)”.
This alters the provision in section 58 of the LRHUDA 1993 which is applied to Schedule 7.
Amendment 113, in schedule 7, page 127, line 24, second column, insert
“A reference to the new lease has effect as a reference to the deed of variation of the lease”.
This modifies the wording of section 58 of the LRHUDA 1993 in its application to Schedule 7.
Amendment 114, in schedule 7, page 127, leave out lines 28 to 31.
This removes provision of the LRHUDA 1993 which no longer needs to apply to Schedule 7.
Amendment 115, in schedule 7, page 128, line 10, at end insert—
This adds further provision of the LRHUDA 1993 which is to apply to Schedule 7.
Amendment 116, in schedule 7, page 128, line 21, at end insert—
This provides for the modification of additional terminology used in the LRHUDA 1993 in its application to Schedule 7.
Amendment 117, in schedule 7, page 129, line 13, at end insert—
“(4A) Regulations under this paragraph are subject to the negative procedure.”
This makes regulations under paragraph 12 subject to the negative procedure (see clause 62(4)).
Amendment 118, in schedule 7, page 129, line 18, leave out paragraph (d).
This is consequential on Amendment 104.
Amendment 119, in schedule 7, page 129, leave out lines 29 to 37 and insert—
“‘lease enfranchisement notice’ means a notice under—
(a) section 8 of the LRA 1967 (notice of desire to acquire freehold of house), or
(b) section 13 of the LRHUDA 1993 (notice of claim to exercise right to collective enfranchisement);
and a lease enfranchisement notice under section 13 of the LRHUDA 1993 relates to the qualifying lease if the tenant under the lease is one of the participating tenants in relation to the claim under the notice;
‘lease extension notice’ means a notice under—
(a) section 14 of the LRA 1967 (notice of desire to extend lease of house), or
(b) section 42 of the LRHUDA 1993 (notice of claim to exercise right to acquire new lease of flat);”.
This provides for separate definitions of “lease enfranchisement notice” and “lease extension notice” (instead of a single definition of both terms).
Amendment 120, in schedule 7, page 129, leave out line 39.—(Lee Rowley.)
This is consequential on Amendment 104.
Question proposed, That the schedule, as amended, be the Seventh schedule to the Bill.
Lee Rowley
Schedule 7 will confer on leaseholders a right to buy out their ground rent without extending their lease. As the premium payable will be subject to the 0.1% cap on ground rent, this measure will be especially helpful for leaseholders with high or escalating rents. Paragraph 2 sets out that leaseholders who qualify for a lease extension will have this right as long as their remaining term is at least 150 years. Community housing leases and home finance plan leases are excluded, as they were from the Leasehold Reform (Ground Rent) Act 2022. Leaseholders may not qualify for lease extensions because they have a lease of Crown land, or because they do not satisfy the low rent test in the Leasehold Reform Act 1967. Such leaseholders will qualify for the new buy-out right.
Paragraphs 3 to 7 set out procedural arrangements for leaseholders and their landlords. They provide that the right is exercised by serving a rent variation notice on the landlord, including time limits for responses and arrangements for either party to apply to the tribunal if they so wish. The premium payable is the same as the term portion of the lease extension premium set out in schedule 2, and is subject to the ground rent cap. It is the capitalised value of the rent payable for the remainder of the lease.
Paragraph 8 provides that where the lease is not varied to provide that the future rent is a peppercorn rent, the leaseholder or landlord can apply to the tribunal. The tribunal shall decide whether it should be varied and, if it should, can appoint a person to execute the variation in place of the landlord. Paragraph 9 sets out the circumstances in which a rent variation notice ceases to have effect. A claim can be revived if it ceased to have effect due to a later extension or acquisition claim, where the later claim ceases to have effect.
Paragraph 10 sets out details of how the schedule applies in relation to the lease of a house; paragraph 11 does the same in relation to the lease of a flat. Finally, paragraph 12 gives various enabling powers to the Secretary of State, including giving effect to the rights, making provisions about notices and amending the details of how the schedule applies to the lease of a house or a flat.
Question put and agreed to.
Schedule 7, as amended, accordingly agreed to.
Clause 22
Change of non-residential limit on right to manage claims
Barry Gardiner
I beg to move amendment 129, in clause 22, page 38, line 21, leave out “50%” and insert “75%”.
This amendment would allow leaseholders with a higher proportion of commercial or non-residential space in their building to claim the Right to Manage.
Barry Gardiner
First of all, let me say what this is not about: it is not about enfranchisement. It is quite simply about the right to manage. I say that because a few days ago, a journalist got this entirely wrong. We welcome the change to 50%. The amendment would allow leaseholders with a higher proportion of commercial or non-residential space in their building to claim the right to manage. It is not about shared services or the percentage of the leaseholders who can be contacted; it is about square footage.
I welcome the proposed increase from 25% to 50%, but as we heard in the witness sessions, the Law Commission was originally asked by the Government to remove the 25% rule on the right to manage completely on the basis that leaseholders who are paying a service charge should have control over the areas for which they are being charged. This would leave the management of the commercial premises absolutely unchanged. It was taken out by the Law Commission, which actually wanted to be more restrictive than the Government, who had said that it could be 100%. On its reason for that, it said, “There could be, at the top of the Shard, 30 residential properties. This could have the perverse result of them taking control of a much larger area.” It used that special example to illustrate why it felt that 100% was not appropriate. The Government had suggested that we go a lot further, but the Law Commission said, “There are special cases, so let’s row back on this.” But then the Government came back with 50%.
Let us take the advice of the Law Commission and accept that 100% is not the right figure. I propose that we go to 75% and use that as the basis, because it would avoid that unique case that the Law Commission put forward. It would achieve what I think was the Government’s original intention of allowing more people in that situation the right to manage.
Lee Rowley
I am grateful to the hon. Member for tabling the amendment. He is correct that, as with many of these instances, there are balances to be struck. While I will argue for a different balance from the one he outlined, I accept, understand and acknowledge that a number of different cases can be made in this discussion.
As the hon. Member indicated, the Bill already includes a provision to increase the limit from 25% to 50%, following the Law Commission’s extensive investigation. We believe that the increase to 50% seeks to strike a proportionate balance. He made a valid point about issues in a minority of cases, and we will not use extreme cases as a reason. However, there is the potential—this is why we have landed on 50%—to unfairly prejudice the interests of landlords and commercial tenants, for example, where a minority of leaseholders take over the management of a building that is predominantly commercial.
As I said, I recognise that there is a balance to be struck, but on the basis of the progress that is being made, which I am grateful to the hon. Member for acknowledging, 50% is where the Government would prefer to land, and that is what we are proposing.
Barry Gardiner
If the Minister casts his mind forward to the next two amendments, which seek to give the Secretary of State the authority to determine the limit, and should the Minister indicate that, in the future, the Secretary of State would almost certainly not determine it to be less than 50%—as the Government have already proposed—then I just might be persuaded to withdraw my amendment.
Lee Rowley
I am grateful to the hon. Gentleman for his comments. We are sticking with what we have suggested, but I hope he will consider withdrawing his amendment none the less. I will just say a few words on our reasons for sticking with what propose in clause 22. We have been clear that we want to improve access to right to manage—I think that view is shared across the House—and we accept that the current limit of 25% of floor space is not proportionate. Therefore, through this clause, we are seeking to increase the non-residential limit from 25% to 50%, as has been discussed. That replicates clause 3 on collective enfranchisement, recognising that this is not a debate about collective enfranchisement on a specific clause.
For the reasons that we have outlined, 50% is the place where the Government have landed, and where we feel is most proportionate. We hope that it will mean that more leaseholders in mixed-used buildings can take over the management responsibilities of their properties. I commend the clause to the Committee, and I hope that the hon. Gentleman will consider withdrawing his amendment.
Barry Gardiner
I am grateful to the Minister for his response; he is courteous, as ever. I just point out that the all-party group on leasehold and commonhold reform, co-chaired by the Father of the House, the hon. Member for Worthing West (Sir Peter Bottomley), also made the recommendation that the Government look again at this issue. I am prepared to throw my weight behind amendments 26 and 27, so I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn .
Matthew Pennycook
I beg to move amendment 26, in clause 22, page 38, line 21, at end insert—
“(b) after paragraph 1(4) insert—
‘(5) The Secretary of State or the Welsh Ministers may by regulations amend this paragraph to provide for a different description of premises falling within section 72(1) to which this Chapter does not apply.’”
This amendment would enable the Secretary of State or (in the case of Wales) the Welsh Ministers to change the description of premises which are excluded from the right to manage. By virtue of Amendment 27, such a change would be subject to the affirmative resolution procedure.
The Chair
With this it will be convenient to discuss amendment 27, in clause 22, page 38, line 21, at end insert—
“(2) In section 178 of the CLRA 2002—
(a) in subsection (4), after ‘171’, insert ‘, paragraph 1(5) of Schedule 6’;
(b) after subsection (5), insert—
‘(6) Regulations shall not be made by the Welsh Ministers under paragraph 1(5) of Schedule 6 unless a draft of the instrument has been laid before and approved by resolution of Senedd Cymru.’”
See explanatory statement to Amendment 26.
Matthew Pennycook
I rise to speak to the amendments in my name and that of my hon. Friend the Member for Weaver Vale. I do so making almost entirely the same argument as that made by my hon. Friend the Member for Brent North. [Interruption.] No, I am hoping for a very different response from the Minister to it.
As was made clear in a previous debate, this clause operates in precisely the way that clause 3 does in relation to collective enfranchisement claims: by making changes to the non-residential limit to the right to manage—and we welcome it. The clause will enact recommendation 7 of the Law Commission’s final report on exercising that right.
Although I take the point made by my hon. Friend the Member for Brent North about the use of extreme outlier cases to undermine an argument, we accept the Law Commission’s broad argument that abolishing the non-residential limit entirely could cause problems in a number of cases for certain landlords and commercial tenants. But as the Law Commission very clearly concluded, the current limit is
“an unwarranted impediment to the RTM, given that it can prevent premises which are mostly residential from qualifying.”
We think it is right that the Bill seeks to increase that limit, and we hope that doing so will bring a greater number and variety—that is important—of premises into the right to manage and therefore help to boost the number of leaseholders who decide to take over the management function of their buildings.
As with the non-residential limit for collective enfran-chisement claims, the threshold is inherently arbitrary, but we feel—here my hon. Friend is absolutely right—that we need to address the fact that 50% will leave large numbers of leaseholders shut out from the right to manage. He made the case for a 75% threshold, and I think that has a lot of merit. We sought to be slightly less prescriptive; instead, much in the way that we argued for powers to be put in the Bill for Ministers to further amend the non-residential limit for collective enfranchisement, we propose to give a degree of flexibility to the non-residential limit on right to manage claims, so that any future changes to increase it—and only to increase it—do not require primary legislation.
We want to be slightly more flexible, or less prescriptive, than my hon. Friend for the following reasons. First, we can imagine a range of scenarios in which we would need to look at the 50% threshold in terms of internal floor space. We also think, as with collective enfran-chisement claims, that a future Government may wish to look at the entire criteria afresh—I am thinking of cases of the right to manage, for example, where we might consider whether there are better metrics for determining the residential nature of a building. It is notable that, although the Law Commission ultimately recommended retaining the use of floor space as the metric, it explored in great detail a comparison between the values of the residential and non-residential parts as a way into this. A future Government may therefore wish to look at the criteria afresh, so we sought to give the Secretary of State that power.
We think that that is entirely sensible, as we did when we argued for earlier amendments. It would be by regulation subject to the affirmative procedure, to give this House the chance to give any change due scrutiny, but we think it is a sensible principle to build some flexibility into the Bill.
I expect the Minister will resist the amendment, for the reasons that he previously resisted a similar amendment on collective enfranchisement. I will therefore probably not press the amendment to a vote. However, I think we will have to come back to the issue later, because on both collective enfranchisement and right to manage, the Government are being somewhat stubborn in saying that the 50% sticks and that future primary legislation, which could be many years away, is the only way to look at it afresh. I hope that the Minister will give the amendment serious thought.
Lee Rowley
I am grateful for the comments and questions from the hon. Members for Greenwich and Woolwich and for Brent North. As they anticipated —I may be becoming too conventional—I will resist the amendment. Again, this is about where primary legislation stops and secondary legislation begins, and the Opposition are right to test us on that. It is perfectly legitimate for people to take different views on where that starts and stops, and we know that our colleagues in the other place caution us, where we can be cautioned, not to take too many Henry VIII powers. We are undertaking a self-denying ordinance to not take an additional Henry VIII power today, on the basis that this is of sufficient magnitude, albeit recognising the challenges that have been outlined, that it should be in the Bill and be clear, and that any appropriate changes should come through similar processes. For that reason, although I understand the rationale for it, and I am always happy to listen to the underlying points, the Government will not support the amendment.
Matthew Pennycook
I will not labour the point, but I put on record that I look forward to the Minister standing up at some future point in what remains of his tenure and arguing for the absolute necessity of a Henry VIII power in one or other respect. It will come, but obviously not on this occasion. As I said, we will have to come back to this matter, but we will reflect on how best to do so. On that basis, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 22 ordered to stand part of the Bill.
Clause 23
Costs of right to manage claims
Amendment made: 45, in clause 23, page 39, line 30, at end insert—
“(8) See also sections 20CA and 20J of the Landlord and Tenant Act 1985, which prevent costs in connection with a claim under this Chapter being recovered by way of a variable service charge (within the meaning of section 18 of that Act).”.—(Lee Rowley.)
This amendment is consequential on NC7 .
Matthew Pennycook
I beg to move amendment 7, in clause 23, page 39, leave out from line 31 to line 32 on page 40.
This amendment would leave out the proposed new section 87B of the Commonhold and Leasehold Reform Act 2002 and so ensure that RTM companies cannot incur costs in instances where claims cease.
Matthew Pennycook
Clause 23 replaces the existing costs regimes for RTM claims under the Commonhold and Leasehold Reform Act 2002. The new regime is established in proposed new sections 87A and 87B.
Proposed new section 87A sets out the general rule that RTM companies and RTM company members are not liable for the costs incurred by another person because of an RTM claim. Proposed new section 87B allows the tribunal to order an RTM company to pay the reasonable costs of specified people that arise from an RTM claim notice being withdrawn or ceasing to have effect and the RTM company has acted unreasonably.
We welcome the intent behind new section 87A. At present, the RTM company is liable for the reasonable non-litigation costs that are incurred by a landlord in consequence of an RTM claim notice. Safe in the knowledge that the cost of the process is always recoverable from the RTM company, landlords are at present incentivised to conduct an overscrupulous analysis of the claim with a view to finding minor and inconsequential defects, in an attempt to disrupt the claim. That happens on far too many occasions.
If a claim is disputed and the tribunal decides that the RTM company is not entitled to acquire the RTM, the RTM company is liable to pay the landlord’s reasonable costs, but the same rule does not apply if the landlord unsuccessfully challenges the claim. Landlords can therefore dispute claims safe in the knowledge that doing so is a one-way bet.
In instances where a landlord is obliged to pay litigation costs following a successful claim, they can and do frequently recover the moneys from leaseholders either through the service charge or as an administration charge under the leases. It is not that common, but in such shortfall scenarios the leaseholders end up paying, even if they are successful in the tribunal.
Given that RTM companies are almost always undercapitalised, have no assets and cannot collect service charges before the RTM is acquired, these costs, which cannot be limited or predicted and can have significant implications for large or complex developments, are often met by individual leaseholders, with any challenges to their reasonableness entailing all the burden and risk of going to the tribunal. By entailing unknown and potentially significant costs liability for which they are jointly and severally liable, the present costs regimes clearly act as a deterrent to leaseholders pursuing the RTM and participating in an RTM claim.
In our view, landlords can bear these costs, and by providing for a general rule that they do so, the clause will make the RTM procedure simpler, more accessible and less foreboding. It is for that reason that the Law Commission recommended significant changes to the allocation of costs incurred during acquisition of the right to manage, and in relation to disputes. The clause draws upon five of its proposals.
The Law Commission did recommend, however, that an exception ought to be made where an RTM claim has been withdrawn or otherwise ceased early and the RTM company has acted unreasonably in bringing the RTM claim. In such cases, it recommends that the landlord should be able to apply to the tribunal for any reasonable costs that it has incurred in consequence of the RTM claim, down to the time that the claim ceased. They did so
“to address the risk of landlords potentially having to bear the cost of responding to unreasonable or vexatious claims issued by leaseholders which are subsequently withdrawn.”
Proposed new section 87B enacts that proposal. While the Law Commission made clear that it expected that the tribunal would apply the test in question narrowly, we are concerned about its inclusion for two reasons. First, there is a principled argument that leaseholders should not be put at risk of having to pay costs simply for exercising statutory rights—in this case, the right to seek to acquire and exercise rights in relation to the management of premises in which one has a leasehold interest.
The first-tier tribunal already has the power under rule 13(1)(a) to punish unreasonable behaviour by making the parties’ legal or other representative pay to the other party any costs incurred as a result of improper, unreasonable or negligent acts or omissions. As such, we would ask why we need a new statutory provision to create yet further scenarios where leaseholders might have to pay.
Secondly, we are concerned that unscrupulous landlords will use the rights provided for by new section 87B as a means of recovering costs from RTM companies that act reasonably and in good faith, and by implication that it will discourage RTM companies from initiating a claim because of the financial risk it still entails for individual participating leaseholders. Put simply, we fear that new section 87B will incentivise scrupulous landlords to fight claims on the basis that they are defective in the hope of recovering costs by means of it. Amendment 7 leaves out proposed new section 87B of the 2002 Act, thereby ensuring that all leaseholders are protected from costs for RTM claims. I hope the Minister will consider accepting that.
Lee Rowley
I thank the shadow Minister for the amendment. Again, while I understand and acknowledge the underlying intent behind it, and share his inclination to reduce the cost for leaseholders to exercise the rights to form a company and bring a claim, we will not accept the amendment today for reasons that I will explain. It is perfectly clear that, and I think we will all accept this across the Committee, up until now the situation has been balanced in favour of landlords, who have been able to recover their process costs from leaseholders at times. The Bill will change that, as has been acknowledged, and will significantly broaden the cases in which each party will be required to bear their own costs. However, it is important that we take steps to protect landlords from unfair costs.
On amendment 7, the Government judge that it would be unfair if a landlord were required to meet their own process costs where a right to manage claim is withdrawn or ceases to have effect as a direct result of unreasonable conduct from the RTM company. The power for the tribunal to order payment of costs for such ceased claims also includes protections for leaseholders. The landlord will not be entitled to costs automatically and it will be necessary to make an application to the tribunal for an order to that effect. If the tribunal does not consider that costs should be payable, it can decline to make an order. I note that the shadow Minister acknowledged that in his initial remarks.
In aggregate, and with that in mind, my and the Government’s view is that, while the cost regime must change, if the amendment were passed, it would expose freeholders to the risk of facing burdensome and unfair costs. I ask the shadow Minister, if he is willing, to withdraw the amendment.
Turning to clause 23 itself, as has been indicated, leaseholders bringing forward a right to manage claim currently face unknown and potentially significant costs. That is because, under current rules, they must meet reasonable costs of a landlord as well as their own costs, and the costs of others often run into thousands of pounds. Those costs—also known as non-litigation costs—include professional services, surveyors, accountants and insurers from which a landlord may incur costs as a result of the claim. Clause 23 seeks to help by removing the requirement for right to manage companies and their leaseholder members to contribute towards those non-litigation costs, meaning that both parties to a claim will bear their own. It does so by replacing the existing cost regime in the 2002 Act.
A requirement that landlords should bear their costs means that they have an incentive to keep costs down, which hopefully reduces some of the issues that the shadow Minister highlighted, and to process claims quickly because they will not be able to pass those costs on to leaseholders bringing forward the claim, potentially reducing the overall cost for both landlords and leaseholders. To protect landlords from frivolous right to manage claims, the clause includes an exception, so landlords can claim costs where the claim has been withdrawn, abandoned, struck out or otherwise ceases, or where a RTM company has acted unreasonably. Under those circumstances, as has been outlined, the landlords can apply to a tribunal.
To reduce existing obstructions to the process, the clause amends the 2002 Act to ensure that a person complying with the duty to provide information cannot withhold supplying a copy of a document to a right to manage company on the basis that they are waiting to receive a reasonable fee. However, the right to manage company will still be liable for reasonable cost of a person complying with that duty.
The clause also removes the current one-way cost shifting rule for litigant costs, which means that only landlords can currently claim the litigation costs from the RTM company, if they are successful. It is only fair that parties to litigation should bear their own costs, and that is the change that has been made.
Finally, the clause prevents landlords from passing costs on to leaseholders via the service charge. We believe that, in aggregate, these measures will reduce uncertainty in making a right to management claim by making sure that each side to a claim bears their own costs. I commend the clause to the Committee.
Alistair Strathern (Mid Bedfordshire) (Lab)
I rise briefly to support the comments from my hon. Friend the Member for Greenwich and Woolwich. Although I welcome much of the Minister’s message about removing some of the deterrents to taking on the right to manage on estates, having spoken to a number of residents and campaigners in my constituency, I know that if the clause is not removed it will continue to be a real deterrent and to expose them to a risk of significant financial liability that they would be poorly placed to take on. I know the Minister has already set out that he is unwilling to support the amendment today, but I hope that the Government will reflect on whether they might be willing to come back to the point to ensure there is no unnecessary deterrent to leaseholders in obtaining the right to manage effectively.
Matthew Pennycook
I thank the Minister for his response. There are two differences of opinion, the first of which is on the principled point of whether it is right that leaseholders should be charged for exercising their statutory right. We lean quite strongly towards the argument that they should not be, in principle.
The more pertinent argument for me is the second point I made, which, in all fairness, I do not think the Minister addressed. Let us be clear: in many respects, the Bill forces the Government to judge the right balance to strike between the interests of leaseholders and landlords. In coming to that view, the Bill has to account for the possibility that it creates quite perverse incentives, and I do not think it does that here or in a number of other places. This is one example of where that might happen. If a landlord wants to frustrate, disrupt or stop an RTM claim, the way in which the Government have implemented the exception to the general rule will incentivise them to fight the claim on the basis that they can try and convince the adjudicating party that the claim is defective, in the hope of recovering costs. A leaseholder exploring whether to take forward a claim is then faced with the risk of significant liabilities, as mentioned by my hon. Friend the Member for Mid Bedfordshire.
That will deter a huge number of leaseholders from exercising the right. Landlords will know it and fight more claims because they know that the deterrent effect of the exception to the general rule will be quite powerful in a number of cases. We argue quite strongly that we should just end the process costs for leaseholders as a matter of principle. That will incentivise many more groups of leaseholders to seek to acquire the right to manage. For that reason, we are minded to press the amendment to a Division.
Question put, That the amendment be made.
Lee Rowley
The tribunal needs the power to order compliance with obligations under the Commonhold and Leasehold Reform Act 2002. Clause 24 amends section 107(1) of that Act to enable the tribunal to make an order requiring a person who has failed to comply with the requirement on them to address that failure and comply with the requirement within the time set out in the order. The clause also provides that where an order other than an order to pay money has been made by the appropriate tribunal, a person may apply to the county court for the enforcement of the order, or the tribunal may transfer proceedings to the county court for the enforcement of the order. If the tribunal makes an order for compliance, it will be enforceable by the county court in the same way as if it were an order of the county court itself. The clause also inserts a signpost to a general provision in the 2002 Act about the enforcement of tribunal decisions and to provisions in the Tribunals, Courts and Enforcement Act 2007 about the enforcement of an order to pay a sum of money. The measures will allow the appropriate tribunal and courts to exercise their proper enforcement function. I commend the clause to the Committee.
Question put and agreed to.
Clause 24 accordingly ordered to stand part of the Bill.
Clause 25
No first-instance applications to the High Court in tribunal matters
Question proposed, That the clause stand part of the Bill.
Lee Rowley
Clause 25 complements clause 24 by removing the risk that the change of jurisdiction for right to manage disputes to the tribunal will be circumvented through applications being brought in the High Court instead in the first instance. The clause prevents such applications being brought in the High Court. The tribunal already has exclusive jurisdiction over proceedings, and it is well placed to take over proceedings concerning the compliance with the right to manage provisions in the 2002 Act in the same way that they do for the acquisition of the right to manage. The clause does not prevent an appeal of the decision of the tribunal to the High Court or the jurisdiction of the High Court to consider judicial review claims. The measure will make the determination of disputes clearer, help to reduce costs and ensure that disputes are handled by judges with specialist knowledge. I commend the clause to the Committee.
Question put and agreed to.
Clause 25 accordingly ordered to stand part of the Bill.
Clause 26
Extension of regulation to fixed service charges
Matthew Pennycook
I beg to move amendment 10, in clause 26, page 42, leave out lines 12 and 13.
This amendment would ensure that the statutory test of reasonableness would apply to fixed service charges.
In considering part 3 of the Bill, we move away from provisions that draw on recommendations made by the Law Commission across its leasehold enfranchisement and right to manage reports from 2020 and instead turn to other Government proposals on the regulation of leasehold. The first five clauses in this part concern service charges in residential leases. The Government’s stated objective in including the clauses in the Bill is to improve the consumer rights of leaseholders by requiring freeholders or managing agents acting on their behalf to issue service charge demands and annual reports in a standardised format and a more transparent manner so that leaseholders can more easily assess—and, in theory, challenge—any unreasonable or erroneous charges.
We very much welcome the intent of the clauses. While much of the detail will await the statutory instruments required to bring them into force, the clauses have the potential to improve tangibly what is without doubt one of the most contentious and, for leaseholders, injurious aspects of the feudal leasehold tenure. My office receives scores of complaints, literally on a weekly basis, from leaseholders in my constituency who believe that when it comes to the setting of their service charges, they have been subjected to unreasonable costs; costs artificially inflated as a result of outright error, such as the duplication of charges for the same service; large periodic increases that are rarely justified; or abusive practices, such as the deliberate misuse of funds. Even when leaseholders do not believe that there is a specific problem with their service charge amounts, my experience talking to many thousands of them over the years in Greenwich and Woolwich is that most nevertheless feel that they are not particularly aware of or informed about what their charges are spent on or what their future liabilities might be.
That may well be a trend that is particularly prevalent in constituencies such as my own that contain a significant number of new-build leasehold flats, but my team and I increasingly find—as I am sure other hon. Members find in their own caseloads—that a sizeable proportion of the work we do involves simply demanding from freeholders and managing agents, on behalf of leaseholders pushed to the financial brink, a detailed breakdown of service charge costs. We are then frequently required to assist individual leaseholders or informal groupings of them in probing the relevant freeholder or managing agent on the justification for individual charges, and more often than not we expose discrepancies or charges levied for services that are not provided as a result.
Given that a Member of Parliament is involved in those cases, most freeholders, head lessees or managing agents will, in such circumstances, ensure that the aggrieved leaseholders are reimbursed, thus avoiding the need for them—[Interruption.] My hon. Friend the Member for Brent North laughs, but we have had success on occasion, once the relevant error is exposed. In those circumstances, it avoids the need for the leaseholders in question to take the matter to tribunal, with the detrimental implications that the current cost regime entails. However, many —perhaps most—do not, instead relying on the barriers that leaseholders face in going to tribunal to ensure that the unjustified costs are still paid and not challenged. I would wager that, in the scenario that I just set out, I am not alone among Members of the House in dealing with service charge disputes of that kind on a regular basis. To my mind, that is a clear indication that the current service charge regime is woefully failing to adequately serve leaseholders or protect their interests. The Opposition take the view that there is a cast-iron case for making changes to the regime, with a view to ensuring that service charges are levied in a more appropriate, transparent and fair way.
Lee Rowley
I thank the hon. Member for his amendment. Even though I will not be accepting it today, it raises an important question and he is right to allow us to debate it. We absolutely recognise that leaseholders who pay fixed service charges do not have the same rights of challenge as leaseholders who pay variable service charges—that is accepted and understood—but it is also the case that there are good reasons for that.
As the hon. Member indicated, the main sectors where fixed charges exist are the retirement and social housing sectors, where households are often on limited and fixed incomes, as I do not need to explain to the Committee. Leaseholders, especially those on low incomes, who pay a fixed service charge have certainty about that charge, whereas those who pay variable service charges do not. Landlords benefit from not having to consider tribunal applications but, in return, they should have a clear imperative to provide value for money.
If we were to grant the right to challenge fixed service charges in a similar way to how variable service charges can be challenged, there would be some operational and practical challenges, which is one of the reasons why we will not agree to the amendment today. For example, if landlords underestimate costs in one year, but overestimate them in another, is it feasible and reasonable to be able to challenge the reasonableness only in the year in which the costs are overestimated? Should a reciprocal ability to challenge or to recover the balance of an underestimated cost in a year, on the basis that it would be reasonable to do so, not be proposed? Landlords might move away from employing fixed service charges and switch to variable service charges, which could have unintended consequences.
Fundamentally, I share the hon. Gentleman’s view that there are challenges in all parts of service charges, and so there will be challenges within fixed service charges. The whole point of other elements of the Bill is to provide transparency and visibility of the reasoning for charges being made. For the reasons I have outlined, we are not of the view that this extension should be made for fixed charges.
Eddie Hughes (Walsall North) (Con)
I want to pick up on the shadow Minister’s point about ambiguity. There is no definition of what exactly would constitute a fixed charge, so there is the opportunity for flexibility or the law of unintended consequences. Given the lack of opportunity for subsequent challenge, a landlord might choose to move a charge from one column to the other. When the Minister said he would not accept the amendment today, did he mean he would give this point some further consideration in the future, or was he just being polite?
Lee Rowley
I am grateful to my hon. Friend for his question. Notwithstanding the tone of my responses, given the Committee’s interest I will happily write to it to make sure there is clarity on that point. I hope that, as a general and broad macro point, my comment still stands.
Barry Gardiner
The Minister has yet again confirmed his reputation for being reasonable. Can I probe him on the point about reasonableness? Many leaseholders complain that there is an amount in their service charges, which they may think is either reasonable or unreasonable, for a particular service, but when they enquire about the service provider, they find that it is in fact their landlord under another name. They then pay not only the cost of that arm’s length contractor providing the service, but a 15% service charge on top of it. Many people would feel that this is another rentier practice that landlords are using. I appreciate that the issue does not relate specifically to amendment 10, but I would very much like to get the Minister’s thoughts about the reasonableness of that practice on record.
Lee Rowley
I am grateful to the hon. Gentleman for raising that point. He articulates another example of good law being used in a way that is, in my view—without talking about individual incidents—both unintended and inappropriate. I am not a lawyer, and do not seek or have any desire to be one, but as I understand it, there is a concept of reasonableness within the legal domain based on an Act from a number of years ago. Hopefully that helps to answer part of his question, at least from a structural perspective. On the variable service charge side, without talking about individual instances, that kind of instance is a clear example of where those impacted would be able to go through the process of challenging it, which I think would be very sensible. If I were a leaseholder, I might be very tempted to do that, unless the charge could be justified in a different way. On the fixed service charge side, although I accept that there is the potential for these kinds of challenges, conceptually that needs to be balanced with the fact that when the contract was entered, an agreement was made to consent to that amount, for whatever reason—good or otherwise. That is why we are pursuing this. However, I take the hon. Gentleman’s broader point.
Rachel Maclean
This discussion goes to the heart of some practices and problems that leaseholders have experienced across the sector. On behalf of the many retirement leaseholders, mentioned by the shadow Minister, the hon. Member for Greenwich and Woolwich, I will make a point and ask for reassurance from the Minister.
What we are talking about with this amendment is different from the ground rent issue. Ground rent is a payment for nothing—nothing is being provided—whereas something is being provided for service charges. There is a service, so there is a need for a charge; that is perfectly legitimate. As Conservatives, we do not dispute the fact that there should be financial recompense for services. However, we find ourselves with a problem, the law of unintended consequences and the drivers of business models.
I would welcome if the Minister could touch on this in his response, but my fear is that if ground rents are removed and business models need to adjust to make recompense for that, the natural behaviour of unethical operators in the retirement sector and possibly elsewhere—some are unethical and do not think about the people who bought properties in good faith—will surely be to seek to load their charges, their profit and loss, back on to the service charge in some way. I am not close enough to existing contracts to know whether they will be able to do that with a fixed charge, so the discussion might be better suited to when we talk about the variable charge. The Minister can help me on that.
The broad point stands, however, in the case of someone dealing with the estate of a loved one, perhaps someone who has passed on, is in care, is suffering from dementia or otherwise does not have the capacity to deal with all this—the Minister will be familiar with such cases. They might be stuck with a property that they cannot sell, and that often applies in such cases when service charges are racking up in a way that is difficult for people to get a handle on—
Barry Gardiner
I agree with all the points that the hon. Lady is making. I wonder whether she is aware of the report by Hamptons last year, which said that service charges had increased by 50% over the past five years. That is an indication of just how much of the gouging she is talking about is going on. Furthermore, leaseholders paid a staggering £7.6 billion in service charges last year. Of course, much of that is for the proper renovation of the property, but it seems an extraordinary amount. In fact, 10 years ago, Which? estimated that leaseholders were being overcharged by £700 million.
Rachel Maclean
I thank the hon. Gentleman for bringing those figures to the attention of the Committee. I am familiar with them, as are others. [Interruption.] I do not wish to detain the Committee any longer—I can see the Whip making that plain to me. I will leave my remarks there, perhaps to continue at a later point, but the Minister may wish to respond in detail.
Lee Rowley
I, too, do not wish to challenge the patience of my colleague the Whip. There will be people who have existing fixed charges; that should not change. There will also be people who have choices about whether to enter into new fixed charges, whether absolute or indexed to some extent. For an inappropriate attempt to do something with variable service charges, there will be the ability to apply to tribunals. I hope that we are closing off all the options that would allow the kind of instances mentioned.
Matthew Pennycook
I will be brief, so as to dispose of the amendment.
I appreciate what the Minister said. He provided some useful clarity. In particular, he highlighted the practical challenges in addressing this matter, and the potential for landlords possibly moving away from fixed charges and into variable. I think that there is a corresponding risk the other way. I appreciate and take on board what he said about the certainty of the charge.
I think the Minister alluded to the point that I am trying to make, which is that residents should have value for money, and they do not always get it on each occasion. We have deliberately not sought to apply all the protections that apply to variable service charges, but focused on the test of reasonableness. With the help of two former Housing Ministers, I think I had an indication from the Minister that he will do this, but I would appreciate it if the Government went away to satisfy themselves that the protections are in place for that category of leaseholder. On that basis, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Ordered, That further consideration be now adjourned. —(Mr Mohindra.)
Leasehold and Freehold Reform Bill (Eighth sitting)
Thursday 25th January 2024
(3 months, 2 weeks ago)
Public Bill CommitteesRead Full debate Leasehold and Freehold Reform Bill 2023-24 View all Leasehold and Freehold Reform Bill 2023-24 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 25 January 2024 - (25 Jan 2024)
The Committee divided: - Ayes: 5 / Noes: 7 - Question accordingly negatived.
The Committee divided: - Ayes: 5 / Noes: 7 - Question accordingly negatived.
The Committee divided: - Ayes: 5 / Noes: 7 - Question accordingly negatived.
The Committee divided: - Ayes: 5 / Noes: 8 - Question accordingly negatived.
The Committee divided: - Ayes: 5 / Noes: 8 - Question accordingly negatived.
The Committee divided: - Ayes: 5 / Noes: 8 - Question accordingly negatived.
The Committee divided: - Ayes: 5 / Noes: 8 - Question accordingly negatived.
The Committee divided: - Ayes: 8 / Noes: 5 - Question accordingly agreed to.
The Minister for Housing, Planning and Building Safety (Lee Rowley)
I beg to move amendment 46, in clause 26, page 42, line 19, leave out “, and subsection (2)”.
This amendment is consequential on NC6.
The Chair
With this it will be convenient to discuss the following:
Clause stand part.
Government new clause 6—Notice of future service charge demands.
Lee Rowley
The amendment is consequential on Government new clause 6, which introduces a requirement for landlords to provide a future demand notice under section 20B of the Landlord and Tenant Act 1985 if the landlord has incurred costs and cannot issue a demand for those costs within 18 months. The new clause makes it clear that a future demand notice applies only in respect of variable service charges; as a result, there is no longer a need to include the reference to section 20B(2) in clause 26, which otherwise seeks to provide clarity on what measures apply to all service charges and what measures apply only to variable service charges. I commend the new clause to the Committee.
I turn to clause 26. It is important that all leaseholders have access to appropriate information on what they are paying for and the condition of their building. That will help them to determine whether their landlord is providing an adequate service or whether they are being overcharged. Many landlords already provide a good service; however, some do not, and that must change. The existing regime is geared up to protect leaseholders who pay variable service charges. There are some leaseholders who pay fixed service charges, and those leaseholders do not enjoy the same protections. Leaseholders who pay fixed charges have a right to receive a good-quality service, which means having a better understanding of how their funds are being used, as well as having access to key information on matters that are important to them, as we discussed before we adjourned.
Clause 26 extends part of the regulatory framework on the provision of information to cover leaseholders who pay fixed service charges. Subsection (2) amends section 18 of the Landlord and Tenant Act 1985 to create separate definitions of “service charge” and “variable service charge”. That enables the Government to provide clarity on which provisions in the 1985 Act apply only to variable service charges. Subsections (3) and (4) amend the 1985 Act to ensure that parts of the regulatory regime continue to apply only to leaseholders who pay variable service charges—that includes, for example, the ability to challenge the reasonableness of the service charge under section 19 of the Act. The measure will ensure that leaseholders paying fixed service charges are entitled to receive information of relevance to them. I commend the clause to the Committee.
I return to Government new clause 6. When section 20 major works are undertaken, landlords may require a leaseholder to pay for costs up front or pass on costs to the leaseholder once the work has been carried out. Where leaseholders are charged after work is completed, the leaseholder must be issued with a demand for payment within 18 months of the costs having been incurred or, alternatively, be notified in writing within the 18-month period that they will be liable to pay the costs in the future. Failure to meet one of those two conditions will mean that leaseholders are not liable.
There is no prescribed form or content of a notice under section 20B(2) of the Landlord and Tenant Act 1985, which has led to confusion regarding the meaning and effect of the section, and much case law has followed. It has also left leaseholders with uncertainty on whether they will be required to contribute, the amount of their contribution and when the demand for payment could be served; the new clause seeks to provide clarity on all of those. New clause 6 introduces new subsections (3) to (9) into section 20B of the 1985 Act, which will require landlords to specify the amount of costs incurred, the leaseholder’s expected contribution and the date by which the demand will be served. The intention is to give leaseholders certainty on costs that have been incurred by the landlord, their own individual liability and when they are likely to receive the demand.
The changes to subsections (2) and (3) require landlords to issue a future demand notice when they will be passing costs through the service charge more than 18 months after the costs have been incurred. Subsection (3) defines “future demand notice” as a notice in writing that relevant costs have been incurred, and that the leaseholder is required to contribute towards the cost by payment of a variable service charge. Subsection (4) sets out that the Secretary of State and Welsh Ministers can, by regulations, specify the form of the notice, the information to be included in it and the manner in which the future demand notice must be given to the leaseholder. Subsection (5) details that regulations by the Secretary of State and Welsh Ministers may specify that information to be included in the future demand notice should include an estimate of the costs incurred; an amount that the leaseholder is expected to contribute to those costs; and a date on or before which it is expected that the service charge will be demanded. We will work with landlords, managing agents and leaseholders to set out what a future demand notice may contain, to ensure that regulations require the right level of information.
Subsection (6) sets out that regulations may provide for a relevant rule to apply where the leaseholder has been given a future demand notice and the demand for payment is served more than 18 months after costs were incurred. Subsection (7) sets out the relevant rules and the leaseholder’s liability to pay the service charge where a future demand notice contains estimated costs, an expected contribution or an expected demand date. Subsection (8) also allows the landlord to extend the expected demand date in cases specified by regulations. That might be because of unexpected delays in completing the work, for example. The measures seek to provide leaseholders with more certainty on costs. I commend the new clause to the Committee.
Amendment 46 agreed to.
Clause 26, as amended, ordered to stand part of the Bill.
Clause 27
Service Charge Demands
Matthew Pennycook (Greenwich and Woolwich) (Lab)
I beg to move amendment 11, in clause 27, page 43, leave out line 12.
This amendment would remove provision for the appropriate authority to exempt certain categories of landlord from the requirements relating to service charge demands set out in subsection (1) of the clause.
Clause 27 replaces provisions in the 1985 Act with a new provision that imposes a simple requirement on landlords to demand payment of a service charge using a specified form, rather than, as is presently the case, in accordance with the terms under the lease in question—or, in the absence of any such provisions, in any manner that suits them. We very much welcome the clause, which should ensure that service charge demands and annual reports are provided to leaseholders in a standardised format. If it works well, the clause is likely to have the most widespread practical impact of any provision in the Bill, given that many hundreds of thousands of service charge demands each year will have to be in a prescribed form.
The clause will also ensure, by means of inserting proposed new section 21C into the 1985 Act, that where the demand for service charge payments is not in the specified form, containing the specified information and provided to the leaseholder in the specified manner, the lease provisions relating to late or non-payment do not apply to the charge in question, and there is no obligation to pay until they are met. There is also a new sanction for non-compliance, which we will consider in due course. The effectiveness of the provisions in the clause will ultimately rely on enforcement, but new section 21C should ensure that the majority of freeholders and managing agents comply with the requirement to issue a service charge in the standardised form.
We do, however, have two concerns about aspects of the clause. Amendment 11 addresses the first of those concerns, which relates to exemptions from the requirements being introduced. New section 21C(3) confers powers, by regulations subject to the negative procedure, on the appropriate authority to exempt certain landlords. We have reservations about the inclusion of such powers, because they could be used to exempt entire categories of landlords from the requirements set out in subsection (1), and thereby deny large numbers of leaseholders the benefits that they would otherwise secure as a result of their application. Amendment 11 simply deletes subsection (3)(a) to remove the power to provide exemptions from subsection (1) for certain types of landlords. We hope the Minister will consider accepting it. If not, we would be grateful for some clarity on what kind of landlords the Government believe might need to be legitimately exempted from the relevant requirements, and some reassurance that the power will be used sparingly and in an extremely limited manner.
Lee Rowley
I thank the shadow Minister for his amendment. We will resist it for reasons that I will give, and I hope I can reassure him to the extent that he does not seek to push it to a vote. I am happy to give at least one instance of a good reason for exempting landlords now or in future: there are cases where it may be too costly or disproportionate to expect a landlord to provide this degree of information, or where doing so is unnecessary. An example that I was not aware of before I was told is a freeholder of two flats who resides in one of them; that is known as a Tyneside or criss-cross lease, which became common in the north-east of England in the 19th century. Given the limited number of people who live in there, and the reason for that structure, we would deem it unnecessary to provide this form, hence the ability to exempt.
However, to address the hon. Gentleman’s key point, notwithstanding individual exemptions, I am happy to place on record that once we have consulted, understood people’s views, taken on the broad range of views about this, and potentially found other things like criss-cross leases, we would expect any list to be very small indeed. We share the clear hope that the power will be used only where it is absolutely necessary, and certainly not to the extent that the hon. Gentleman fears. I hope that, on that basis, he may consider withdrawing his amendment.
Matthew Pennycook
I thank the Minister for that response. I was also unaware of criss-cross or Tyneside leases, although the Opposition Whip, my hon. Friend the Member for North Tyneside, indicated to me during the Minister’s remarks that she used to live in one, so she will have some familiarity with them. On the basis of the Minister’s response, and given the reassurances that he has provided, I am happy to withdraw the amendment. It is our hope that the measure will apply to very limited categories of landlord, and I think that the Minister indicated as much, so very few leaseholds will be exempt from the requirements. On that basis, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lee Rowley
I beg to move amendment 47, in clause 27, page 43, line 24, after “1987” insert “(‘the LTA 1987’)”
This amendment and Amendment 54 align references to the Landlord and Tenant Act 1987 with other references to Acts.
Lee Rowley
Amendments 47 and 54 are required because of new clause 9, which amends the Landlord and Tenant Act 1987. They ensure that references to the Landlord and Tenant Act 1987 are aligned with other references to Acts, by adopting the abbreviated reference. Amendment 124 is consequential on amendments 47 and 54; it aligns references to the Landlord and Tenant Act 1987 with other references to Acts in the Bill. I commend these amendments to the Committee.
Amendment 47 agreed to.
Matthew Pennycook
I beg to move amendment 12, in clause 27, page 43, line 38, at end insert—
“(c) in section 48 (notification by landlord of address for service of notices), after subsection (3) insert—
‘(3A) Subsections (2) and (3) do not apply in relation to a written demand for payment of a service charge if section 21C of the Landlord and Tenant Act 1985 requires the demand to include information which subsection (1) also requires to be provided to the tenant.’”
This amendment would ensure consistency between the information requirements provided for by Clause 27 and specific contractual requirements set out in leases.
Amendment 12 addresses our second concern with clause 27, which relates to consistency between it and existing contractual requirements. This issue came to our attention purely as a result of written evidence—actually, to be precise, I think it was as a result of a blog post—from Mark Loveday of Tanfield Chambers. He drew attention to the fact that the amended provisions in this clause are likely to supplement, rather than replace, contractual requirements in some existing leases about the form of demands for payment. There is therefore potentially a risk of confusion and duplication. Mr Loveday also highlighted the overlap between provisions in the 1987 Act relating to the information to be furnished to tenants, and the fact that clause 23(4) does not disapply the information requirements of section 48 of the 1987 Act.
I throw my hands up: this is far from my most elegantly drafted amendment. It is simply an attempt to probe the Government on the consistency between the information requirements provided for by this clause and provisions in 1987 Act relating to specific contractual requirements set out in leases. I look forward to hearing the Minister’s thoughts on the amendment, and on the general need to ensure complete consistency between the measures being introduced by clauses 26 to 30 and those in the 1985 and 1987 Acts that set out the main limitations on variable service charges in residential leases.
Lee Rowley
I thank the hon. Gentleman for his amendment. The advice that I have received is that the amendment is unnecessary. Sections 47 and 48 of the 1987 Act already prescribe that landlords must give details of their name, and an address in England or Wales where they can be served with notices, when making a demand for rent or other sums, including service charges. Clause 27(4) provides clarity on the fact that if there is an overlap between information required under proposed new section 21C of the LTA 1985 and the obligations under the 1987 Act, proposed new section 21C takes precedence. For example, if the new standardised service charge demand form requires a landlord to give the same information as is provided under sections 47 and 48 of the 1987 Act, proposed new section 21C would take precedence, and failure to provide the information would be dealt with by the provisions of the proposed new section.
Critically, the new standardised demand form will not restrict the amount of information that must be provided with a demand. Landlords will be able to provide additional information on the demand form if they wish. That may include any information set out in the lease. Unless we have missed something, we believe that, for that reason, the amendment is unnecessary, and request that it be withdrawn.
Barry Gardiner (Brent North) (Lab)
I think the Minister referred to section 47 of the Landlord and Tenant Act 1987. Is he entirely confident that that is effective? I have a case in my constituency, in Wembley Central Apartments. The co-developers have sold on and on, and the owner is now in the Cayman Islands. The UK address to which one can apply is that of the managing agents, Fidum, but Fidum says, “We have asked our principals, and they say that they have asked their principals,” and it goes all the way to the Cayman Islands, and one gets nothing back. The leaseholders have been desperately trying to access the information for months. They have served the correct notice to the correct address in the UK, but they still cannot get the information that they require.
Lee Rowley
I recognise that in some instance it is an incredibly frustrating process to go through. As I know the hon. Gentleman will appreciate, this is a pretty technical element of policy. The assurances that I have received from officials and experts involved is that the legislation should cover those bases. There will always be challenges around finding people and going through operational processes. There will be challenges in finding people who do not want to be found easily, but ultimately the law is clear that they need to be found. From that perspective, I think that the law is sufficient. We do not think anything has been missed, but if something has, we will happily receive further correspondence and consider it.
Matthew Pennycook
I will be brief. My hon. Friend the Member for Brent North raises an interesting point. Can the Minister—if not now, then perhaps in writing—expand on whether, where a landlord has not complied with the relevant requirements, proposed new section 21C means that the provisions relating to late or non-payment do not apply? Does it provide that level of protection? The hope is that it does.
On the general point, I welcome the clarification and assurances that the Minister has provided. On that basis, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause, as amended, stand part of the Bill.
Lee Rowley
Service charge demands are one of the most important ways in which leaseholders receive information from their landlord, as we have been discussing. Under current arrangements, landlords are required to issue any service charge demand in accordance with the terms of the lease, or otherwise in a manner that suits them. That has led to variable practice in the sector, which has often been to the detriment of the leaseholder, who then gets confused about what they are paying for and has to spend time chasing the landlord for more information.
Proposed new section 21C enables the Secretary of State and Welsh Ministers to prescribe a standard form and the information that it should contain. We will work closely with leaseholders, landlords and managing agents to ensure that we prescribe both the right information and the right level of detail. Proposed new section 21C(2) makes it clear that a failure to provide information in the new standard format will mean that the leaseholder does not have to pay the charge until the failure is remedied, and any provisions in the lease for non-payment will not apply. The Secretary of State will also have the power to create any exemptions if our work with stakeholders demonstrates that there is a good case for any landlord being excluded, either now or in the future.
Clause 27(2) omits existing legislation relating to obtaining information on a summary of costs, as well as other unimplemented legislation surrounding service charge demands. Those measures will be superseded by the provisions we are implementing in part 3 of the Bill, so it is not necessary to retain them. That measure, alongside others, should ensure that landlords provide relevant information to leaseholders, and I commend the clause to the Committee.
Question put and agreed to.
Clause 27, as amended, accordingly ordered to stand part of the Bill.
Clause 28
Accounts and annual reports
Barry Gardiner
I beg to move amendment 130, in clause 28, page 44, line 17, at end insert—
“(iii) a statement of all transactions relating to any sinking fund or reserve fund.”
This amendment would require the written statement of account which the landlord will be required to provide to a tenant to include a statement of all transactions relating to any sinking fund or reserve fund in which their monies are held.
This amendment would require the written statement of account, which the landlord will be required to provide to a tenant, to include a statement of all transactions relating to any sinking or reserve fund in which their moneys are held. Sinking or reserve funds in England and Wales contain literally millions of pounds. Even the smallest block of flats will have a fund of tens of thousands of pounds, yet leaseholders find that they cannot get information about what is happening with it. A landlord may be raiding it to meet their cash-flow problems, in the hope—which is not always fulfilled—of putting the money back later. If millions of pounds is held in a reserve account, leaseholders want to know what interest they may be earning on those funds or whether it is being quietly siphoned off by the landlord.
The amendment would require the written statement of account, which the landlord will be required to provide to a tenant, to include a statement of all transactions relating to any sinking or reserve fund in which their moneys are held. As colleagues will remember from the evidence session that we had before we started our line-by-line scrutiny of the Bill, Martin Boyd of LEASE—the Leasehold Advisory Service—and Andrew Bulmer of The Property Institute said that this provision was really important to include; indeed, it is now part of their voluntary code. They pointed out that it was originally included in the Commonhold and Leasehold Reform Act 2002 but was never brought into force.
The provision is particularly dear to me because it is what started my campaigning for leasehold reform 26 years ago. A group of leaseholders in Mountaire Court came to me and explained that they had each paid £23,000 to their landlord, who was the head leaseholder. They lived in a block of 30 flats, so the total was well over £600,000. They said that the head leaseholder had gone into liquidation and that their money had gone. At that point, the freeholder came to them and said that they were prepared to do some of the work. The leaseholders had been arguing that the work should be done. The freeholder then came to them and said, “Yes, we’ll do the roof and the windows, but we need you to pay us £6,000 each to do that,” in addition to the £23,000 they had already incurred. They came to me and asked, “What guarantee do we have that our moneys are not going to be filched away in the same way as the original funds?”
I tracked back through Companies House—I think there were 156 different companies, which were ultimately registered, through Daejan Holdings, to Freshwater—to find out that the head leaseholder, who had gone into liquidation, had signed form 397, which allowed Freshwater to take any moneys that were left with the head leaseholder. All that money had gone back to Freshwater, and there was no way of accounting for it. The debate that I held with the then Minister at that time started the campaign. He said, “This is outrageous. These moneys should be held in some sort of escrow account.” They were not, however, and the leaseholders had no access to what was happening. It is important that there is real accountability for reserve funds, because at the moment it is being held blind from the people who are paying the money.
Lee Rowley
I am grateful to the hon. Member for his amendment. When I was a councillor in a location not too far away from him a number of years ago, I had similar experiences with the challenges of sinking funds, so I completely appreciate the point he makes. The amendment would prescribe that landlords provide specific information to leaseholders. I agree that they should have access to relevant information. My pushback is merely about where we put this as opposed to what we do, subject to consultation. I am very sympathetic to many of the points he made.
Clause 28(2) does give the appropriate authority the power to prescribe other matters that should be included as part of a written statement of account. We need a consultation to give relevant parties the ability to debate and discuss that and give their views. We must ensure that it is proportionate and cost-effective, but once we have gone through that consultation, I think there is a strong case for ensuring that there is sufficient information as he has outlined to some extent.
Barry Gardiner
I am grateful to the Minister for what he has said, but the strongest protection would be to have it on the face of the Bill. Even when it was on the face of the 2002 Act, the Government never brought it into force. So this is not something we have not had previously. It is right there in legislation for a leaseholder to have access to this information, but we have never brought it in. What the Minister is suggesting is actually a regressive step, taking leaseholders further away by saying, “We’ll do it through secondary legislation now.”
I really do think it is important to have this on the face of the Bill. We know how Committees work. I know the Minister cannot accept the amendment now, but I would ask him to go away and come back on Report. If he comes back with his own amendment to achieve the objective, I will be delighted.
The Chair
Order. I am not surprised the hon. Lady has mistaken that intervention for a speech. It was a very long intervention—
Eddie Hughes (Walsall North) (Con)
It’s like those leases he keeps talking about; they just keep rolling round.
Lee Rowley
Thank you, Mr Efford. Would my hon. Friend the Member for Redditch like to intervene on me?
Rachel Maclean
I thank my hon. Friend the Minister. Perhaps he would like to ask whether, given his extensive history and detailed knowledge on the subject, the hon. Member for Brent North knows why those provisions were not brought in following the 2002 Act. Or perhaps the Minister would like to update us if he has that knowledge for the Committee.
Lee Rowley
Sadly, I confess to not having that knowledge from back when I was at university; I probably was not studying the right things. I appreciate the point from my hon. Friend the Member for Redditch that there has been an opportunity for this to be implemented under Governments of both parties and it has not been done. I am always happy to listen to the hon. Member for Brent North, and I do appreciate the point he is making. It is this Government’s intention to move forward with this, albeit through secondary legislation, which I know he has concerns about. I am happy to put that on the record on the assumption and hope, at least on the Conservative side, that we are in government when this happens. I hope he will not press his amendment.
Barry Gardiner
I will press the amendment to a vote because I think it is important that we have it on the record.
Barry Gardiner (Brent North) (Lab)
I beg to move amendment 131, in clause 28, page 44, line 34, at end insert—
“(4A) Any of the contributing tenants, or the sole contributing tenant, may withhold payment of a service charge if the tenant has reasonable grounds for believing that the payee has failed to comply with the duty imposed by subsections (1) to (4); and any provisions of the tenancy relating to non-payment or late payment of service charges do not have effect in relation to any period for which a service charge is withheld in accordance with this subsection.”
This amendment would enable leaseholders to withhold service charge payments where the landlord has failed to comply with the obligation to provide a written statement of account in the specified form and manner within the six month period from the end of the financial year.
The Chair
With this it will be convenient to discuss the following:
Amendment 13, in clause 28, page 45, line 4, at end insert—
“(8) Where a landlord of any such premises fails to comply with the terms implied into a lease by subsection (2), any rent, service charge or administration charge otherwise due from the tenant to the landlord shall be treated for all purposes as not being due from the tenant to the landlord at any time before the landlord does comply with those subsections.”
This amendment would require courts and tribunals to treat the landlord’s compliance with the implied term requirement for annual accounts and certification as a condition precedent to the lessee’s obligation to pay their service charges.
Amendment 14, in clause 28, page 45, line 40, at end insert—
“(9) Where a landlord fails to comply with subsection (1), any rent, service charge or administration charge otherwise due from the tenant to the landlord shall be treated for all purposes as not being due from the tenant to the landlord at any time before the landlord does comply with that subsection.”
This amendment would require courts and tribunals to treat the landlord’s compliance with the implied term requirement for annual accounts and certification as a condition precedent to the lessee’s obligation to pay their service charges.
Barry Gardiner
Amendment 131 would enable leaseholders to withhold service charge payments where the landlord has failed to comply with their obligation to provide a written statement of account in the specified form and manner within the six-month period from the end of the financial year that is specified in the legislation. Arguably, it is more important for leaseholders that the accounts are presented in time than that they are presented in a specific form. I welcome what the Government have done to make sure that accounts are presented in a specific form, but the real crux of the matter is: are they presented in time? The amendment would enable leaseholders to have redress if they were not.
We heard in the evidence sessions of that huge imbalance of power in the leasehold system. Given that the Government already accept the principle of leaseholders withholding service charge moneys where they have not been demanded by a landlord in the right way, surely we should rebalance that imbalance of power in the landlord-tenant relationship in leasehold by permitting them to withhold service charges when they are not forthcoming within that allotted time. I believe that policy was also in the 2002 Act, but again, as with the provisions on sinking funds, it was not brought into force.
I also welcome amendments 13 and 14. Certainly, the former achieves something similar—maybe even better. If the Minister were able to give me an assurance that he were willing to accept amendment 13, tabled by my hon. Friend the Member for Greenwich and Woolwich, I might even be persuaded to withdraw amendment 131.
Matthew Pennycook
I rise to speak to speak to amendments 13 and 14. As I think my hon. Friend the Member for Brent North just touched upon, clause 28 inserts new sections 21D and 21E into the 1985 Act to create a new requirement for a written statement of account to be provided by landlords within six months of the end of the 12-month accounting period for which variable service charges apply. It also places an obligation on landlords to provide an annual report to leaseholders. We welcome the clause, as did my hon. Friend the Member for Brent North, for the reasons discussed in the evidence sessions last week. The 2002 attempt to mandate a form of regular service charge accounts and statements was ultimately unsuccessful, with the replacement section 21 of the 1985 Act never brought into force. As a result, service charge processes remain unstandardised.
A staggering range of different procedures are being used across the country. Some leases specify the form that annual budgets and accounts must take, while others do not. Some require certification by the freeholder, managing agent, management company, accountant or auditor, while others do not. Some prescribe deadlines by which budgets or accounts must be produced and make adherence to those conditions a precedent to liability to pay a service charge, while others do not.
Clause 28 clearly seeks to overhaul this fragmented patchwork of arrangements by introducing the new section 21D, making annual accounts and certification by a qualified accountant a mandatory requirement and, through new section 21E, introducing a statutory duty to provide leaseholders with an annual report about their service charges. By introducing the mandatory requirements that it does, new section 21D(2) implies a term into leases of dwellings with variable service charge provisions.
In our view, the decision to imply terms raises a number of questions and concerns. First, do the implied terms of new section 21D replace any equivalent existing provisions in the lease? If not, landlords and managers will potentially be forced to prepare two sets of accounts: one under the existing terms of the lease and the other under the new implied terms in section 21D. Secondly, why are no express sanctions for non-compliance included in new section 21D? That point was raised by Amanda Gourlay in the Committee evidence sessions.
Given that the implied terms are not covered by the enforcement provisions in new section 25A—provided for by clause 30—surely it is not the Government’s intention to require leaseholders to apply for specific performance through the courts when it comes to this matter. Thirdly, despite the clause including no right to recover implied costs, there is a risk that some landlords will nevertheless seek to recover the extra costs of complying with these requirements through service charges. Can we be sure that leaseholders will not find themselves picking up the bill for complying with the new mandatory requirements? I would welcome the Minister’s response to each of those questions and concerns, in writing if he is not able to address each in detail today—they are very specific and technical.
Perhaps the more significant question that arises from the decision to imply terms by means of new section 21D is whether the landlord’s compliance with those terms will be treated by the courts and the tribunal as a condition precedent to the lessee’s obligation to pay their service charges. We believe it is important that it is made clear in the Bill that compliance with the implied terms in question is a condition precedent to the lessee’s obligation to pay their service charges and that, by implication, leaseholders are not required to pay if the landlord does not comply with the implied terms. Amendments 13 and 14 would have that effect, with the same desired outcomes as the welcome amendment 131, in the name of my hon. Friend the Member for Brent North, but without the tribunal potentially having to arrive at a judgment on the state of mind of the leaseholder who is withholding their charge. I hope the Minister will accept those amendments as a means of providing the necessary clarification.
Lee Rowley
I thank the hon. Members for Brent North and for Greenwich and Woolwich for their amendments.
Amendment 131, in the name of the hon. Member for Brent North, seeks to enable leaseholders to withhold payment of their service charges when accounts are not provided within six months. I absolutely agree with the sentiment that information must be provided in a timely manner, and that there have to be consequences for not doing so. However, the question is whether withholding the service charge is a proportionate and effective means of doing so; the effective question is whether the risk of doing so creates unintended consequences. For example, were a leaseholder to withhold payments in circumstances where it is found that section 21D had been complied with, that may render the leaseholder liable to pay their landlord’s litigation costs, depending on the terms of the lease. Withholding payments also creates consequences for other leaseholders and may eventually mean that works are not carried out. I recognise that that is not the intention or the point that the hon. Gentleman is making, but in the portion that we are looking at, it is important that we consider all potential unintended consequences.
Services of certified accounts will, for most landlords, be a necessary step for a landlord to identify whether they have spent more than estimated during the accounting period and, where the costs incurred during that period are more than was estimated, the landlord will wish to serve a further demand to recover the shortfall. It is in the landlord’s interest to do that, but I recognise that not all landlords act in a completely rational way or a way that necessarily follows logic. Should a landlord, however, fail to issue a demand for costs within 18 months of those costs having been incurred, then through new clause 6, the leaseholder would not be liable to contribute towards those costs at all.
I realise that that answer will probably not address every part of the concern expressed by the hon. Member for Brent North; it is the same as when I applied that logic to the amendment in the name of the hon. Member for Greenwich and Woolwich. However, I hope it demonstrates both that we are clear that it should be done—that there is a logic, an incentive and a rationale for it to be done—and that there is ultimately a cliff at the end of it, a cut-off point in the event that they do not do it. I hope that provides some assurances; I will see whether that is enough to tempt the hon. Member for Brent North to withdraw his amendment.
Barry Gardiner
I appreciate what the Minister has said about that cliff edge of 18 months. We have talked about cynicism in this Committee before, but let me tell the Minister what I believe may happen. I think a landlord who is withholding information will decide that they can now do so with impunity for 17 months and 28 days, and then they will serve the required information up on a plate. The provision is almost tempting them to do that. If the Minister is going to rely on that, rather than looking at the question again in further detail, I urge him to reduce that timeframe substantially. I will not put a figure on it—I do not say that it should be 12 months, or nine months—but it should be reduced substantially. However, I am very happy to withdraw my amendment in favour of amendment 13.
Lee Rowley
I am grateful to the hon. Gentleman for his comments in that regard. To save time, the same logic applies from our perspective to amendments 13 and 14, and I hope that at least in part reassures him—I will wait to hear his comments, but I encourage him to withdraw his amendment if it does.
Barry Gardiner
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Matthew Pennycook
Mr Efford, may I respond to the Minister’s comments on amendment 13?
Matthew Pennycook
In that case, I will press the amendment to a vote without justifying it.
Amendment proposed: 13, in clause 28, page 45, line 4, at end insert—
“(8) Where a landlord of any such premises fails to comply with the terms implied into a lease by subsection (2), any rent, service charge or administration charge otherwise due from the tenant to the landlord shall be treated for all purposes as not being due from the tenant to the landlord at any time before the landlord does comply with those subsections.”—(Matthew Pennycook.)
This amendment would require courts and tribunals to treat the landlord’s compliance with the implied term requirement for annual accounts and certification as a condition precedent to the lessee’s obligation to pay their service charges.
Question put, That the amendment be made.
Lee Rowley
We have already talked about this, but in summary, most landlords are required under the terms of the lease to provide leaseholders with a written statement of accounts. Where leaseholders feel they have not been provided with sufficient information, they may ask for a written summary of costs for the past accounting period or, if the accounts have not been made up, for the period of 12 months ending with the date of the request.
We know that the current arrangements, as we have just discussed, do not provide adequate statutory protection. Although many landlords provide their leaseholders with sufficient information, others fail to do so. Subsection (2) of clause 28 introduces two new measures to address that. Proposed new section 21D of the 1987 Act implies into leases a new requirement for landlords who charge variable service charges and manage blocks of four or more dwellings. The threshold reflects existing arrangements for the preparation of a summary of costs. We are placing an obligation on such landlords to provide a written statement of account to leaseholders within six months of the end of the 12-month accounting period. This statement must be certified by a qualified accountant.
Matthew Pennycook
The Minister provides me with the opportunity to get my justification in, but, without going through it, he can answer the question that underpinned amendments 13 and 14 by simply telling me whether the decision to imply terms, as new section 21D does, means that a landlord’s compliance with them is to be treated as a condition precedent to the lessee’s obligation to pay their service charges.
Lee Rowley
I am grateful to the shadow Minister for his question, and, because of its specifical legal and technical nature, I will write to him. I know that members of the Committee may wish to seek assurances about the word “arising”, which was referenced in evidence last week. I am happy to give the assurance that we will consult accountants on to how to present these service charge accounts, which I hope will mean that there is a process to ensure that any necessary clarification of particular terminology will be clear to those who operate within it.
Rachel Maclean
In the same evidence session, we also heard Amanda Gourlay’s concern about the nature of the accounts being mandated, and she said that it is not something that she would recognise as a set of accounts because it does not have a balance sheet or expenditure. I think the Minister said that a chartered accountant will have to sign off on them. Can he reassure members of the Committee that that will address the concern raised with us by Amanda?
Lee Rowley
I thank my hon. Friend for her question. Yes, that is my understanding, and, as part of the response in writing, we will clarify that.
To conclude, new section 21E places an obligation on landlords to provide an annual report in respect of service charges and other matters likely to be of interest to the leaseholder arising in that period.
Barry Gardiner
Could the Minister clarify a point for me? Obviously, there are different forms of accounts, such as short-form accounts and audited accounts. In what he is proposing, as I understand it, there is no compulsion to have an audit of the service charges shown in those accounts. The certified accounts happened in blocks already, but they are pretty meaningless because the freeholder appoints the accountants and tells them what form they want them in. Surely the key is having not just the accounts but the service charges audited as proper.
Lee Rowley
I am going to include that in my written response, too, because I know that the specifics of the definition of audit are quite different from other aspects of this question. My understanding is that we will prescribe in secondary legislation what needs to be provided. Given that an accountant will be a part of that, they will have to ensure that the audit conforms to their usual codes of practice. I will write on the specifics to ensure that I have given sufficient information.
Richard Fuller
As the Minister is contemplating what he will put in his letter, including a response to the hon. Member for Brent North, could I gently remind him that auditing is an expensive procedure? There will be a number of instances where these accounts might fall short of what would be required under existing Companies House legislation. There are some metrics and things out there that the Government could use, but he should bear in the mind the cost of auditing.
Lee Rowley
My hon. Friend is absolutely right. One of the reasons why I want to write is that I want to ensure that the specific elements and substantive parts of the concept of audit are represented to the Committee in the most accurate way. We have to strike a balance by ensuring that sufficient information is made available for decisions to be made, but equally we cannot create a process that is so involved, for what I am sure are very good reasons, that it would be disproportionate, and then create a whole heap of new consequences on the other side, which is what we are trying to avoid.
To conclude, new section 21E places an obligation on landlords to provide an annual report. For service charges, that report must be provided within one month of starting a 12-month accounting period, although it can be provided earlier if it is expedient to do so. Both new sections allow the Secretary of State, as we have already discussed, and Welsh Ministers to prescribe the detailed content in secondary legislation. We will work closely with interested parties when we come to do that. Subsections (3) and (4) make consequential changes to the definition of “qualified accountant” under sections 28 and 39 of the 1985 Act to reflect these new sections. I commend the clause to the Committee.
Question put and agreed to.
Clause 28 accordingly ordered to stand part of the Bill.
Clause 29
Right to obtain information on request
Matthew Pennycook
I beg to move amendment 15, in clause 29, page 46, line 19, at end insert—
“(3) Information specified for the purposes of section (1) must include accruals and prepayments and digital copies of service charge accounts.”
This amendment would ensure that regulations made by the appropriate authority must provide tenants with the right to accruals and prepayments and digital copies of service charge accounts.
As things stand, leaseholders only enjoy the right to request a summary of relevant costs and inspect supporting documentation in relation to such a summary. Barring a disclosure order made during tribunal proceedings, there are few direct means for leaseholders to secure relevant information. Clause 29 makes a series of changes to the 1985 Act to provide for a new stand-alone right for leaseholders to request information from their landlord, and we welcome it.
Precisely what such a right will entail will largely be set out in regulations that will presumably not only specify the relevant categories of information that can be requested and obtained, but the relevant timelines for compliance. We take no issue in principle with the detail being brought forward by statutory instrument—for obvious reasons—but we have tabled amendment 15 to ensure that the information that ultimately can be lawfully requested by leaseholders under clause 29 includes accruals and prepayments, as well as digital copies of service charge accounts.
We feel that statutory access to accruals and prepayments is vital because they are prepared on a true and fair basis and are necessary to understand most service charge accounts. The case for ensuring that service charge account information can be accessed by leaseholders in a digital format is, we hope, self-evident. I hope the Minister will consider accepting the amendment or, if he feels that he cannot, will at least provide the Committee with robust assurances that the relevant regulations will in due course specifically include accruals and prepayments and digital copies of accounts in the categories of information that can be requested.
Lee Rowley
I do not seek to detain the Committee, and I hope the hon. Gentleman will accept my short response. I am not disregarding the substantive points of the amendment, but some of them we have discussed before. I accept that this is an important area and we have to get it right. We must make sure that the information prescribed in the process works and is comprehensive enough for people to get a true understanding of what is going on and proportionate enough to make it meaningful and not incur unnecessary costs. I agree with the hon. Member that leaseholders should have access to the relevant financial information and that that information should be clearly understood and articulated so that people can derive decisions and comfort from it.
The Government prefer that the detail is prescribed in secondary legislation and are committed to consulting. It is fair to say that the details will be key parts of a discussion about the feasibility of inclusion in the final decision when it is made.
Matthew Pennycook
I welcome that response from the Minister. On that basis, I am happy to beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Matthew Pennycook
I beg to move amendment 16, in clause 29, page 48, leave out lines 1 to 8 and insert—
“(4) P may not charge R any sum in excess of the prescribed amount in respect of the costs incurred by P in doing anything required under section 21F or this section.
(5) The prescribed amount means an amount specified in regulations by the appropriate authority; and such regulations may prescribe different amounts for different activities.
(6) If P is a landlord, P may not charge the tenant for the costs of allowing the tenant access to premises to inspect information (but may charge for the making of copies).”
This amendment would make the appropriate authority (i.e. the Secretary of State or the Welsh Ministers) responsible for setting a prescribed amount for the costs of providing information to leaseholders. That prescribed amount would be the maximum amount that freeholders and managing agents employed by them could seek to recover through a service charge.
The Chair
With this it will be convenient to discuss the following:
Amendment 132, in clause 29, page 48, leave out lines 1 and 2.
This amendment would prevent a landlord from recovering the costs of complying with the requirements to provide information imposed by new sections 21F and 21G.
Amendment 133, in clause 29, page 48, line 3, leave out “But,”.
This amendment is consequential on Amendment 132.
Matthew Pennycook
Arguably of more importance in ensuring that clause 29 is beneficial to leaseholders than the type of information that they will henceforth have the right to request and what form it is shared in is the need to protect them from excessive charges levied for providing that information. As it stands, subsection (4) of new section 21G of the Landlord and Tenant Act 1985 would allow person P to charge person R for the costs of doing anything required under new section 21F or this new section, while subsection (6) renders those costs relevant for the purposes of a variable service charge. In other words, new section 21F includes an implied right for landlords to recover the costs of supplying the relevant categories of information to leaseholders through the service charges, with penalties for non-compliance under clause 30.
We obviously do not take issue with the right to recover reasonable costs of complying with the mandatory requirements introduced by the clause, but there is an obvious risk, given everything we know about how some landlords in the market operate, that some will charge excessive fees for supplying that information. We have tabled amendment 16 to give the Secretary of State the power, just as the Bill provides for in other respects, to set prescribed amounts with a view to ensuring that leaseholders are not subject to unreasonable costs should they feel they need to request certain categories of information. I hope the Minister can understand the very simple point that the amendment is driving at and will consider accepting it.
Lee Rowley
I am grateful to the hon. Gentleman for moving amendment 16. He does not deny that landlords will incur a cost for answering information requests. The level of cost will vary, depending on the volume of information, the complexity, the period, the timeline and a number of other factors. There may be difficulties in obtaining all that information. Landlords may also incur a cost in chasing other people who hold the information required to answer a leaseholder’s request, notwithstanding our earlier conversations about the reasonableness of the costs for talking to other parties.
Given the variety of different scenarios, we start from a place in which it is very difficult to set a cap that would not create another unintended consequence somewhere else. None the less, I note the hon. Gentleman’s concern and am happy to confirm that we are listening very carefully on this matter, but I hope he might consider withdrawing the amendment.
Barry Gardiner
Amendments 132 and 133 would prevent a landlord from recovering the cost of complying with a requirement to provide information imposed by new sections 21F and 21G of the 1985 Act, which is very much in line with what my hon. Friend the Member for Greenwich and Woolwich said.
Given that the Government are rightly focusing on reducing costs to leaseholders, these amendments would ensure that a landlord cannot charge leaseholders for giving them information about their home and their charges. We do not charge voters or taxpayers for complying with freedom of information requests, so I am not clear why there should be a distinction here. Many requests and information transfers will now be made electronically. The days when people had to go to the office to pull out hordes of receipts are, I hope, a thing of the past. These requests and transfers should not involve a great deal of expense.
Again, I do not want the Minister to think I am a cynical chap, because I am not, but I know what will happen. There will be the same hierarchies that we talked about earlier. Landlords will create arm’s length companies to hold this information in tiers and categories, and they will charge for providing information at each level. That is what they do. We have to understand that it is not a mistake or one bad apple. Many landlords adopt this practice as a way of securing revenue. Painful though it is to admit that our fellow citizens do this sort of thing to each other, they do. We are passing this legislation to try to protect people.
Lee Rowley
I will not detain the Committee, because my response will be similar to the one I gave to the hon. Member for Greenwich and Woolwich.
We accept the broad point made by the hon. Member for Brent North but, for the reasons I outlined previously, we think it would be difficult to do this. There is at least an argument that proportionality has to be considered. However, I am happy to confirm that we are listening very carefully. On that basis, I hope the hon. Member for Greenwich and Woolwich may be willing to withdraw amendment 16.
Matthew Pennycook
I appreciate what the Minister has said, both about the variety of circumstances that need to be covered and about the difficulties with imposing a flat cap. I take on board what he said about the Government listening carefully.
I am minded to press the amendment to a vote purely to indicate how strongly we feel about this issue. The thrust of the five provisions is, “Let’s increase transparency and let’s increase the enforcement measures,” all ultimately to ensure that leaseholders have a better ability to bear down on unreasonable costs, and it is of great concern to us that while we are trying to do that, we are opening up other routes whereby unscrupulous landlords can start to introduce unreasonable costs in relation to the very things that we are trying to clamp down on. We will press the amendment to a vote simply to put on the record our concern in respect of leaseholders needing some protection—even if it is not a flat cap—from unreasonable costs being passed on through this mechanism.
Question put, That the amendment be made.
Barry Gardiner
Mr Efford, it is the definition of insanity to do the same thing over and over again, expecting a different result. Therefore I am happy not to press amendments 132 and 133.
Lee Rowley
As I outlined in relation to clause 28, the Government accept that the current arrangements do not provide adequate statutory protection. In addition to the measures set out in clauses 26 to 28 to drive up transparency, clause 29 introduces new provisions to enable leaseholders to request information from their landlord or a third party who holds relevant information. Subsection (2) introduces proposed new section 21F of the Landlord and Tenant Act 1985, which sets out provisions that enable leaseholders to receive information on request. That information may relate to
“service charges, or…services, repairs, maintenance, improvements, insurance, or management of dwellings.”
One example might be a stock condition report for the building. Landlords will be obliged to provide information that they have in their possession, and where they need to ask another person for it, that person is required to do the same.
Proposed new section 21G provides further details on information requests under section 21F. It allows a leaseholder to request that they inspect a document and make and remove a copy of the information. Section 21G also provides that landlords may not charge the leaseholder for providing facilities for access, although they can charge for the making of copies. Alternatively, the landlord can pass the reasonable costs of any inspection through the service charge. This section allows the Secretary of State and Welsh Ministers to specify the time period for providing such information, circumstances in which that period may be extended and how the information is to be provided.
Proposed new section 21H provides that where the lease is assigned, the obligation to provide the information requested under section 21F must still be complied with. However, the person obliged to provide the information is not required to provide the same information in respect of the same dwelling more than once.
Question put and agreed to.
Clause 29 accordingly ordered to stand part of the Bill.
Clause 30
Enforcement of duties relating to service charges
Matthew Pennycook
I beg to move amendment 19, in clause 30, page 49, line 15, leave out “damages” and insert “penalties”.
This amendment, together with Amendments 20 to 25, would make clear that the sum to be paid to the tenant in circumstances where a landlord failed to comply with duties relating to service charges is a punishment rather than a recompense for loss to the leaseholder thus ensuring it is not necessary to provide proof of financial loss. See also Amendments 17 and 18.
The Chair
With this it will be convenient to discuss the following:
Amendment 20, in clause 30, page 49, line 27, leave out “damages” and insert “penalties”.
See explanatory statement to Amendment 19.
Amendment 21, in clause 30, page 49, line 30, leave out “Damages” and insert “Penalties”.
See explanatory statement to Amendment 19.
Amendment 22, in clause 30, page 49, line 34, leave out “damages” and insert “penalties”.
See explanatory statement to Amendment 19.
Amendment 23, in clause 30, page 49, line 39, leave out “damages” and insert “penalties”.
See explanatory statement to Amendment 19.
Amendment 24, in clause 30, page 49, line 41, leave out “damages” and insert “penalties”.
See explanatory statement to Amendment 19.
Amendment 25, in clause 30, page 50, line 2, leave out “damages” and insert “penalties”.
See explanatory statement to Amendment 19.
Amendment 134, in clause 30, page 49, line 29, at end insert—
“(4A) An order under subsection (2)(c) or (4)(c) may include an order that the landlord remedy any breach revealed by the application in respect of any other leaseholder.
(4B) Where the tribunal makes on order under subsection (4A), the tribunal may make an order that the landlord, or (as the case may be) D, pay damages to any other leaseholder in respect of whom a breach revealed by the application must be remedied.”
This amendment would enable a tribunal to order the remedy of a breach in respect of, and damages to be paid to, a leaseholder affected by a breach revealed by the application to the tribunal, even if that leaseholder is not a party to the litigation.
Matthew Pennycook
Clause 30 substitutes existing section 25 of the 1985 Act, which includes penal provisions dealing with any failure to comply with the relevant provisions, with proposed new section 25A, which decriminalises the sanctions and applies a new enforcement regime. The new enforcement regime will allow a tenant to apply to the appropriate tribunal in instances in which their landlord did not demand a service charge payment in accordance with section 21C under clause 27, failed to provide a report in accordance with section 21E under clause 28, or failed to provide information in accordance with sections 21F and 21G under clause 29. The tribunal will have the power to issue an order that the landlord comply with the relevant provision within 14 days and that they pay a fine of up to £5,000 to the applicant, or other consequential orders.
We welcome the new enforcement regime, but we have three main concerns about how it will operate in practice. With amendments 19 to 25, we seek to address the first of those concerns, which is our fear that the use throughout clause 30 of the term “damages” may imply that leaseholders are required to provide proof of financial loss for the tribunal to order that the landlord pay a fine for failing to comply with one or more of the modified requirements introduced in clauses 27 to 29. The risk that the tribunal takes that view, and thus stipulates that proof of financial prejudice is required, is real, as we have seen with the reforms made to section 20 of the 1985 Act. We tabled this group of amendments to encourage the Government to consider replacing “damages” throughout the clause with “penalties” to make it explicit that an order for failing to comply with requirements under sections 21C, 21E, 21F or 21G of the 1985 Act requires no proof of financial loss on the part of leaseholders. I look forward to hearing the Minister’s thoughts.
Lee Rowley
I thank the hon. Gentleman for amendments 19 to 25, with which, as he indicated, he seeks to adds clarity that any sums paid to the leaseholder where there is a failure to comply are a punishment rather than a recompense for loss. As the Committee is aware, clause 30 will replace the existing and ineffective enforcement measures for failure to provide information with new, more effective and more proportionate measures. That includes allowing the leaseholder to make an application to the appropriate tribunal in cases where landlords have failed to provide the necessary service charge information.
It is the Government’s view that the tribunal is the appropriate body to handle such disputes and to determine whether the landlord has failed in their duties, and whether subsequently they are required to pay damages to the leaseholder. In reaching its decision and ordering that damages be paid, the tribunal need only be satisfied on the balance of probabilities that the landlord breached the relevant section. If a financial penalty were applied, the appropriate tribunal would need to be satisfied beyond reasonable doubt that the landlord had breached the relevant section.
While I understand the hon. Gentleman’s point on the use of the term “damages”, I am advised that its use does not mean that evidence of financial loss is required. Therefore, in aggregate, we consider that financially recompensing the affected leaseholder by way of the payment of damages is both a suitable incentive for the leaseholder to bring the application and a suitable deterrent for landlords, while aligning with the tribunal’s powers.
Richard Fuller
The Minister speaks quickly and is knowledgeable about this matter; I just want to put it into everyday speak that the rest of us can understand. I think that the intention behind the Opposition’s amendment is to be clear that there is a difference between penalties and damages. They do not want the burden of proof to be on leaseholders, in this case, and there is tremendous merit to that. Whatever we put into law has to be accessible to people. I think the Minister said that if we change the word from “damages” to “penalties”, that would raise the hurdle. Can he assure us of his objection to the proposed amendment in everyday speak,? As the Bill is drafted, the hurdle will be lower, and there will be no burden of proof on the leaseholder for the penalties/damages to take effect.
Lee Rowley
As best as I understand it, the situation is exactly as my hon. Friend describes. The threshold is lower, and therefore the provisions are more proportionate, and evidence of financial loss is not required. On that basis, I hope that the hon. Member for Greenwich and Woolwich will withdraw the amendment. I will come to amendment 134 in due course.
Barry Gardiner
Amendment 134 would enable a tribunal to order the remedy of a breach in respect of, and damages to be paid to, a leaseholder affected by a breach revealed by an application to the tribunal, even if the leaseholder is not party to the application. Let me explain why that is appropriate. In an estate in my constituency, Chamberlayne Avenue and Edison Drive, FirstPort was the estate manager. It failed in the case that went to the leasehold tribunal, which was brought by one member of the estate. The tribunal quite correctly found in favour of the leaseholders. However, everybody else on the estate was equally affected, and they are now all having to bring a separate tribunal case against FirstPort in order to receive the same benefits and relief. It seems to me that where that is the case, it would make sense for the tribunal to be able to instruct the landlord that where there has been a failure affecting all the leaseholders, they should remedy that breach to all the leaseholders, not just the one who brought the case, if there are damages.
I was heartily gratified by the explanation that the Minister and the hon. Member for North East Bedfordshire gave about “damages” not being the legalistic sense of damages, because I was beginning to worry that the second part of my amendment might fall foul of exactly what my hon. Friend the Member for Greenwich and Woolwich said. However, if we want to free up and speed up the tribunal system, that would be one way of doing so that would afford great relief to the very many people trapped in that situation.
Lee Rowley
I thank the hon. Gentleman for his amendment, which he has just outlined. The Government are sympathetic to the intention of the amendment. It is not that we do not understand the point that he has made or the point that he articulated in relation to Chamberlayne Avenue; where freeholders behave badly, it should apply across the board, and that is the kernel of the point he makes. The challenge—and I am sorry to be difficult about it—is that, as I know the hon. Gentleman will appreciate, there is a potential ramification to asking a tribunal to make a read-across from one case to every other one. Even though it is highly likely that it will apply to all or almost all of those cases, there is the difficulty of creating the link that makes the assumption that it must apply. For that reason, we do not think we can accept the amendment, although I am sympathetic to the point made by the hon. Gentleman.
Barry Gardiner
I am grateful to the Minister, because it is really good to know that he will consider those points further. Let me therefore make a suggestion: if the tribunal were given powers through secondary legislation on estate cases where the matter is remedying something about the estate that applies equally to everybody, it should be obvious to the tribunal that anybody living on that estate is equally affected.
Let me give an example. If the managing agent, FirstPort, says that it has mended a fence, and it has charged everybody for mending that fence, but it is found that it did not mend the fence and it was not its fence to mend—this is the actual case. Everybody on the estate received those charges, and everybody on that estate was due therefore to be compensated for them. That will happen in some cases, but I accept what the Minister says. Would it make sense to consider giving the tribunal the power to instruct the managing agent to remedy the breach for any of those similarly affected, such that, if they did not, there was an additional penalty when that case was brought to the subsequent tribunal to prove that they were affected?
Lee Rowley
I am happy to ask the Department to look into that in further detail. I have no personal understanding of whether that would be possible or reasonable and proportionate and not have a series of other consequences, but it is reasonable to look into it further.
Matthew Pennycook
Briefly, I welcome what the Minister said on the issue of damages versus penalties. It could be another word than “penalty”, but I hope the point that the amendment tried to make was understood. I am not certain, because I, like him, do not have expertise in the area, whether “damages” could be misinterpreted by a tribunal, notwithstanding what he said. I encourage the Minister to go away and ensure that the reassurance he has given—it is on the record and can be referred to, which is helpful—is understood and cannot be misinterpreted. I think we share the same end: this must be punishment rather than recompense, and leaseholders cannot be expected to provide proof of financial loss. If, as the Minister has indicated, that is the shared intention, I am happy to ask leave to withdraw the amendment, but I hope he will go away and reassure himself further that the tribunal can have no confusion on that point. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Matthew Pennycook
I beg to move amendment 17, in clause 30, page 49, line 30, leave out “£5,000” and insert “£30,000”.
This amendment would raise the cap on penalties under this section (see explanatory statement to Amendment 19) for a failure to comply with duties relating to service charges to £30,000.
The Chair
With this it will be convenient to discuss the following:
Amendment 142, in clause 30, page 49, line 30, leave out “£5,000” and insert “£50,000”.
This amendment would increase from £5,000 to £50,000 the maximum amount of damages which may be awarded for a failure on the part of a landlord to comply with the obligations imposed by new sections 21C (service charge demands), 21E (annual reports), or 21F or 21G (right to obtain information on request) of the Landlord and Tenant Act 1985.
Amendment 18, in clause 30, page 49, line 30, at end insert—
“(6) Penalties under this section must be at least £1,000.”
This amendment would insert a floor on penalties under this section (see explanatory statement to Amendment 19) of £1,000.
Matthew Pennycook
Amendments 17 and 18 address our remaining main two concerns about the clause. The first concern, to which we will return when we consider penalties in relation to part 4 of the Bill, is that we are not convinced that a penalty cap of £5,000 is a sufficient deterrent against non-compliance with the requirements in question. For many—not all, but many—landlords, a penalty of £5,000 will be very easily absorbed. The degree to which the sanctions in proposed new section 25A to the Landlord and Tenant Act 1985 bite would obviously be improved if the penalty cap of £5,000 applied to all leaseholders partaking in any given application, rather than them having to share an amount up to £5,000 between them. My reading of proposed new section 25A(5) is that the fine would apply to each person making an application on grounds that the landlord has failed to comply with a relevant requirement, but I would be grateful if the Minister would clarify that point. Is it a single fine, or is it a fine that would apply to each leaseholder involved?
However, even if a fine of up to £5,000 could be awarded to multiple leaseholders, we still question whether it is sufficient—I think that is a point that is worthy of debate. Labour is minded to believe a more appropriate threshold for penalties paid under proposed new section 25A—I remind the Committee that penalties are awarded at the discretion of the tribunal, so they are not automatic—would be £30,000, thereby aligning penalties in the Bill with other leasehold law, such as financial penalties for breach of section 3(1) of the Leasehold Reform (Ground Rent) Act 2022. Amendment 17 proposes such a cap, although we would certainly consider an even higher limit, such as the £50,000 proposed by the hon. Member for North East Bedfordshire.
Secondly, Labour thinks that the functioning of the new enforcement regime would be improved by specifying a floor on penalties in the Bill. In making clear that non-compliance with the relevant requirements will always elicit a fine, landlords will be incentivised to comply. Amendment 18 proposes that penalties under this section must be at least £1,000, with the implication that the tribunal would determine what award to make between the range of £1,000 and £30,000 for each breach. I look forward to the Minister’s response to each amendment.
Richard Fuller
I am tempted to frame page 25 of today’s amendment paper, because it includes the shadow Minister’s amendment 17, which would increase the penalties from £5,000 to £30,000, and my amendment 142, which would increase them from £5,000 to £50,000. I thought it was usually the Conservative party that is pro-business and tries to keep costs on business low, but then I recalled that these penalties apply to people doing something wrong, and of course the Labour party is always soft on criminals.
Seriously, though, the shadow Minister and I have a clear intent, which I am sure is shared by the Minister. A lot of the measures in this part of the Bill are trying desperately to unpick complicated things and rebalance them in favour of people who own their own home but do not run a large business, or people with small financial interests, where there are 30 or 40 of them against one person with a significant financial interest that covers all those people. In trying to rebalance things here, we all want to ensure that these measures are as effective as possible and that there is enough encouragement to ensure that the good practice the Government want to see can be done effectively.
The concern that I share with the shadow Minister is that the current levels of penalties just look like a cost of doing business. [Interruption.] Indeed! The hon. Member for Brent North has just slapped himself on the wrist, which is probably how many businesses will see it.
Can I gird the Minister’s loins and encourage him to take up his shield and his sword of righteousness in defence of individual leaseholders and say, “This amount is too low. We shall change the legislation. This party and this Government stand to make the intent of what we will do to truly bite on those who are doing wrong”?
Lee Rowley
I am grateful to my hon. Friend the Member for North East Bedfordshire and the hon. Member for Greenwich and Woolwich for tabling their amendments. I share their basic conceptual desire, and that of other Committee members, for people or organisations that have done the wrong things to be held to account. There should be penalties that recognise that they have done the wrong thing. The challenge is always going to be where we draw the line.
I recognise that there are multiple parts of the menu on offer. Notwithstanding the very valid points that have been made, it is important not to lose sight of the fact that the Government are doubling the number from £2,500 to £5,000. Individual right hon. and hon. Members will take different views throughout this process and beyond on whether that is proportionate or whether it should be higher or lower. We think we have struck a proportionate balance.
I will add to the record, for consideration, the importance of the potential for unintended consequences. The response will quite rightly be that it will ultimately be for the tribunal to determine how much to apportion and how to use any changed option. There is a scenario in which the potential penalty on the freeholder, or the party being taken to the tribunal, becomes so great and the hazard becomes so visible that the freeholder starts to oppose it with even more objections, difficulties and the like.
I am making quite a nuanced argument, and Members may feel that I am overthinking this, but we have to be cautious not inadvertently to create a process that emboldens freeholders to fight even harder because of the potential hazard and because they feel that they may be exposed to a fine larger than would be reasonable and proportionate. However, I take the point about the challenge of setting the penalty in the right place. The Government’s view is that the increase from £2,500 to £5,000 is a step forward. That is what we are proposing to this Committee. As a result, we will resist the amendments.
Matthew Pennycook
To clarify whether my reading of proposed new section 25A(5) of the Landlord and Tenant Act 1985 is right, is the penalty a single amount that is shared, or an amount per challenge? This is important.
Lee Rowley
I apologise for not covering that point; I intended to do so. It is £5,000 per challenge. There is the ability to bring forward multiple challenges. Should that be the case, similar amounts of damages may be awarded.
Richard Fuller
Sorry, I am such a pedant, but “per challenge” could relate to person A making the challenge that report x was not done on time, and then person B making the challenge that report x was not done on time. Do those two challenges count as two separate challenges because they are brought by two different people, although they are for the same objection, or as one challenge because they are for the same objection, although they are presented by two different people?
Lee Rowley
They are two separate challenges. If a challenge goes to the tribunal and it is deemed that a penalty should apply, for whatever reason or whatever poor behaviour, and a penalty of up to £5,000 is apportioned, and then another person makes the same claim about exactly the same instance, one would logically expect the tribunal to allocate the same penalty. Multiple challenges get multiple fines.
Barry Gardiner
Could the Minister elaborate on something? Where a group of leaseholders brings the challenge—let us say that 30 leaseholders in the block all club together and bring the challenge—is it one challenge that pays one set of £5,000, or is it 30 challenges that pay £5,000 each? Otherwise, we risk leaseholders bringing one challenge and then everybody thinking, “Okay, if I’ve got to, I will now do it,” and making the same challenge over and over again, clogging up the tribunals. That is not what we want. If they all come together and make that application, surely they should all get the damages that the tribunal feels is proportionate.
Lee Rowley
The hon. Gentleman is making a number of important points. As it is currently structured, one challenge of n people gets up to £5,000; if it is multiple challenges of one person or n people within challenge 2, challenge 3 or challenge 4, that would be £5,000. As it is structured at the moment, one challenge equals £5,000, irrespective of the number of people within that challenge.
Barry Gardiner
Does the Minister appreciate that that could lead to a situation in which we are multiplying challenges unnecessarily?
Lee Rowley
I absolutely appreciate the point that has been made. There is a balance to be struck here. Obviously we will need to go through the justice impact test, or whatever it is called, to check the volume of challenges that would potentially come into the tribunals system as a result of the changes in the Bill. Again, it is about trying to balance those very challenging concepts, making sure that there is a penalty—it is important to recognise that the penalty is doubling—but also that people have the ability to choose to do things or not do things. I know that members of this Committee will have different views about how to structure that balance.
The Chair
Order. We are getting a bit conversational in the exchanges we are having. Can Members make either interventions or speeches, please? It is difficult to follow what is going on up here.
Matthew Pennycook
The Minister’s response was quite disappointing. I think he has made it clear that it is per challenge per group, so what is the incentive for a large group of leaseholders to press the dispute if the potential amount of the share that they are going to get is £100, or even £50? It might be a low amount. [Interruption.] No, it could be. It is a share of the challenge; if there are 100 leaseholders in the challenge, they get a maximum of £5,000 to share between them unless they make multiple challenges. That is my reading of what the Minister has just said.
Richard Fuller
I think the shadow Minister is mixing two things up when he says that people get a share. The issue here is about changing the behaviour of the person who is doing wrong, not “I’m going to get this much money out of it.” The incentive is for the person who is doing wrong. Does the shadow Minister agree with the point made by the hon. Member for Brent North about clogging up the system: why would 150 people put one challenge in when they could put 150 challenges in?
Matthew Pennycook
I take the point, and I understand what the hon. Gentleman is driving at: there is the very real risk of clogging up the system with multiple challenges if leaseholders are sophisticated enough to understand the provisions of the clause and work out that the best thing they can do is submit multiple challenges. I do not think that most will. There is therefore a detrimental impact on the incentives for leaseholders to try to dispute these matters.
Coming back to the fundamental point of whether this will change the behaviour of landlords when it comes to compliance, though, I think the hon. Gentleman is right: the figure of £5,000 is too low. I have had this debate so many times with Government Ministers. We had it on the Renters (Reform) Bill: the maximum that local authorities can charge for certain breaches of that Bill is £5,000. Most landlords will take that as a risk of doing business.
Matthew Pennycook
It is operational. It can be absorbed on the rare occasion that it will be charged, so we think that amount should be higher. Ultimately, as the hon. Member for North East Bedfordshire said, we have to make clear that we are very serious about the sanctions in this new section biting appropriately. For that reason, although I am not going to push the amendment to a vote at this stage, it is a matter that we might have to come back to. It applies to part 4 of the Bill—to residential freeholders—equally, and it is important that we get it right and convince the Government to look at this matter again. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lee Rowley
I beg to move amendment 48, in clause 30, page 50, line 14, leave out subsections (4) and (5).
This amendment is consequential on Amendment 123.
Lee Rowley
Amendment 48 is consequential on amendment 123, which we discussed in our debate on part 2. Amendment 123 ensures that the Bill is clear for the reader by grouping a set of related amendments that are consequential to section 26 of the Landlord and Tenant Act 1985, which clarifies that the provisions of amendment 29 do not apply to tenants of public authorities.
Clause 30 will introduce new, more effective and more proportionate enforcement measures to replace existing ineffective measures. Subsection (2) will repeal the existing enforcement provisions under section 25 of the 1985 Act, which allow a local housing authority or leaseholder to bring proceedings against the landlord in the magistrates court. This measure proved an ineffective deterrent and has hardly been used.
Subsection (3) will insert a new section 25A into the 1985 Act. It sets out routes to redress. Proposed new section 25A(2) sets out measures for situations in which landlords have failed to provide the information required to be included within the annual report or have failed to provide the service charge demand form in the prescribed format. When those circumstances apply, the leaseholder may make an application to the appropriate tribunal. The tribunal may order that the landlord must serve a demand for payment using the correct form under section 21C or provide a report in accordance with section 21E within 14 days of the order having been made. It can also order that the landlord pay damages to the leaseholder.
Proposed new section 25A(3) sets out measures for where the landlord has failed to provide information on request. In such circumstances, the leaseholder may make an application to the appropriate tribunal. The tribunal may order that the information is provided within 14 days, or that the landlord pays damages to the leaseholder, or both.
Proposed new section 25A(5) provides that the damages payable to leaseholders must not exceed the £5,000 figure that we have just debated. Proposed new section 25A(6) will confer powers on the Secretary of State and Welsh Ministers to amend this amount to reflect changes in the value of money, if they consider it expedient to do so. Proposed new sections 25A(7) to (10) contain measures to ensure that landlords cannot pass through service charge demands that they have been ordered to pay nor draw on service charge moneys held in trust and hence seek to reclaim their losses. I commend the clause to the Committee.
Amendment 48 agreed to.
Clause 30, as amended, ordered to stand part of the Bill.
Clause 31
Limitation on ability of landlord to charge insurance costs
Amendment made: 49, in clause 31, page 50, line 24, leave out from beginning to “insert” in line 25 and insert
“After section 20F of the LTA 1985”.—(Lee Rowley.)
This amendment is consequential on Amendment 51.
Barry Gardiner
I beg to move amendment 151, in clause 31, page 50, line 32, leave out from beginning to end of line 32 and insert—
“(a) exceed the net rate charged by the insurance underwriter for the insurance cover, and”
This amendment would define an excluded insurance cost as any cost in excess of the actual charge made by the underwriter for placing the risk, where such cost is not a permitted insurance payment.
The Chair
With this it will be convenient to discuss the following:
Amendment 135, in clause 31, page 50, line 34, at end insert—
“(2A) Costs for insurance are also ‘excluded insurance costs’ where—
(a) a recognised tenants’ association has not been provided in advance with three quotations from reputable insurance companies or brokers, or
(b) the recognised tenants’ association has not had the opportunity to submit a further quotation (in addition to the quotations required by paragraph (a)), which the landlord must consider prior to placing the insurance.”
This amendment would require a landlord to provide a recognised tenants’ association with three insurance quotes before placing the insurance, and provide an opportunity for a recognised tenants’ association to submit an alternative quotation.
Amendment 152, in clause 31, page 50, line 35, leave out from beginning to end of line 6 on page 51.
This amendment, to leave out subsection (3) of the proposed new section 20G of the Landlord and Tenant Act 1985, is consequential on Amendment 151.
Amendment 153, in clause 31, page 51, line 18, at end insert—
“(5A) The regulations must specify a broker’s reasonable remuneration at market rates as a permitted insurance payment.
(5B) The regulations must exclude any payment which arises, directly or indirectly, from any breach of trust, fiduciary obligation or failure to act in the best interests of the tenant.”
This amendment would require “permitted insurance payment” to include payment of a reasonable sum to a broker at market rates for placing the cover, and to exclude any payments which have arisen from wrongdoing.
Amendment 137, in clause 31, page 52, line 24, leave out third “the” and insert “a reasonable”.
This amendment would ensure that the costs which a landlord can recover from tenants in making “permitted insurance payments” are reasonable.
Clause stand part.
Amendment 154, in clause 32, page 51, line 3, leave out “Sub-paragraph (2) applies” and insert
“Sub-paragraphs (1A) and (2) apply”.
This is a paving amendment for Amendment 155.
Amendment 155, in clause 32, page 53, line 5, at end insert—
“(1A) Within six weeks of the insurance being effected, the insurer, or, where the insurance has been arranged by a broker, the broker, must provide all tenants with a written copy of the contract of insurance.”
This amendment would ensure that tenants are provided with the contract of insurance which covers their building.
Amendment 136, in clause 32, page 53, line 12, at end insert—
“(2A) Regulations under sub-paragraph (2) must specify the contract of insurance containing the full extent of the protection afforded by the insurance, and the associated costs.”
This amendment would require a landlord to provide a tenant with the contract of insurance containing the full extent of the protection afforded by the insurance, and the associated costs.
Amendment 156, in clause 32, page 53, line 22, leave out from beginning to the end of line 23.
This amendment, to remove sub-paragraph (7) of new paragraph 1A of the Schedule to the LTA 1985, would remove the landlord’s right to charge tenants for providing them with information about insurance.
Amendment 157, in clause 32, page 54, line 20, leave out from beginning to the end of line 21.
This amendment, to remove sub-paragraph (7) of new paragraph 1B of the Schedule to the LTA 1985, would remove the right of a person required to provide information about insurance from charging for providing that information.
Amendment 138, in clause 32, page 54, line 21, after “the” insert “reasonable”.
This amendment would ensure that the costs payable by a landlord for information requested by him from another person, under paragraph 1A(2)(a), are reasonable.
Clause 32 stand part.
New clause 41—Building insurance and section 39 of the Financial Services and Markets Act 2000—
“A landlord may not manage or arrange insurance for their building under the protections of section 39 of the Financial Services and Markets Act 2000.”
This new clause precludes a landlord from operating as an appointed representative under the licence of Broker, where the landlord has no such licence themselves.
Barry Gardiner
Gosh, that is quite a mouthful of a group! I draw the attention of the Committee in the first instance to amendments 151 to 153. I welcome the fact that the intention behind the Bill is to improve the situation with regard to insurance charges; I make it clear to the Minister that I do recognise that. Together, however, those amendments would prevent the Bill from excluding different descriptions of the type of costs that are excluded. Amendment 151 would change the definition of the actual cost that is permitted to a much tighter one, namely that which the underwriter has charged. Amendment 153 would add that the reasonable brokerage that the broker is charging the client, who is the landlord, is recoverable at prevailing market rates.
There is also the issue of fiduciary duty. Fiduciary duty and breach of trust are important, because the leaseholder on whose behalf the insurance is being arranged by the landlord has an insurable interest in the property. That means that the landlord, in affecting the insurance, is doing so not only on his own behalf but on behalf of the leaseholders; otherwise, the leaseholders would not be paying for it. The landlord is technically an agent of the leaseholder, and the law of agency in common law is specific about the duties of an agent to their principal. In particular, they may not do anything against their principal’s interest, as that would be a breach of trust. That means that should a landlord do anything improper to increase his own revenues against the leaseholder’s interest, he would be guilty of a breach of trust, and the leaseholder would and should be able to recover under common law and have a remedy for it.
Together, the amendments would provide a tight circumscription of what should be permitted as the recoverable costs when placing insurance, but of course I have left wiggle room for the Secretary of State, who is still able to specify in the secondary legislation anything that he or she thinks reasonable, so it is not a straitjacket. I hope that the Minister will understand that this gives much greater clarity to the notion of permissible insurance costs and much greater clarity, which I think is what he seeks in the Bill, to that which properly ought to be excluded. I have not constrained it so greatly that secondary legislation could not come into force to make something else permissible.
Amendment 135 would require a landlord to provide a recognised tenants association with three insurance quotations before placing the insurance, and to provide an opportunity for a recognised tenants association to submit an alternative quotation. In its multi-occupancy buildings insurance investigation, the Financial Conduct Authority found evidence of at least £80 million in insurance kickbacks going to landlords and their managing agents paid for by leaseholders. The amendment would bolster the rights of a recognised tenants association, which successive Governments have supported and sought to protect. Although it would not give the RTAs the power to place the insurance policy, it would help them to close the informational asymmetry with the landlord and pressure them to get a competitive deal by submitting their own quote.
I point out to the Minister that where capital works are being done under a section 20, that is exactly the procedure that would be in operation. The landlord would provide quotations, and the RTA would have the opportunity to submit its own quotation for the work to be done. It seems to me that introducing that same procedure for insurance would be extremely helpful.
Amendment 137 would ensure that the costs that a landlord can now recover from tenants in making permitted insurance payments are reasonable. Although the reasonableness of the cost of buildings insurance can be difficult to prove, especially in a market where brokers are often loth to quote to anyone who cannot place the insurance, the reasonableness test for service charges is the last line of defence for many. I do not think that the insurance scheme in the Bill can fail to make reference to the reasonableness of the permitted insurance payments. The Minister may well say that that will be prescribed in secondary legislation, but I seek to probe him on the point.
Amendment 136 is an important amendment that would require the landlord to provide a tenant with a contract of insurance containing the full extent of the protections afforded by the assurance and the associated costs. In the Bill, we have gone to great lengths to ensure that the leaseholder, as the assured, is able to access information from the landlord, but we heard in the evidence submitted to us by the witnesses in the evidence sessions that there should be a shortcut. The FCA rules already state that, if approached, an insurance company has to provide the information, although we then found out that the landlord did not have to tell leaseholders who the insurance company was; and we know about the difficulties in securing information from a landlord.
Would it not make sense to the Minister to have amendment 136 on the face of the Bill? This information is in the schedule of insurance. The underwriters want to know, “What is it I’m insuring?” They know exactly which units are in that block and exactly what is going on in that block. Therefore, they have the information to do it directly. It seems to me that the amendment would be a far more efficacious way of achieving the objective that the Minister has rightly set out in giving powers to acquire the information from the landlord; it would be far easier and far cheaper simply to say that the insurer has to do it.
Amendment 138 would ensure that the costs payable by a landlord for information requested by him from another person are reasonable. I am sorry that that was a lot, but it is a big grouping. Absolutely at the heart of the issue are amendments 151 to 153 and, ultimately, new clause 41, but we do not get to that until later, I understand.
Barry Gardiner
Fine. In that case, let me speak to new clause 41, which
“precludes a landlord from operating as an appointed representative under the licence of broker, where the landlord has no such licence themselves.”
The whole point of this new clause, which goes to that issue of fiduciary duty and agency, is that at the moment, landlords can operate under the licence of a broker to provide brokerage services. If we were to take away that capacity from them by passing new clause 41, we would then have circumscribed the way in which a landlord would be able to game the system, because they would not be able to operate under the protections that the Financial Services and Markets Act 2000 affords them, operating under somebody’s licence when they themselves do not have those qualifications.
I am unsure whether this is a proper interest to declare, but I am an associate of the Chartered Insurance Institute. That was many, many years ago; I am not practising now, but I have mentioned it just in case. I think that landlords are getting away with murder by operating in this way, and it would be good to close that loophole to bring it all very tightly together. I appreciate that amendments 151 to 153 and new clause 41 have to be seen as a unit, but they really do give the Minister the opportunity to do what I think he is attempting to do through the Bill, but in a tighter and more effective way.
Matthew Pennycook
I will be fairly brief, because my hon. Friend covered a lot of detail. He is right to do so, because these are important clauses. We welcome the intent behind them, and we think they have the potential to address a very serious problem that has plagued leaseholders across the country for many years. Not just those in buildings with fire safety defects who have seen their insurance premiums soar in the aftermath of the Grenfell fire, but across the board, we are seeing leaseholders face unreasonable and in many cases extortionate buildings insurance commissions that the property managing agent, landlords and freeholders have charged through the service charge. We discussed this in our evidence sessions last week. The Financial Conduct Authority’s report of September last year on the subject of insurance for multi-occupancy buildings found evidence of high commission rates and poor practice, which were “not consistent” with driving fair value to the customer.
The FCA also found—I put this question to one of the witnesses in our evidence sessions, because I find it quite staggering—that the mean absolute value of commissions more than doubled between 2016 and 2021 for managing agents and freeholders of buildings with fire safety defects. Put simply, in far too many instances, managing agents, landlords and freeholders have been gouging leaseholders in this area with impunity. In practice, the effectiveness of this clause will hinge almost entirely on whether the definition of “excluded insurance costs” is sufficiently tightly drawn, and how we define “permitted insurance payments” for the purposes of specifying what payments can be charged.
I appreciate fully that the Minister will be bringing the necessary detail forward through regulations and we will scrutinise them very carefully when that happens. My right hon. Friend—sorry, just hon. Friend, but it is only a matter of time—the Member for Brent North is right to try to strengthen the clauses, because although the permitted insurance payments must be attributable to a permitted insurance, there is nothing on the face of the Bill to ensure that they or the cost of providing information in relation to them is reasonable to the leaseholders. As far as we understand the clause, there is no guarantee that leaseholders will be able to transparently scrutinise quotes or the agreed contract. We fully support my hon. Friend’s amendments 151 to 153, 157, and particularly new clause 41, which attempt to address some of these omissions and deficiencies. I hope the Minister will give them due consideration.
Specifically on my hon. Friend’s amendment 136, clause 32 introduces a new duty to provide specified insurance information to leaseholders. Again, it will be for regulations to fill out the detail about how the new duty will operate in practice, but I would like to briefly probe the Minister on it. During our evidence session with Matt Brewis of the Financial Conduct Authority, it became clear that although the FCA’s new rules mandate that a contract of insurance must be provided by an insurer or broker to the freeholder, and although the leaseholder will be able to write to the insurer to request a copy of the contract, there is nothing that we can see in either the FCA’s rules or the Bill as drafted that will permit a leaseholder to know who that insurer is in the first place. I would like to press the Minister, as my hon. Friend has, to confirm that the Government’s intentions when regulations are made under this clause is for the specified information to include a copy of the contract with the relevant insurer.
While we are considering these two clauses, I would like to take the opportunity to raise a separate concern, which I do not believe is covered by my hon. Friend’s amendments, in relation to proposed new section 20H of the Landlord and Tenant Act 1985, as provided by clause 31 of this Bill. This proposed new section would introduce a new right to claim where excluded insurance costs are charged. Again, this has the potential to provide leaseholders with effective means of redress, but its efficacy depends on how it is implemented. I would be grateful if the Minister could confirm that there is no specific requirement for any damages awarded under this proposed new section to credit the service charge accounts of leaseholders not party to the claim, or any service charge fund generally. It stands to reason that if one has been affected—and this follows from the debate we had on a previous clause—the rest of the leaseholders in the building will be too. If so, could the Minister look at how the regime operates to ensure that all leaseholders that have paid excluded costs are reimbursed in the same manner as the claimant?
Lee Rowley
I turn first to amendment 151, in the name of the hon. Member for Brent North. As someone who has held the building safety portfolio in my Department for the past 16 months, one of my greatest frustrations is that we have not yet made the progress that I would like to see, and that I am sure we would all like to see, with regards to insurance for buildings that have been affected by cladding, having made good progress on lending and other areas.
I think we have made some progress, and the willingness of a number of brokers to come together and voluntarily cap what they are willing to take is a step forward; I would like to see other brokers doing the same. I would also like to see an industry-led solution to be brought forward for those with the greatest exposures at the earliest possible opportunity. That is something I outline to the Association of British Insurers, and other insurers, on a very regular basis—with varying degrees of frustration and emphasis. I hope we will see movement on that in the very near future.
That is a broad discussion about a more specific issue—I will turn shortly to the amendments we are currently debating—although I hope that highlights my interest in this area and my desire to get this right not just for people with remediation and cladding issues, but for the broader community of leaseholders in general. On that basis, I hope that both the hon. Members for Brent North and for Greenwich and Woolwich will appreciate that we have similar ambitions in making sure that transparency in this area is as effective as it can possibly be, and that we ensure the appropriate outcome so as to improve things from where they are at the moment.
I turn to the amendments, specifically amendment 151. We believe that clause 31, which inserts proposed new section 20G into the Landlord and Tenant Act 1985, already achieves the intent behind the amendment by providing powers that allow the appropriate authority to specify the permitted insurance costs that can be passed through the service charge to leaseholders.
From discussions held with the insurance sector itself, and with the FCA, we know that the value chain is a complicated one. Some buildings rely heavily on the reinsurance market—we have seen that increasingly with remediation issues—using a broker for access, and some do not. Some place insurance with numerous insurers splitting the risk, whereas others only use one—the hon. Member for Brent North may know this from his previous engagement with the industry.
Clause 31 is designed to constrain unreasonable costs in all scenarios by defining a payment and allowing us to then separate these costs as either permitted or excluded. Although I understand the intent of the hon. Member for Brent North, the Government’s concern about amendment 151 is that in seeking to tighten the provisions, it may have pulled the strings a little too tightly and become too narrowly focused on certain elements. I hope the hon. Gentleman will consider withdrawing his amendment as a consequence.
Again, although I have great sympathy for the sentiment behind amendment 135, I hope the transparency provisions already in the Bill will help in this regard. Once implemented, they intend to enable leaseholders to have access to details of the policy and the total amount of remuneration being taken on their building's insurance placements. This can be used for a legal challenge if costs have not been reasonably incurred. Our concern with the amendment is the potential for delays in the placement of insurance, which could result in a lapse in cover to the material risks of the building. There also may be instances—although I hope it would be a minor number of cases—where three quotes cannot be obtained, as much as that is possibly unlikely to occur.
We seek to focus the legislation on ensuring that those buildings have insurance that works, with a balance that is appropriate and supported by regulatory changes brought in by the FCA. On the basis of that explanation, I hope the hon. Member for Brent North will withdraw his amendment.
I will address amendments 152 and 153 together. Again, we have are similar ambitions, aspirations and intent, but again, there is a question of narrowness through the amendments, and our view remains that clause 31 will allow full scrutiny of what is to be a permitted insurance payment. The intention is for that to be both through consultation and then subsequently set out in regulations through the affirmative procedure, which will allow hon. Members to debate measures and highlight if there is a better way of doing it. I hope that, with those reassurances, the hon. Member for Brent North may be willing to withdraw the amendments.
Amendment 137 seeks to introduce a reasonable test to permitted buildings insurance costs. At the heart of clause 31 is the need for any costs passed on to leaseholders relating to the placement or management of buildings insurance to be fair and transparent. That is the whole point of it. Section 19 of the Landlord and Tenant Act 1985 already requires for those costs to have been reasonably incurred and for a reasonable service to have been provided. We have obviously seen a whole heap of bad behaviour in this sector; I accept that that is the case. Within the sector, there is ubiquitous use of commissions with poor or no underlying connection to the work undertaken, and I hope that some of the progress made through the Bill will hopefully reduce that.
I do not believe that the amendment would sufficiently protect leaseholders. We seek very clear requirements in the secondary legislation for how permitted insurance fees will be calculated, and that their reasonableness be included in that. We will consult on the measures in due course, and I hope that, with those reassurances, the hon. Member for Brent North will withdraw his amendment.
I turn to clauses 31 and 32, which address insurance, before turning to some further Opposition amendments. Several actors in the procurement of buildings insurance each seek to make a profit in return for their role in supplying insurance, whether they be brokers, managing agents or landlords, who can all take commissions, and that all adds to the overall cost.
Currently, as we have discussed, leaseholders do not have to be made aware of these commissions, and that can hinder the ability of leaseholders to challenge unfair costs. Inflated premiums can be paid through the service charge because there is a lack of transparency and knowledge about what is happening. Clause 31 seeks to ban the placer of insurance on residential leasehold properties from receiving any form of commission that is passed on to leaseholders as a cost, and instead uses a transparent handling fee that must be proportionate to the value of the work done.
Proposed new section 20G provides that excluded insurance costs cannot be charged and enables the Secretary of State and Welsh Ministers to prescribe a permitted insurance payment, which will be the only payment that can be charged. The detail of calculating the fee is to be set out in affirmative secondary legislation, and we will work with stakeholders across the industry and in this place to support that.
Proposed new section 20H sets out what happens should the ban be breached. There is an ability to apply to the tribunal in England and the leasehold valuation tribunal in Wales. It also removes the presumption that leaseholders have to pay their landlord’s legal costs when challenging poor practices, as we talked about earlier. If the tribunal determines that the legislation has not been complied with, damages can be paid. That will be a minimum of the commission taken or the unlawful insurance handling fee, but it will not exceed three times the level of the commission or fee.
Proposed new section 20I outlines the right of the landlord to obtain a permitted insurance payment. The section clarifies how all costs for placing and managing insurance incurred by the landlord must then be charged to the leaseholder. Transparency reforms in the Bill will require the placer of insurance to disclose information about the decision-making processes when purchasing buildings insurance on behalf of leaseholders.
Amendments 154 and 155, tabled by the hon. Member for Brent North, seek to stipulate how the insurance contract is to be provided to leaseholders. We have been working already with the FCA on that area, and it has already produced a number of reports and changed its regulations. The changes allow leaseholders to receive their policy documents and information about the charges within their overall premium. Those changes are important to ensure that the relevant information is available, but they do not remove the necessity for the landlord to supply that information as the placer of the insurance. The amendments tabled by the hon. Member for Brent North remove the focus on the landlord’s responsibility to undertake that activity. Clause 32 is designed to complement the work of the FCA and to provide the powers necessary to ensure that landlords supply the information that will enable leaseholders to scrutinise. With those assurances, I hope that the hon. Member will not press the amendments to a vote.
Barry Gardiner
I am grateful to the Minister for the way in which he is engaging with the issue and for the points he has made. Given that it would be possible to relay the insurance contract electronically, will it be possible for secondary legislation to stipulate that any additional layers of complexity would be outwith the permitted costs? The Minister will see that I keep coming back to that theme, because unfortunately landlords add additional layers of complexity. We need to be sure that, where it is possible to do something simply, it is not permissible to recover the cost of doing it not simply, if I can put it that way.
Lee Rowley
The hon. Gentleman raises an important point. I will not try to solutionise in Committee, given the inherent dangers doing so from the Government Front Bench. We have committed to consulting, and there will be lots of experts and interested parties who will want to engage in that. As the hon. Gentleman suggests, transfers of data in an electronic form do not necessarily involve a substantial amount of time or effort, albeit that the provision and creation of the data in the first place may do. Those are exactly the kinds of things that we will want to talk about as part of the consultation, as and when it comes. On that basis, I hope that the hon. Member will consider not pressing amendments 156 and 157.
Amendment 138 seeks to require that charges made of parties where they request information from the landlord are reasonable, and I agree with the sentiment. Reasonableness is already required through section 19 of the Landlord and Tenant Act 1985. As I indicated in relation to amendment 137, reasonableness is not in itself a guarantee that costs will be constrained and proportionate, especially where the test is reliant on the assessment of normal behaviour across the sector. The Government would seek to deal with this area in secondary legislation, to ensure that the priorities of transparency and proportionality are in place. On that basis, I hope that the hon. Member will consider not pressing his amendment.
Before I conclude, I have two further points. Clause 32 confirms the importance of the intention of transparency, which is behind the Bill. The clause places a duty on landlords and managing agents that compels them to proactively provide information on building insurance to leaseholders. That should help leaseholders to better understand what they are paying for, and give them information they need to scrutinise that and take appropriate action, should that be necessary. The required information will be specified in the regulations, but it is anticipated that it should detail the insurance policy that is purchased, including a summary of the cover such as the risks insured, excess costs, premium costs and any remuneration received by the insurance broker. We also anticipate that it will include details of all alternative quotes obtained from the market and any possible conflicts of interest that arose during the procurement process.
Subsection (2) will insert new paragraph 1A into the schedule to the 1985 Act to allow leaseholders to request further information from landlords or managing agents. This could include full contractual documentation and policy wording, as well as the declaration of technical information that may have shaped the eventual premium price. We hope that giving leaseholders this improved information will allow them to challenge the reasonableness of their policy costs, if required. We expect that it will change landlord behaviour by making sure they are more price conscious, as it will be clearer that their movements are being watched. This will ensure that they do not try to pull a fast one on their leaseholders when it comes to insurance.
New paragraph 1B imposes a duty on third parties to provide landlords with any specified information requested within the specified period. Under paragraph 1A landlords will be obliged to provide information that is in their possession, and under paragraph 1B, where a landlord needs to ask another person for that information, that other person will also be required to provide the information within the specified timescales. Again, those timescales will be detailed in secondary legislation.
Clause 32 places requirements on landlords for how the handling fee that will replace insurance commissions will be disclosed to leaseholders. Again, this seeks to ensure greater transparency and allow more scrutiny where the charges are unreasonable.
Under paragraph 1C of the schedule to the 1985 Act, a leaseholder may make an application to the appropriate tribunal if their landlord fails to comply with the requirements under paragraphs 1A and 1B. I commend the clause to the Committee.
Finally, new clause 41 would preclude landlords from undertaking regulated insurance activity on behalf of a broker. Although I understand the sentiment behind this new clause, I hope the hon. Member for Brent North will recognise that the underlying point behind clauses 31 and 32, on which I hope we all agree, is transparency and fairness. These clauses will require the disclosure of fees charged for any work, as I have just indicated. We will prescribe what is a permitted cost that can be collected through the service charge, which should ensure that commissions that bear no connection to the work undertaken will not be permitted. It should also ensure that key documentation is provided.
Barry Gardiner
The Minister said that all the costs of the broker will have to be disclosed, which is absolutely right. However, where the landlord is operating under the provisions of the Financial Services and Markets Act 2000, he or she would be indistinguishable from that brokerage company and, therefore, the leaseholder will not be able to ascertain what was done by the broker and what was done by the landlord operating under the licence of the broker. What will be revealed is simply “the brokerage.” Unless we can unravel that, we will never get to the issue of kickbacks. As we saw with the Canary Riverside case before Christmas, those kickbacks can be frighteningly large—£1.6 million for one block. The disaggregation of what is the landlord qua broker and what is the broker qua broker is really important.
Lee Rowley
I will try to reassure the hon. Gentleman. I think we both agree on the intention behind full transparency and clarity, so that things are not being hidden in the “value chain,” to use a terrible expression from my previous life.
The secondary legislation for clause 31 will seek to define the permitted insurance costs, and we will consult specifically on issues around regulated insurance activity. I hope that secondary legislation will cover some of the hon. Gentleman’s points and allow him, and others with concerns, to make their case. We can then determine how best to approach it.
With that, I hope the hon. Gentleman will consider withdrawing his amendment.
Barry Gardiner
There is good news and bad news, Mr Efford. The good news is that I am content to withdraw amendments 135, 137, 154, 155, 136, 156, 157 and 138, but I wish to press amendments 151, 152, 153 and 157 to a vote.
Question put, That the amendment be made.
Lee Rowley
We know that there is currently a lack of transparency around administration charges and that leaseholders can face high administration charges. Administration charges must be reasonable, but this can be difficult to determine due to the lack of clarity surrounding them. As a result, leaseholders are often reluctant to challenge the reasonableness of administration charges at the appropriate tribunal.
Clause 33 inserts new paragraph 4A into schedule 11 to the Commonhold and Leasehold Reform Act 2002. It will require landlords to publish an administration charge schedule. A revised schedule must also be published if a landlord revises the administration charges. The Secretary of State and Welsh Ministers will be able to prescribe the form and content of the schedule, and how it is to be provided to a leaseholder, in regulations. If a landlord has not complied with the provision of publishing an administration charge schedule, a leaseholder may make an application to the appropriate tribunal. The tribunal may order that the landlord provide an administration schedule within 14 days and pay damages of up to £1,000 to the leaseholder. This measure seeks to increase transparency, and I commend the clause to the Committee.
Matthew Pennycook
As the Minister has just made clear, clause 33 amends the 2002 Act to create a new duty on landlords to publish administration charge schedules. We welcome it but, as with clauses 31 and 32, the effective functioning of the new requirement will depend on details such as the form and content of the schedule and how it should be published, all of which is to be set out in future regulations.
I have two specific questions for the Minister. The first largely mirrors my concern about the provisions in clause 31 relating to damages. If a tenant claims damages as a result of a breach of the requirements in new paragraph 4A of the 2002 Act, is it not likely that other tenants will have been similarly affected by the failure to publish an administration charge schedule? If it is the case that the damage provisions relate only to the claimant, will the Minister look at how the regime operates to ensure that all leaseholders who may have paid costs, other than in accordance with new paragraph 4A of the 2002 Act, are reimbursed in the same manner? It is a recurring theme, but it is worth putting on the record that it applies to clause 33 as well.
Secondly, along with other measures in the Bill that add new provisions for when a leaseholder is liable to pay a charge—in this instance, where an administration charge has been levied that has not appeared for the required period on a published administration charge schedule—how do the Government intend to make leaseholders aware of their new rights in this respect and in various other places throughout the Bill? Will he consider mandating that freeholders must furnish all leaseholders with an updated “how to lease” guide?
Lee Rowley
I am grateful to the hon. Gentleman for his questions. I will write to him on the answers or the process by which he can get them.
Question put and agreed to.
Clause 33 accordingly ordered to stand part of the Bill.
Clause 34
Limits on rights of landlords to claim litigation costs from tenants
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Clause 35 stand part.
New clause 3—Prohibition on landlords claiming litigation costs from tenants—
(1) Any term of a long lease of a dwelling which provides a right for a landlord to demand litigation costs from a leaseholder (whether as a service charge, administration charge or otherwise) is of no effect.
(2) The Secretary of State may, by regulations, specify classes of landlord to which or prescribed circumstances in which subsection (1) does not apply.
(3) In this section—
“administration charge” has the meaning given by Schedule 11 of the Commonhold and Leasehold Reform Act 2022;
“dwelling” means a building or part of a building occupied or intended to be occupied as a separate dwelling, together with any yard, garden, or outhouses and appurtenances belonging to it or usually enjoyed with it;
“long lease” has the meaning given by sections 76 and 77 of the Commonhold and Leasehold Reform Act 2002;
“service charge” has the meaning given by section 18 of the Landlord and Tenant Act 1985;
“landlord” has the meaning given by section 30 of the Landlord and Tenant Act 1985.
This new clause would prohibit landlords from claiming litigation costs from tenants other than under limited circumstances determined by the Secretary of State.
Lee Rowley
We know that leaseholders can be deterred from challenging costs, or the services that their landlord provides, at court or tribunal for fear that they will also be charged their landlord’s legal costs. The ability of the landlord to charge litigation costs will depend on whether the lease allows for that. That can mean that leaseholders have to pay litigation costs even if they win. Currently, the onus is on leaseholders to make an application to the relevant court or tribunal to limit their liability to pay those costs.
Clause 34 seeks to flip that presumption, and instead requires landlords to apply to the relevant court or tribunal for permission to recover their litigation costs from leaseholders, whether as an administration charge or through the service charge. It does that by inserting proposed new section 20CA into the Landlord and Tenant Act 1985 relating to litigation costs passed through the service charge, and inserting proposed new paragraph 5B into the Commonhold and Leasehold Reform Act 2002 regarding litigation costs recovered as an administration charge.
In the future, a landlord’s litigation costs will not be payable by a leaseholder unless the landlord has successfully applied to the relevant court or tribunal for an order. The relevant court or tribunal may make such order where it considers it just and equitable in the circumstances. We have also taken a power to set out matters that the relevant court or tribunal must consider when making an order on an application. We will carefully consider the detail of these matters with stakeholders, including the tribunal.
Where the landlord is applying to pass on their litigation costs through the service charge, they will be required to specify each individual leaseholder they are seeking to recover their costs from. We have sought to further protect leaseholders by ensuring that a lease, contract or other arrangement has no legal effect if it seeks to disapply this legislation. These measures will prevent leaseholders from being charged unjust litigation costs by their landlord, and will remove barriers to leaseholders holding their landlord to account. I commend the clause to the Committee.
On clause 35, at the moment landlords can charge the costs of a legal dispute to leaseholders. This is an imbalance, as landlords are in a better position to seek legal representation and are more frequently represented than leaseholders at hearings. We understand that there is no other area of law where the parties start from such an unequal position. Clause 35 gives leaseholders a new right to apply to the relevant court or tribunal to claim their litigation costs from their landlord. It does that by implying a term into all leases, ensuring greater balance between landlords and leaseholders with regard to litigation costs. On a leaseholder’s application, the relevant court or tribunal may make such an order if it considers it just and equitable in the circumstances. We have also taken a power to set out matters in regulations that the relevant court or tribunal must take into account when making an order.
Clause 35 also makes it clear that any costs that a landlord is ordered to pay to a leaseholder are considered to be litigation costs incurred by the landlord. As such, if the landlord wants to recover such costs through the service charge or as an administration charge, they will need to apply to the court or tribunal under clause 34.
In addition, we have taken a power to describe which “relevant proceedings” will be subject to the leaseholder’s right to seek their costs. This is to help align the leaseholder’s rights with the right to costs that landlords currently enjoy. We have further protected the leaseholder’s right to recover litigation costs by ensuring that a lease, contract or other arrangement has no legal effect if it disapplies this legislation. I commend the clause to the Committee.
New clause 3 seeks to disapply terms in a lease that allow a landlord to recover their legal costs from leaseholders. It also allows exceptions for certain types of landlord to be set out by the Secretary of State in regulations. Currently, landlords are able to recover their litigation costs from leaseholders, and we absolutely agree that unjust litigation costs should not be incurred.
There may, however, be legitimate cases where a landlord may need to seek their litigation costs from a leaseholder—for example, where a leaseholder has breached their lease in a way that is affecting the other residents in the building, or where non-payment of a charge is limiting the upkeep or repair of the building. In these cases, where landlords have exhausted other means of addressing the dispute, we would want them to feel able to address such issues and be able to recover their litigation costs, if that is justified. That is why we have included measures in the Bill to rebalance the system, but we do not necessarily believe that we should go further at this time. We hope that the Bill takes a proportionate approach. I hope that I have reassured the hon. Member for Greenwich and Woolwich that we are committed to ensuring a fair approach, and that he will withdraw the new clause.
Matthew Pennycook
I must disappoint the Minister, because what he says does not reassure me. I rise to oppose clause 34 standing part of the Bill, and to argue in favour of new clause 3. As he has made clear, clause 34 amends the Landlord and Tenant Act 1985 and the Commonhold and Leasehold Reform Act 2002, with a view to limiting but not abolishing the right of landlords to claim litigation costs from tenants. Although the property chamber tribunal does not generally tend to shift the legal costs of the winning party on to the losing claimant, on various occasions landlords have been able to rely on contractual rights to recover costs against leasees. When that occurs, it is in essence a form of one-way cost shifting, and it is inherently unfair to the affected leasees. Previous attempts have been made expressly to limit these cost recovery provisions, notably by means of schedule 11 to the Commonhold and Leasehold Reform Act 2002, but despite those provisions, and the issue coming before the higher courts on several occasions, the ability of a landlord to recover costs incurred in litigating disputes persists.
We support the aim of scrapping the presumption that leaseholders will pay their freeholders’ legal costs when they have challenged poor practice, as outlined in the explanatory notes to the Bill, and we believe that, apart from in a limited number of circumstances, landlords should be prohibited from claiming litigation costs from leaseholders. As I have said, clause 34 does not prohibit landlords from claiming litigation costs from tenants; instead, it merely limits their ability to do so.
The clause allows landlords in certain, at present undefined, circumstances to apply to the relevant court or tribunal for an order to pass their legal costs on to leaseholders as an administration charge, or on to all leaseholders, irrespective of whether they participated in any given legal action, through the service charge. It may be that the matters that the relevant court or tribunal can take into account when determining whether to make an order on an application for costs will be defined in such a way as to protect the vast majority of leaseholders from unjust, one-way cost shifting, but to allow for cost recovery in circumstances where it is essential—for example, when the landlord is a company controlled by the leaseholders that needs to recover its reasonable legal costs via the service charge or risk going bust. However, as we consider the clause today, we have no certainty whatsoever about that, because the matters that the relevant court or tribunal can account for, as well as the application process, will be set out in regulations to come.
Even if we had certainty about what the Government will tell courts and tribunals that they can consider in determining whether to make an order, we fear that clause 34 is an invitation to litigate. Yes, regulations will prescribe the relevant matters that can be taken into account, but given the multiple Court of Appeal cases and numerous upper tribunal cases on what “in connection with” means, we will almost certainly see disputes arising about what costs are incurred “in connection with” legal proceedings, and whether they are compatible. The risk is that the outcomes of any such cases could erode the general presumption against leaseholders paying their freeholders’ legal costs that the clause attempts to enact.
We believe that it would be more prudent to implement, by means of the new clause, a general prohibition on landlords claiming litigation costs from leaseholders, and then clearly to identify a limited number of exceptions to that general rule through regulations. As I have said, such exceptions might include cases in which the landlord is a leasehold-owned company, or in which the costs are, in the opinion of the tribunal, reasonably incurred for the benefit of the leaseholders or the proper management of the building. That would cover the example that the Minister used. Amendment 8, which would simply delete clause 34, and new clause 3 would provide for that approach by leaving out clause 34 and replacing it with a new clause that provides for a general prohibition on claiming legal costs from tenants, and for a power to specify classes of landlord who will be exempted from it.
I appreciate that this is a complex argument about the best means to achieve an agreed end, but we think that clause 34 requires further thought, and urge the Government to give serious consideration to the issues raised by amendment 8 and new clause 3. As I said, the Government’s approach is a recipe for freeholder litigation, and it might mean far more leaseholders than we are comfortable with bearing the legal costs of their landlords.
Rachel Maclean
I place on record my concerns about the Government’s approach to this issue, based on my experience in the Minister’s role, and having listened carefully to representations made, particularly by members of the all-party parliamentary group on leasehold and commonhold reform and a gentleman called Liam Spender, who detailed his experiences at the hands of FirstPort. That was an absolutely horrific, heartbreaking and shocking abuse of a decent, honourable and hard-working person buying a flat. He described it as being treated like a “lab rat” in a laboratory maze. I will not forget the testimony that he and many others gave.
Lee Rowley
My hon. Friend has a huge amount of expertise and knowledge in this area. I am grateful to her for all her work in preparing for our discussion today. I am very happy to talk to her in more detail on this subject. She is absolutely right to articulate that progress must be made, and we must ensure that the correct balance is struck. I know that she will appreciate that there is a balance to strike, rather than there being movement in only one direction, but I appreciate the points that she made. I am happy to talk to her further outside the Committee, and I hope to provide her with the assurances that she seeks.
Matthew Pennycook
I thought that the Minister would provide a fuller response to our intention to remove the clause and introduce new clause 3. The hon. Member for Redditch is right to be concerned about the clause as drafted—I commend her for raising the issue. The spirit of the Committee has not been particularly party political, but I will give her the opportunity to break the Whip, because we feel strongly about the issue. Lots of leaseholders will find that they still bear legal costs because of the way in which the Government have approached this issue; it is a recipe for litigation. There is a much more sensible way to achieve the end that I think we all want: a general prohibition with a very limited number of exceptions, which could set out clearly in the Bill. We oppose the clause standing part, and will potentially move the new clause in due course.
Question put, That the clause stand part of the Bill.
Lee Rowley
Clause 36 sets out general provisions that apply to regulation-making powers under the Landlord and Tenant Act 1985. Subsection (2) introduces a new section 37A, which sets out the procedure applicable to statutory instruments. It provides clarity on what is meant by regulations that are subject to the negative procedure and those that are subject to the affirmative procedure. Subsection (3) inserts a new definition of “appropriate authority” into section 38A of the 1985 Act. That defines the Secretary of State as being the appropriate authority in England, and Welsh Ministers the appropriate authority in Wales. I commend the clause to the Committee.
Question put and agreed to.
Clause 36 accordingly ordered to stand part of the Bill.
Clause 37
Part 3: consequential amendments
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Government amendments 125 and 126.
Schedule 8.
Government new clause 8—Appointment of manager: power to vary or discharge orders.
Lee Rowley
Clause 37 introduces schedule 8, which concerns a number of consequential amendments to the 1985 Act and other Acts of Parliament arising from the provisions of part 3 of the Bill. We will address those consequential amendments when we come to schedule 1, and I commend the clause to the Committee.
Government amendment 125 is a consequential amendment on new clause 8, which ensures that the tribunal has the ability to vary or discharge orders it makes under leasehold legislation on its own as well as on request. Government amendment 126 clarifies that a repeal of a section in the Housing (Wales) Act 2014 is to be done in both the English and Welsh language texts of the Act. I commend those amendments to the Committee.
Schedule 8, as introduced by clause 37, sets out the consequential amendments arising from the provisions of part 3 of the Bill. Part 1 of the schedule sets out the specific consequential amendments to the 1985 Act to take account of the changes in clause 36. In many cases, it makes changes to the regulation-making powers to confirm that the Secretary of State has powers to make regulations in England, and that Welsh counterparts do in Wales. It also clarifies which regulation-making provisions in the Act are subject to the negative procedure or the affirmative procedure. Part 2 of the schedule sets out consequential amendments to other Acts of Parliament to reflect the new measures introduced by part 3 and the omission of existing measures. The schedule seeks to provide clarity on regulation-making powers and to ensure that other Acts of Parliament reflect the new measures provided in part 3 of the Bill. I commend the schedule to the Committee.
Turning to new clause 8, sections 21 to 24 of the Landlord and Tenant Act 1987 provide a remedy for leaseholders in circumstances where there is significant management failure. Under current arrangements, leaseholders may apply to the first-tier tribunal to ask it to make an order to appoint a manager, who will be responsible for carrying out functions specified in the order rather than by the landlord or an agent acting on their behalf. The manager will be accountable to the tribunal, but once an order has been issued, the tribunal may only vary or cancel it if an interested party asks it do so. The current arrangements are, in the Government’s view, too restrictive and limit the tribunal’s authority to act if there is already an existing order in place.
New clause 8 makes a minor amendment to section 24 of the 1987 Act and gives the tribunal the ability to take action on its own as well as on request. That means that, where there is a possible overlap between orders, the tribunal can amend an existing order, if necessary, of its own accord. The discretion to amend an order will be constrained. The tribunal must be satisfied that, in all cases, any variation or discharge is just and convenient, and would not result in the recurrence of the same problems that led to the order being made in the first place. I commend new clause 8 to the Committee.
Question put and agreed to.
Clause 37 accordingly ordered to stand part of the Bill.
Schedule 8
Part 3: Consequential Amendments
Amendments made: 121, in schedule 8, page 132, line 9, at end insert—
“13A The LTA 1985 is amended in accordance with paragraphs 14 to 14B.”
This amendment is consequential on Amendment 123.
Amendment 122, in schedule 8, page 132, line 10, leave out “of the LTA 1985”.
This amendment is consequential on Amendment 121.
Amendment 123, in schedule 8, page 132, line 18, at end insert—
“14A In section 26 (exception for tenants of certain public authorities)—
(a) in subsection (1)—
(i) for the words from ‘Sections 18 to 25’ to ‘do not apply’ substitute ‘Sections 18 to 25A do not apply’;
(ii) for ‘, in which case sections 18 to 24 apply but section 25 (offence of failure to comply) does not’ substitute ‘(but see subsection (1A));
(b) after subsection (1) insert—
‘(1A) The following sections do not apply to a service charge payable by a tenant under a long tenancy of a landlord referred to in subsection (1)—
(a) section 20H (right to claim where excluded insurance costs charged);
(b) section 20K (right to claim where costs charged in breach of section 20J);
(c) section 25A (enforcement of duties relating to service charges).’
14B In section 27 (exception for rent registered and not entered as variable), for the words from
‘Sections 18 to 25’ to ‘do not apply’ substitute ‘Sections 18 to 25A do not apply’”.
This amendment would consolidate the consequential amendments to section 26 of the Landlord and Tenant Act 1985 required by virtue of clauses 30 and 31 and NC7 into a single paragraph of Schedule 8.
Amendment 124, in schedule 8, page 132, line 21, leave out “Landlord and Tenant Act” and insert “LTA”.
This amendment is consequential on Amendments 47 and 54.
Amendment 125, in schedule 8, page 132, line 35, at end insert—
“(ca) in section 160 (third parties with management responsibilities), omit subsection (4)(d);”.
This amendment is consequential on NC8.
Amendment 126, in schedule 8, page 133, line 22, after “(anaw 7),” insert
“in the English language text and in the Welsh language text,”.—(Lee Rowley.)
This amendment would clarify that section 128 of the Housing (Wales) Act 2014 is to be repealed in both the English and Welsh language texts of that Act.
Schedule 8, as amended, agreed to.
Clause 38
Application of Part 3 to existing leases
Question proposed, That the clause stand part of the Bill.
Lee Rowley
Clause 38 makes clear that the new provisions introduced by this part of the Bill extend to leases entered into before the date the section comes into force. This provides clarity that the provisions in part 3 apply to existing, as well as new, leaseholders, but only from the date the relevant section comes into force. I commend the clause to the Committee.
Question put and agreed to.
Clause 38 accordingly ordered to stand part of the Bill.
Clause 39
Meaning of “estate management” etc
Lee Rowley
I beg to move amendment 52, clause 39, page 66, line 8, at end insert—
“(e) a charge payable by a unit-holder of a commonhold unit to meet the expenses of a commonhold association.
(9A) For the purposes of subsection (9)(e)—
(a) “unit-holder”, “commonhold unit” and “commonhold association” have the same meaning as in Part 1 of the CLRA 2002 (see section 1(3) of that Act);
(b) the expenses of a commonhold association include the building safety expenses of the association (within the meaning given in section 38A of the CLRA 2002).”
This amendment would exclude charges in respect of the expenses of a commonhold association from the definition of “estate management charge” for the purposes of Part 4.
Lee Rowley
Amendment 52 amends clause 39(9) of the Bill to clarify that any payment by a commonhold unit owner to a commonhold association is not to be regarded as an estate management charge. It is a clarificatory amendment to ensure that sums payable to a commonhold association that provides services to the common parts that it owns are not covered by part 4 of the Bill.
Turning to clause stand part, part 4 of the Bill creates a new regulatory framework to protect homeowners living on those estates where services are managed privately rather than by local authority. We know that that has been a growing trend and that homeowners on those estates have very few rights in that regard. We are determined to change that and empower homeowners to hold estate management companies to account on how they spend money and on the quality of the services they provide.
Clause 39 sets out key definitions that have effect for part 4 of the Bill. They have been drafted with the intention of providing clarity on what is and is not being regulated, and to avoid creating loopholes. For example, subsection (2) defines what is meant by estate management; subsection (3) defines an estate manager; subsection (6) defines a relevant obligation; subsections (8) and (9) define what is meant by and what is excluded from the definition of an estate management charge; and subsection (10) defines relevant costs. In aggregate, this clause helps to provide the key definitions for measures and will inform the regulatory framework in part 4, which we will discuss in due course.
Amendment 52 agreed to.
Clause 39, as amended, ordered to stand part of the Bill.
Clause 40
Estate management charges: general limitations
Question proposed, That the clause stand part of the Bill.
Lee Rowley
Clause 40 sets out general limitations with regard to estate management charges. Subsection (1) states:
“A charge demanded as an estate management charge is payable…only to the extent that the amount of the charge reflects relevant costs”—
in other words, purely the costs associated with estate management—and cannot be used to fund wider activities. This means that not every cost incurred by an estate manager is chargeable; an example would be if costs arose from the award of damages against the estate manager or an activity outside the estate by the estate manager that is not regulated. Those costs cannot be passed on.
Subsection (2) goes on to set out more detailed circumstances in which costs that are relevant costs may cease to become relevant costs and hence not payable or only partially payable.
Richard Fuller
I want to probe a bit more, because of the speed with which we shot through clause 39—with your leave, Chair, I am sure you will find this in order, because clause 40 also relates to relevant costs. Clause 39(10) says that relevant costs,
“in relation to a dwelling, means costs which are incurred by an estate manager in carrying out estate management for the benefit of the dwelling or for the benefit of the dwelling and other dwellings.”
As the Government were considering clauses 39 and 40, the general limitations on what might be a relevant cost, what consideration did the Minister or the Government give to the fact that there are some costs that might be covered within that general limitation that, for some people, are covered by payments they make through their council tax? Therefore, in certain circumstances it may be the case that people are paying twice for the same services covered by what are defined as estate management running costs.
Lee Rowley
I am grateful to my hon. Friend for his point. He tempts me, at this relatively late hour, to get into an extremely important conversation that we will come to in the coming days. With his leave, I will limit my response to acknowledging his broader point, which is potentially broader than simply the discussions here on this Bill. Having listened to the evidence given to the Committee last week, I recognise that this is a key area that those impacted by estate management charges would like to debate further. I know that we will come to this in due course. I am putting that down as a marker for further discussion—I am not sure if I can satisfy him with the discussion, but I will put down a marker for it none the less.
To conclude on clause 40, specifically, subsection (2) refers to the provisions in clauses 41 to 43, which cover the requirement for the reasonableness of estate management costs and broader consultation requirements. Clause 40 provides clarity that not all costs incurred by estate managers may be passed on and sets out circumstances when even chargeable costs are not payable. I commend the clause to the Committee.
Question put and agreed to.
Clause 40 accordingly ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Mr Mohindra.)
Criminal Justice Bill (Thirteenth sitting)
Thursday 25th January 2024
(3 months, 2 weeks ago)
Public Bill CommitteesRead Full debate Criminal Justice Bill 2023-24 View all Criminal Justice Bill 2023-24 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 25 January 2024 - (25 Jan 2024)
The Chair
I have a couple of preliminary announcements. Members should send their speaking notes, if they have any, by email to hansardnotes@parliament.uk. That helps to get the transcription done and made available to you as quickly as possible. Please switch electronic devices to silent; I have just checked mine, so hopefully it is okay. Tea and coffee are not allowed during sittings; that is just one of those things.
Clause 72
Crime and disorder strategies
Question proposed, That the clause stand part of the Bill.
The Minister for Crime, Policing and Fire (Chris Philp)
It is a pleasure, as always, to serve under your benevolent and wise chairmanship, Dame Angela.
The clause confers a new power on police and crime commissioners and other local policing bodies to make recommendations on the activity of community safety partnerships and, in turn, places a duty on community safety partnerships to consider those recommendations. Community safety partnerships will be duty-bound to consider recommendations, but they are not under a duty to implement them. However, if a partnership does not implement the recommendations, it must share its reasons for not doing so with the relevant local policing body, most likely the PCC.
The feedback from part 2 of the police and crime commissioner review, conducted by the Home Office in 2021, was that while the importance of local partnerships such as CSPs was widely acknowledged, they were not being used as effectively as they could be. Every public service should be accountable to the public, and to the local communities they serve. This provision will strengthen the accountability and visibility of CSPs and improve how they work with the relevant policing body to tackle crime, disorder and antisocial behaviour.
No one single agency can address all drivers of crime and antisocial behaviour, so partnership working between policing, local authorities, local education providers, the prisons, probation service, mental health trusts and so on are all very important. This measure will take a step towards formalising more that kind of collaboration.
I take the view, as I am sure other Members here do, that police and crime commissioners as directly elected representatives of the local people are particularly well placed to convene groups. More often than not, they chair the local criminal justice board. They have a lot of public visibility, convening power and influence, and provide visible public local leadership. The provision helps build on and strengthen the work that PCCs up and down the country are doing together. I commend the clause to the Committee.
Alex Norris (Nottingham North) (Lab/Co-op)
It is a pleasure to serve with you in the Chair, Dame Angela.
I am a community safety partnership enthusiast. The partnerships, which were established under the Crime and Disorder Act 1998, are a crucial forum for leadership, partnership working around crime prevention and reduction, and problem solving. I chaired my partnership in Nottingham a decade or so ago, and saw at first hand the impact of all those partners coming together, with shared priorities and mutual accountability, in a partnership built on trusted, close relationships and focused on solving problems.
It is with a degree of sadness that I say that partnerships have fallen in prominence and impact in recent years. One of the major challenges these bodies have found, and one of the limiting factors to the proposals in the Bill, is that austerity has bitten the partners that formed CSPs, certainly as regards funding, and partners have pulled away. In many cases, we have lost the shared data and insight function, and some of the things that brought partners to the table. Some of the extras done by CSPs are seen as nice-to-haves, rather than crucial functions.
As a result, there is a danger, certainly in some parts of the country, of the partnerships becoming meetings, rather than problem-solving bodies. Of course, whatever saving is made is lost later, through the impact on the criminal justice process. Certainly, if I ever get the chance to sit where the Minister sits, I will seek to reallocate those bodies and use them to their fullest extent, because we know the impact they can have.
In the meantime, we have what the Government have offered us. I probed the issue a little in our evidence session with the police and crime commissioners, and the real impact of this measure is that we are setting the police and crime commissioner or the relevant deputy Mayor as first among equals, and giving them higher status in CSPs. They are clearly to be given primacy. I thought about voting against this clause, but I talked to PCCs and local authorities, and they have fewer concerns than I do. The requirement is relatively light, in the sense that the power is to make recommendations, rather than to direct. That is probably right, so I have not chosen to vote against.
I have some degree of enthusiasm for what the Minister said about public transparency on decisions and recommendations. If recommendations are rejected, at least there will be an explanation why; that is probably enough. We should make it clear—I hope that the Minister will—that circumstances in which this power was necessary would generally reflect a failure. If a PCC needs to direct their CSP, there is no doubt a bigger problem in play.
What we want—I am sure that the Minister does as well—is a family of organisations across sectors in a community. We are talking about principally public sector organisations, but also bodies in the community and voluntary sector and, to some degree, the private sector, coming together on a basis of mutual trust to identify the common challenges for crime prevention and community safety in an area. They should have agreed priorities and plans based on good-quality data, insight and understanding of what each organisation is doing. Those are all parts of the puzzle. They should work to common goals in the interests of their community. That is easy to say, but it can be a difficult alchemy to achieve sometimes. However, that is what makes change, and that is what we need to see from CSPs. It will drive us away from what we have sadly seen in recent years.
There has been a move to counting crimes, and a move away from problem solving and problem-oriented policing. I have to say, there is minimal value to having one partner able to trump the rest. However, in cases of dysfunction, it will be a valuable asset for a police and crime commissioner or a deputy Mayor for policing to be able to say, “Hang on a minute. We have the ultimate mandate in this area. We don’t think things are working. This is how they ought to work.” Every time this provision is used, it will be a sign of failure, rather than success, but nevertheless it probably does add some value, so we will not oppose it.
Question put and agreed to.
Clause 72 accordingly ordered to stand part of the Bill.
Clause 73
Ethical policing (including duty of candour)
Alex Norris
I beg to move amendment 63, in clause 73, page 64, line 36, at end insert—
“(2A) The Code must set out the actions and behaviours which will be considered to constitute ‘acting ethically.’”
This amendment would require the College of Policing’s code to state how police officers are to embody and demonstrate the requirement to act ethically.
The Chair
With this it will be convenient to discuss the following:
Amendment 135, in clause 73, page 64, line 36, at end insert—
“(2A) In subsection (2) the reference to acting ethically includes a prohibition on a police officer engaging in—
(a) sexual relationships with members of the public whilst acting in their capacity as a police officer; and
(b) abusive conduct, including domestic abuse or sexual violence, towards any person whether in their role as a police officer or otherwise.”
Clause 73 is amended to make explicit that ethical policing also entails zero tolerance for violence and other forms of abuse against women and girls by police officers and staff.
Amendment 149, in clause 73, page 64, line 36, at end insert—
“(2A) The Code must set out how persons under the chief officer’s direction and control are to act ethically and with candour when discharging their duties in relation to a major incident, including—
(a) their duty to assist with any court proceeding, official inquiry or investigation resulting from a major incident fully, transparently and with proper expedition;
(b) their duty to disclose relevant information related to the discharge of their duties in relation to a major incident which would not otherwise be disclosed under the terms of reference or parameters of the relevant proceedings, inquiry or investigation.
(2B) The duties under (2A) may arise from—
(a) an application by any person affected by the major incident to the relevant court or inquiry chairperson;
(b) an instruction from the relevant court or inquiry chairperson; or
(c) where there are no extant court or inquiry proceedings, a requirement of any judicial review proceedings in the High Court.”
Amendment 136, in clause 73, page 65, line 17, at end insert—
“(h) the Domestic Abuse Commissioner for England and Wales;
(i) the Commissioner for Victims and Witnesses;
(j) the Independent Anti-Slavery Commissioner.”
This amendment aims to ensure that there is independent external oversight to the Code of Practice from bodies which represent the interests of victims and survivors whom this Code seeks to protect.
New clause 48—Duty to investigate suspects diligently—
“(1) The Police (Conduct) Regulations 2020 are amended as follows.
(2) In Schedule 2 (standards of professional behaviour), under the heading ‘Duties and Responsibilities’, after ‘Police officers are diligent in the exercise of their duties and responsibilities.’ insert ‘This includes undertaking diligent searching for, and consideration of, all relevant intelligence related to a suspect.’”
This new clause is a change to Police Regulations. It is designed to ensure that officers diligently consider all intelligence on a suspect, including previous convictions or reports related to that person.
Alex Norris
Clause 73 is a significant clause that many outside this Committee are likely to be paying close attention to. I will resist the urge to pile into the clause stand part debate, but the clause relates to ethical policing, including the duty of candour. The duty of candour is the subject of a very live public conversation, following the brave campaign by the Hillsborough families for many years on this issue. Amendments 63 and 149 are in the service of that debate.
Clause 73 makes real the Government’s response to the report by Bishop James Jones, which details the long and agonising quest for justice by those families. The report, “The patronising disposition of unaccountable power”, is characterised by Bishop Jones as
“A report to ensure the pain and suffering of the Hillsborough families is not repeated”.
It includes 25 recommendations by the noble Bishop, and its title alone should focus colleagues’ minds on the need for legislative change, and what we in this place have a responsibility to do. It includes a recommendation for the establishment of a duty of candour for police officers—that is, a duty for police officers to be open and transparent when liaising with inquiries. As we know, that has not always been the case; in Hillsborough, it absolutely was not the case. The report was published in 2017, and it has taken us a long time just to get to where we are. It has been deeply upsetting for families that things have moved slowly; they have fought for so long, and they deserve the vindication of action in this place. That is why there is a degree of sadness that what is in the Bill certainly falls short of the recommendations in the report and the expectations of the families.
The Bill places a narrow requirement on chief officers; I am keen to understand why that path was chosen. Amendments 63 and 149 seek to improve that, and I am glad to have the support of the Chair of the Home Affairs Committee. There is a limit to what we can do today. The need is for a proper duty of candour that would apply to all public bodies, but an amendment that achieved that would be outside the scope of the Bill, but I seek to introduce that duty at least in the field of policing. Nevertheless, our commitment remains to a wider duty of candour.
First, through amendment 63, I seek an explicit definition of actions and behaviours that constitute “acting ethically”. We are asking the College of Policing to develop a code; it has to be made clear that guidance on acting ethically should explicitly be part of it. I hope that the Minister will say that it will be; I would like that clarity from him in the debate, if not in the Bill. I do not want to prejudge the clause stand part debate, but I hope that he will explain why the code of practice route has been chosen, rather than a straightforward legal duty, which is what we suggested during the passage of the Victims and Prisoners Bill through the Commons; it is now in the Lords. This seems a bit of an indirect way of proceeding, but I am not sure. The amendment at least gives us the opportunity to set out that point.
Amendment 149 sets out what a duty of candour might look like in our eyes. It mirrors a provision that we have pushed in various Bills, and it comes from reflection on the Bishop Jones report, and conversations that my colleagues have had with the families. It gives us much greater detail and clarity on what we mean by a duty of candour with regard to policing, and the subsections relate to different aspects of that duty. It would be a significant improvement on what is in the Bill, because at the moment we are at risk of a double failure. There is a clear failure in that the Government’s plans for a duty of candour are too narrow. Sadly, we cannot rectify that today. However, we are at risk of sending a signal to the public that, although we recognise that the situation is wrong and ought to change, and that there ought at least to be a duty on chief officers, we still feel that we can subcontract responsibility for that to the College of Policing, rather than thinking that we, the democratic body, ought to make our judgment on that duty. The Government have fallen short here. My amendments add that requirement back in.
I am conscious that my hon. Friend the Member for Birmingham, Yardley, has lots of amendments in the group as well, but in the spirit of the Minister, I will not prejudge them until I have heard my hon. Friend speak about them. I may pop up again, if need be.
Jess Phillips (Birmingham, Yardley) (Lab)
The enormous list of amendments in my name—it is time for everybody to strap in—is not necessarily a criticism of police forces, but is real recognition that women in our country do not trust the police. That is dangerous, because the women I work with have no choice but to trust the police. It is not a privileged position that they can take; they have to trust them, but they do not.
Clause 73 relates to the College of Policing’s code of ethics, but there is nothing at all about police-perpetrated abuse in it. Neither the code of ethics nor the standards of professional behaviour makes clear that police-perpetrated domestic abuse is contrary to the standards required by a police officer. Clause 73 should be amended to make it explicit that ethical policing also entails zero tolerance for violence and other forms of abuse against women and girls by police officers and staff. Amendment 135 does just that.
Why that is important should be pretty obvious. Conduct that constitutes domestic abuse or sexual violence should be clearly specified as being a breach of the code of ethics and of standards of professional behaviour, whether committed on or off duty. It is necessary to spell that out in legislation, because police forces still frequently take the approach that domestic abuse committed while an officer is off duty discredits the officer personally, but does not constitute a breach of the code of ethics or the standards of professional behaviour, as it occurred in the officer’s private life.
The Independent Office for Police Conduct’s guidance says:
“The Standards of Professional Behaviour and the obligations that they impose will be assessed in context, which includes whether they are on or off-duty at the material time. Police officers have a right to a private life”—
they do not have the right to be a domestic abuser, though—
“which must be factored into any assessment. Assessments of seriousness and public interest should include consideration of whether an off-duty behaviour discredits the police service.”
David Carrick was off duty when he raped all those women.
Forces are seizing on this in some cases to say that domestic abuse is personally discrediting for the officer, but not the police service. Jackie, an experienced police officer, was the victim of domestic abuse by her police officer husband. She reported the abuse to her force, but no criminal charges were brought, on the basis that there was not a realistic prospect of conviction because it was her word against her ex-partner’s. Misconduct proceedings were not pursued on that basis; the conduct alleged by Jackie had taken place while both she and her ex-partner had been off duty. It was therefore deemed to be part of their private lives. As a result, Jackie felt unable to continue working for the force. Meanwhile, her ex-partner had been promoted, and holds a leadership role in the force’s violence against women and girls strategic command.
Jackie’s case and others like it send a clear message about the force’s true attitude towards domestic abuse. Other officers have said that seeing how officers such as Jackie have been treated when they have tried to report domestic abuse speaks volumes, and that they would not report domestic abuse themselves, having seen how Jackie and others were treated by the force. Regardless of what the force says about operational pledges or other initiatives, the way it responds to allegations of police-perpetrated domestic abuse has a much greater impact on the willingness of other victims to come forward.
The relevance of abusive behaviour towards women to an officer’s suitability to hold the office of police constable and the impact on public confidence when perpetrators of domestic abuse hold positions in the police are being overlooked. Therefore, there needs to be a clear and unequivocal statement that domestic abuse committed by a police officer, whether on-duty or off-duty, will always discredit the police service if that officer is permitted to continue serving on that force.
Furthermore, subsection 2A(a) in amendment 135 refers to,
“sexual relationships with members of the public whilst acting in their capacity as a police officer”.
Section 1 of the Covert Human Intelligence Sources (Criminal Conduct) Act 2021—some of us were on that Bill Committee as well—amended part II of the Regulation of Investigatory Powers Act 2000 so as to enable the authorisation of CHIS. That includes enabling under- cover police officers to participate in conduct that would otherwise be criminal.
A number of groups, including the Centre for Women’s Justice, the End Violence Against Women coalition, Justice, Women’s Aid and Police Spies Out of Lives, are very concerned about that in light of the significant history of undercover officers engaging in deceitful sexual relationships during the course of their under- cover deployment. A specific prohibition against such relationships should be included in the police code of ethics, making it clear that any such relationship is a breach of the code of ethics and of the duty under the standards of professional behaviour in schedule 2 to the Police (Conduct) Regulations 2020—to
“behave in a manner which does not discredit the police service or undermine public confidence in it, whether on or off duty.”
Amendment 136 aims to ensure that there is independent external oversight to the code of practice from bodies that represent the interests of the victims and survivors whom this code seeks to protect. The Bill currently sets out a range of organisations that need to be consulted regarding the code of practice relating to ethical policing. However, while this code is being implemented following serious failings by policing to adequately protect victims, there is no requirement to consult organisations that protect the rights of victims to ensure that the standards set out in the code are sufficiently robust.
In the previous debate, the Minister said how important partners were in ensuring that things worked well. Amendment 136 would ensure that the interests of victims were entrenched in the code of practice and the duty of candour. We have heard concerns about police marking their own homework, yet the current state of the Bill is like allowing them to set their own questions in the exam. The current provision requires police to act
“in an open and transparent way”.
That should start with openness to external scrutiny by individuals whose role it is to uphold and promote the rights of victims. By including named commissioners as statutory consultees, we can ensure that the standards set out in the code are fit for purpose.
I move on to new clause 48. Gaia Pope-Sutherland was 19 when she died. She was one of a significant number of young women and girls with cases against a man who had served time for child sex offences. Gaia had reported that she had been raped by him, but her case was dropped by the police and dismissed by the Crown Prosecution Service. Her family believed that that was because her case was presented in isolation from all the other independent allegations of violence and abuse. Detectives were said to have been aware of allegations made against this man, who was accused of grooming her as far back as 2014.
Gaia was already suffering from severe post-traumatic stress and living in fear of retaliation from the perpetrator, so the collapse of the case had a devastating impact on her mental health. That contributed to her disappearance and death from hypothermia shortly before the suspect was due to be released from a prison sentence for other child sex offences.
What happened to Gaia is heartbreaking. I have met many victims of sexual violence, and many of them have spoken about how it is not the violence that broke them but the failed state response—that when they turned to the institutions that were supposed to be able to protect them and deliver justice, they were met with incompetence or discrimination and a system that was uncaring and silencing.
Gaia’s heartbroken family have courageously taken up the campaign to change this. They have been pushing for the “Gaia principle”, which stipulates that any failure by a police officer to comply with existing policies and guidance will be considered a professional standards issue and escalated to misconduct in the event that the pattern persists. It is basically trying to make the police do their job. It urges that all police forces investigate sexual violence crimes in line with the national operating model developed from Operation Superior, and that officers be held accountable if they fail to do so.
New clause 48 is a step towards delivering that principle. It makes diligent consideration of all intelligence on a subject—previous convictions, reports or accusations—an unquestionable or overt part of what we expect of our police officers in their service. Repeat offending is a critical issue in the investigation of VAWG. The VAWG national strategic threat risk assessment notes:
“A relatively small number of highly prolific offenders are responsible for a disproportionate amount of crime.”
The Femicide Census tells us that in 59% of intimate partner or relative homicide cases, a history of abuse towards the victim is evident. Research from Respect shows that a quarter of high-harm domestic abuse perpetrators are serial offenders, some having as many as six victims. Between 41% and 59% of Operation Soteria offenders were linked to more than one offence, and that is just the tip of the iceberg. One study sample revealed that 120 undetected rapists, defined as those whose offences met the legal definition of rape or attempted rape but who had never been prosecuted, were responsible for 1,225 interpersonal violence offences, including rape and child sexual and physical abuse.
The picture is clear: we know who these men are and what they are doing, but because of endemic police failure to investigate properly and a lack of co-ordinated professional curiosity, those known perpetrators are acting with impunity. New clause 48 makes the investigation of potential perpetrators a central part of policing. It is unbelievable that I have to say this—the country would think that this is happening—but that must be a part of the standards of their professional behaviour.
The police must live up to that and be held accountable for it. If a serving officer fails to do his or her job properly, they must face consequences and disciplinary processes, and if necessary they must no longer hold that role. That seems obvious, and it is extraordinary that we are debating it, but rape has an appallingly low conviction rate: a perpetrator is held to account in just 1.5% of rape cases. The devastating lived experience of families such as Gaia’s makes it clear that we cannot continue.
The new clause, based on the “Gaia principle”, will ensure that survivors of VAWG are no longer denied justice and left in danger because police investigators fail to investigate a suspect properly. As I said, it is named in memory of 19-year-old Gaia Pope-Sutherland from Dorset, who lost her life following these failures.
Chris Philp
I thank the shadow Minister and the hon. Member for Birmingham, Yardley for explaining their very thoughtful amendments. We will obviously have a stand part debate a bit later, but in short, and for context, clause 73 places a duty on the College of Policing to issue a code of practice relating to ethical policing, which must include a duty of candour, delivering one of the points of learning set out by Bishop James Jones in response to the Hillsborough disaster, which Members of this House and this Committee—including you, of course, Dame Angela—have discussed extensively.
The Government and the House obviously take police integrity and accountability very seriously indeed, which is why the code of ethics and the duty of candour are so important. Amendment 63, in the name of the shadow Minister, asks for information to be set out that specifies what actions are to be considered ethical. Although the Bill is not yet in force, the College of Policing has acted pre-emptively—that is helpful for this Committee, as we have something to look at—and has already published and set out a statutory code of practice for ethical policing under section 39A of the Police Act 1996. It has met the statutory requirement that we are looking to legislate for in this clause already, even though the Bill is not yet in force. Once the Bill is in force, it will have to maintain that code and review it.
Jess Phillips
It would not pick up employment issues raised by one police officer about their police officer husband. The police currently operate on a criminal threshold in an employment environment, which is a dangerous precedent. We would not allow that anywhere else. We do not allow it in here. It would not have helped Jackie in her case. On looking at criminal records or other intelligence—we will come to the intelligence that they are not looking at in a moment—it needs to be explicitly stated that we do not want domestic abusers in our police force.
Chris Philp
We certainly do not want domestic abusers in our police force. To be clear, domestic abuse is rightly a criminal offence. If someone gets convicted of that, it will be on the police national computer. Even if there is not a conviction, because the victim does not want to proceed with a prosecution, the evidential threshold is not met or there is an acquittal or whatever, the police national database, as distinct from the police national computer, records intelligence and information more generally.
Even if there is no conviction, for whatever reason, information that is received gets recorded on the police national database. If there has been an allegation that has not been prosecuted and there is no conviction, that will still show up on the police national database and therefore be considered in the data washing exercise, even if there has not been a criminal conviction.
Jess Phillips
To what end? They will find that somebody made an allegation, but how many result in “no further action”? If they found that there were three allegations against a police officer by three different women, they went, “No further action.” To what end? We are washing it, but I want to put it on after it has been washed.
Chris Philp
It is in order to make decisions about whether the officer concerned meets the standards required for vetting. The hon. Lady made this point a second ago. The standard for employment should be much lower than the standard for criminal conviction. Obviously if there is a criminal conviction, the expectation is that the person will be dismissed. Where there are allegations that are concerning but have not been proved, we would expect that to adversely affect the officer’s vetting status.
We made a change last summer, I think, to say that an officer has to clear vetting not just once when they are first hired—this was a problem in the Carrick and Couzens cases—but throughout their career. If the data washing exercise brings out information that is not necessarily criminal but means that the officer does not meet the vetting standards, we expect action to be taken. I am speaking from memory here, but in something like 150 of those 461 cases, there is now a misconduct investigation, so not criminal. Nine of them are being investigated criminally. About 150 misconduct investigations have been triggered, which will pick up examples such as the one the hon. Lady just mentioned although they do not meet the criminal threshold.
To elaborate on that, the paragraph about discreditable conduct includes the requirement that police officers behave in a manner that
“does not discredit the police service or undermine public confidence”—
“undermine public confidence” is an important phrase—and that is
“whether on or off duty.”
Each case is assessed on its own facts, but I expect— I am sure the hon. Lady would expect this, too—credible allegations, in particular credible repeated allegations, of domestic abuse, even if not prosecuted or convicted, to undermine public confidence in the officer concerned. The hon. Lady would definitely take that view and I would as well. I have not looked at all 150 cases individually, but I expect that a number of those recently uncovered cases include examples such as the one I have set out.
Critically, the data-washing exercise, that check, will now happen on an ongoing and repeated basis, and it will give a lot of assurance. [Interruption.] I apologise— I said 150, but actually 88 cases have been triaged for disciplinary investigation. It was not 150; I was mis-recollecting. It is 88 of the 461. But I hope that gives more confidence to the public, including women, particularly as the vetting will happen on an ongoing basis—we have funded that. Maintaining vetting clearance throughout an officer’s career, which could be 30 years, rather than just having it at the beginning, will help to rebuild confidence.
Jess Phillips
If the vetting has to be ongoing, where is that written into primary legislation? I do not doubt the good faith of the Minister—we have all said as much in Committee—but how can people like me have a guarantee that it will happen forever? Secondly, the Minister made a valiant effort to point out to the shadow Minister, my hon. Friend the Member for Nottingham North, where exactly all the duty-of-candour things appeared in the ethical code of practice for policing. But I have just had a quick scan of that, and it does not mention domestic or sexual violence once.
Chris Philp
Maintaining vetting throughout an officer’s career rather than just at the beginning of it is set out in the vetting code of practice, which was published by the College of Policing, I think, in July last year. The ongoing checking against the police national database is an operational practice. We have put funding behind it, so there is money to pay for it, and the relevant National Police Chiefs’ Council lead has publicly committed to doing it. The hon. Member for Birmingham, Yardley is right that such vetting is not a statutory duty, but the Government have funded it and the police have said that they will do it, so Parliament will hold them to account to ensure that they deliver on that commitment and continue to do so.
The hon. Lady asked about the “Guidance for ethical and professional behaviour in policing”, which was published recently. Some relevant information, which the Committee will want to hear about, is in that document. Two more documents are also relevant, one of which was published earlier this week. This is confusing, because three documents fit under the umbrella of the codes of practice.
The statutory document, under section 39A of the Police Act 1996, was published on 6 December and I quoted from it previously. Two more documents were published in the past few days: “Guidance for ethical and professional behaviour in policing”—also issued by the college, and I can provide a copy—and “Ethical policing principles”. Those three documents should be taken together.
The first of the two new ones is relevant to amendment 135. It has some sections that answer the questions that have just been asked, including the one about inappropriate relationships. The “Guidance for ethical and professional behaviour in policing”, published only a few days ago, has a section on “Fairness and respect”, which includes things such as:
“protect vulnerable people and groups from behaviour that is abusive, harassing, bullying, intimidating, exploitative or victimising”
and
“avoid any behaviour that could cause unreasonable distress or harm, including any behaviour that might interfere with…colleagues’ ability to carry out their duties”.
Clearly, exploitation, which obviously includes domestic abuse, is covered, but so are other things such as victimisation, harassment and abusive behaviour.
Jess Phillips
Does the document say whether that is on or off duty? Does it include officers’ own personal relationships or does it just apply to members of the public?
Chris Philp
The document talks about treating everybody in those ways. It also goes on to talk about relationships, which obviously can happen inside and outside policing. It also talks about—I think this was the topic of amendment 135—ensuring that there are appropriate boundaries between police officers’ professional roles and personal relationships. It particularly talks about recognising
“the need to manage…relationships with the public because of the existence of a power imbalance”,
respecting “personal and professional boundaries” and maintaining
“the integrity and rights of those we come into contact with”.
Critically, it also states:
“do not use our professional position to pursue a sexual or improper emotional relationship with a member of the public”.
I think that speaks directly to the concerns raised in paragraph (a) in amendment 135, which expressly references the same thing. That is in the document that I just mentioned.
What the whole group of amendments tabled by the shadow Minister and the hon. Member for Birmingham, Yardley calls for is covered in these documents, which have been published by the College of Policing under section 39A of the Police Act 1996. If there are gaps in them, obviously they can be updated.
Someone—I think it was the hon. Member for Birmingham, Yardley—asked, “Why not set it all out in the Bill?”. The documents are quite long—29 pages, 10 pages and something like 30 pages: there is a total of 60 or 70 pages of guidance. It is rather difficult to put that much detail into the Bill. What the Bill is doing is compelling—not asking—the College of Policing to publish these documents. The detail is obviously in the documents, and I hope that the Committee can see, from the examples that I have given having rifled through the documents, that they address the topics that one would want to see addressed.
Jess Phillips
I thank the Minister for giving way again; it is good to have this debate. I must say, as an expert in this field, that what the document says is not good enough. That brings me to amendment 136—which specialist agencies who work with victims of domestic violence did the College work with to write this? It is not good enough, I am afraid to say. I can take that up with the College of Policing, but that is also not the mechanism.
Chris Philp
There is obviously a duty to consult various bodies in preparing the code of practice. I know that the College of Policing and its chief executive, Chief Constable Andy Marsh, engages extensively with a number of people. The hon. Lady lists in amendment 136 the Domestic Abuse Commissioner, the Commissioner for Victims and Witnesses, and the Independent Anti-Slavery Commissioner. I do not know whether the College of Policing expressly consulted those people in preparing the codes of practice, but I can undertake to ask its chief executive and find out.
I appreciate that the hon. Lady has probably not had a chance to read the documents, because two of them got published only earlier this week. Once she has had a chance to look at them, if, based on her experience and work in this area, which I know is extensive and long-standing, she thinks that some things have not been properly addressed, I am happy to commit to raising them directly with the College and ask that they be addressed in the next iteration of the documents. I am definitely happy to do that whenever the hon. Lady is ready; if she can set down what she thinks is missing, I will raise those issues.
I am told that the three organisations that I just read out, which appear in the hon. Lady’s amendment, actually were consulted routinely on the documents. However, as I said, if, once she has had the chance to read the documents, she finds in them things that are not properly constructed, I will definitely raise them with the chief executive of the College on her behalf. She can obviously do so directly, but I will certainly do so reflecting her advice as well.
I essentially agree with the spirit of all the amendments. However, because of the detail published relatively recently, on 6 December and in just the last few days, my view is that what is being asked for has been essentially incorporated into the documents. As I said to the hon. Member for Birmingham, Yardley, if she especially or any members of the Committee feel that things are missing, I will absolutely take them up with the chief executive, should a view be formed that changes would be useful and appropriate.
Alex Norris
This has been a really important debate, and I am grateful for the case made by my hon. Friend the Member for Birmingham, Yardley. The Minister’s very full answer was much appreciated by us all. Interestingly, my hon. Friend and I focused on two different issues, but they have the same principle at root: the public must be able to expect that public organisations—in this case, the police—are candid, transparent and making their best efforts to do the best job in all circumstances. That should be obvious, but we know that too often that has not been the case, and Hillsborough brought that into sharp relief. Alongside that, in the cases mentioned by my hon. Friend there is a more numerous although less high-profile drumbeat of mundane failure, which has been almost baked into the system. Those will never be the subject of a high-level inquiry; instead, there are people dying in doorways, unaccounted for, unknown and unseen. We should believe that we can do better than that.
I am grateful for what the Minister introduced in relation to the work of the College. I was going to say this in the next debate when we talk about vetting, but we have full confidence in and we believe in Chief Constable Andy Marsh. He is excellent; he has engaged with us on the Opposition Benches and he is always very good, so no point that I make is against either him or the College. The question, for us, is about the degree to which we are comfortable with subcontracting important judgments about how one of the most crucial public services operates to other organisations that we cannot scrutinise in the same way as the Minister and the Home Office. There are times when that is very much the right thing to do, and when we cannot and should not seek to operate those things remotely from here; we would not have the time and it would not be appropriate.
Chris Philp
We both have confidence in the College and Chief Constable Andy Marsh—in fact, now is a good time to thank him for the work that he and his colleagues at the College have done. On the subcontracting of important things to the College of Policing, I should say that the statutory code must be approved by the Home Secretary prior to its coming into force. That gives not parliamentary approval, but at least some level of democratic oversight on what goes into it.
Alex Norris
If I am honest, that level of oversight might not give much comfort to us in the Opposition, but never- theless that at least gives the code a statutory footing, which is in itself very much valued. We must make the judgment of when we are happy for others to make those decisions and when we believe that it is our responsibility to set a tone. That remains the case, particularly around candour; I will come on to amendment 149 in a second.
I turn to the amendments tabled by my hon. Friend the Member for Birmingham, Yardley. One of the most important things we can say—and I hope that the Minister will say this at some point; I do not think that he has said it yet and it is really important for the amendment—is that we believe that off-duty conduct is relevant to establishing the character and suitability of officers. My hon. Friend’s amendment mentions a couple of cases where standards that we would routinely expect to be met have not been, whether that is in a domestic abuse or sexual violence situation or related to the point around spy cops. We ought to send a stronger signal on that.
I confess that I have not yet had the chance to see the documents that have been published in recent days. I hope that they pass the test that the Government’s own documents often fail around gender. As my hon. Friend the Member for Birmingham, Yardley said, the Government managed a whole Domestic Abuse Act without mentioning women. We cannot lose sight of what is happening here—it is not exclusively male perpetrators and women victims, but that is largely the case. This is a gendered crime, and we ought to treat our regulation in that way.
I heard the Minister’s point about amendment 136. While we have to admire the College of Policing’s diligence in publishing the code prior to its becoming a statutory requirement, if the consultation has not happened yet there will be a period of time when that work could take place, prior to the Secretary of State signing it off, and for it to be understood that the commissioners mentioned in the amendment would be routinely consulted during the development of the process. The insight that those individuals have on those cases, as we saw in the evidence sessions, is hugely valuable.
I turn to new clause 48. As my hon. Friend said, the public should be able to expect that relevant intelligence is always considered; it is not. The Gaia Pope-Sutherland case is absolutely devastating. If the Bill is not the place for this detail, we need to hear a strong signal that it is what we expect of policing—what the public expect and should be able to expect.
On amendment 63, I think the Minister is right. I am happy to withdraw it as it is covered by the document he mentioned. I cannot quite share his view on amendment 149. We should not misconstrue that what is in the Bill now means that police officers are obliged to act with a duty of candour. What is in the Bill is that chief officers have a duty; what is in the College of Policing’s guidance, at paragraph 4.5, is that that duty to act with openness and—I forget the other word—is then pushed to other officers.
Alex Norris
Openness and candour. But that does not have a statutory underpinning. There is carrot but no stick—that is the point I am trying to make. The code covers chief officers. It will not really cover their staff—not so that we can have confidence that the job has been done with regard to the duty of candour. There is still a gap.
As I have said, I have doubts about whether the Bill is the right vehicle for the change that the Opposition seek on duty of candour, so I will not press that point to a Division yet. But the issue will come back at later stages and in other legislation as well. We certainly do not think that the job has been finished.
Jess Phillips
On amendment 135, the Minister offered to sit down and talk to me about what needs to be in the document. On reflection, I will not press the amendment, in the expectation that that will happen before the Bill goes to the other place. We shall see how we feel about the matter then.
Chris Philp
On a point of order, Dame Angela. Could I ask the hon. Member for Birmingham, Yardley, through you, to make contact with me with her thoughts when she has looked at the document? I would be grateful.
Alex Norris
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Jess Phillips
I beg to move amendment 134, in clause 73, page 65, line 5, at end insert—
“(3A) The Code must make explicit that any criminal behaviour perpetrated by persons under the chief officer’s direction and control disclosed as a result of proceedings in the family courts must be considered during the vetting process.”.
This amendment ensures criminal behaviour that is uncovered within family courts is disclosed within the vetting process of police officers.
The Chair
With this it will be convenient to discuss the following:
New clause 6—Automatic dismissal on conviction for a serious criminal offence—
“(1) Section 50 of the Police Act 1996 (Regulations for police forces) is amended in accordance with subsections (2) and (3).
(2) After subsection (3) insert “and subject to any regulations made under subsection (3ZA)”.
(3) After subsection (3G) insert—
“(3ZA) Regulations made under this section may provide that upon the conviction of a member of a police force for a certain type of criminal offence, that person shall be dealt with by way of automatic dismissal without the taking of any disciplinary proceedings against that person.”.”.
New clause 7—Automatic suspension of officers charged with specified allegations—
“(1) Regulations made by the Secretary of State pursuant to section 50 of the Police Act 1996 may make further provision as set out in this section.
(2) Where an officer is charged with an indictable-only or an either-way offence, the Regulation 11 of the Police (Conduct) Regulations 2020 and any other relevant legislation shall not initially apply.
(3) In a case falling within subsection (2), regulations may provide that the appropriate authority must automatically suspend the officer from the office of constable for an initial period of 30 days.
(4) Where an officer is suspended in circumstances falling under subsection (3), regulations may provide that—
(a) the officer remains a police officer for the purpose of the Police (Conduct) Regulations,
(b) the suspension must be with pay,
(c) at or prior to the expiry of the initial period of suspension, the appropriate authority must make a determination as to whether the suspension conditions in Regulation 11 of the Police (Conduct) Regulations 2020 are satisfied, and
(d) upon the making of a determination referred to in paragraph (c) that an officer should remain suspended, Regulation 11 of the Police (Conduct) Regulations shall apply thereafter to that officer.”.
New clause 8—Automatic dismissal of officers who fail vetting—
“(1) The Police Act 1996 is amended in accordance with subsection (2).
(2) In section 39A (Codes of practice for chief officers), after subsection (1) insert—
“(1A) Without prejudice to subsection (1) and subject to subsection (1B), a code of practice may provide for an officer to be dismissed without notice where—
(a) the officer fails vetting, and
(b) it is not reasonable to expect that the officer will be capable of being deployed to full duties within a reasonable timeframe.
(1B) Subsection (1A) does not apply where a chief officer concludes that—
(a) the officer, notwithstanding his vetting failure, is capable of being deployed to a substantial majority of duties appropriate for an officer of his rank; and
(b) it would be disproportionate to the operational effectiveness of the force for the officer to be dismissed without notice.””.
New clause 9—Duty of officer to hand over personal mobile phone—
“(1) Section 50 of the Police Act 1996 is amended in accordance with subsection (2).
(2) After subsection (4) insert—
“(4A) Regulations under this section may, in connection with the procedures that are established by or under regulations made by virtue of subsection (3), provide that an officer has a duty to hand over to the appropriate authority a personal telecommunications device capable of storing information in any electronic format which can readily be produced in a visible and legible form, belonging to that police officer where there is a request by the appropriate authority in circumstances where the appropriate authority has reasonable grounds to suspect the police officer of behaving in a way that could amount to gross misconduct and in respect of which information stored on the device may be relevant to the suspected misconduct.
(4B) Without prejudice to the generality of subsection (4A), regulations may provide for—
(a) the form of the request to be made to the police officer concerned and any related information that must be provided by the police officer in releasing the device including, but not limited to, any passcode required to access information stored on the device;
(b) the time period within which the device must be provided to the appropriate authority and any sanction which may be imposed on the police officer for failing to do so;
(c) the provision to the police officer concerned of reasons for the requested possession of a device;
(d) the arrangements to be put in place for the protection of confidential, privileged or sensitive information stored on the device which is not relevant to the matter under investigation;
(e) the period of time that the device may be retained by the appropriate authority and arrangements for the return of the device when it is no longer required for the purposes of the investigation;
(f) the deletion of information obtained from the device and retained by the appropriate authority other than information which is reasonably required to be retained in connection with the matter under investigation; and
(g) the making of ancillary and consequential amendments to other regulations as may be considered necessary.
(4C) In subsections (4A) and (4B) “appropriate authority” has the meaning given in article 2 (interpretation) of the Police (Conduct) Regulations 2020.””.
New clause 33—Police perpetrated domestic abuse as a recordable complaint—
“(1) Schedule 3 of the Police Reform Act 2002 is amended as follows.
(2) After paragraph 1(2)(b) insert—
“(c) it is alleged by any person, including any person serving with the police, that a person under his direction and control, whether in the course of their duties or otherwise, has engaged in domestic abuse within the meaning of section 1 of the Domestic Abuse Act 2021 or abuse of position for a sexual purpose,”
(3) After paragraph 2(6B)(c) insert—
“(ca) the complaint is one which alleges that a person serving with the police, whether in the course of their duties or otherwise, has engaged in domestic abuse or abuse of position for a sexual purpose; and “domestic abuse” has the meaning set out in section 1 of the Domestic Abuse Act 2021,”.”.
This new clause would ensure all allegations of Police Perpetrated Domestic abuse are treated either as a recordable police complaint or as a recordable conduct matter.
New clause 34—Domestic abuse complainants: police officers and police staff—
“(1) Section 29(4)(a) of the Police Reform Act 2002 is amended as follows.
(2) After “person whose conduct it was” insert “, save that this paragraph does not apply where the conduct alleged (assuming it to have occurred) falls within the definition of domestic abuse in section 1 of the Domestic Abuse Act 2021 or constitutes abuse of position for a sexual purpose,”.”.
This new clause would ensure that police officers and members of police staff have the same right to make a complaint of domestic abuse against a member of their force as do members of the public.
New clause 35—Vetting: duty of chief officers—
“(1) Chief officers must ensure that all persons under their direction and control have valid and current vetting clearance appropriate to their role.
(2) All persons under the direction and control of a chief officer must be re-vetted—
(a) within a period of five years from an individual coming under the direction and control of a chief officer; and
(b) within a period no longer than every five years thereafter.
(3) Vetting clearance must not be granted to persons who have received a caution or conviction for serious violent or sexual offences including, but not limited to offences involving—
(a) domestic abuse,
(b) coercive and controlling behaviour,
(c) stalking,
(d) harassment,
(e) sexual assault or abuse,
(f) rape, or
(g) female genital mutilation.
(4) A person who does not have valid and current vetting clearance appropriate to their role will be dismissed.”.
New clause 36—Allegation of violence against women and girls: withdrawal of warrant card—
“Where a police officer is the subject of an allegation that the officer has perpetrated violence against a woman or a girl, the officer’s warrant card must be withdrawn pending investigation.”.
This new clause creates a provision requiring the removal of warrant cards from police officers who are under investigation for crimes relating to violence against women and girls.
New clause 43—Domestic abuse: automatic referral to Independent Office for Police Conduct—
“(1) A chief officer of police must ensure that any allegation of domestic abuse made against a person under the chief officer’s direction and control must be referred to the Independent Office for Police Conduct for determination of the mode of investigation.
(2) If the Independent Office for Police Conduct determines that the investigation must be referred back to the chief officer’s force, then such an investigation must be conducted and concluded.
(3) The Independent Office for Police Conduct may also refer the complaint to the chief officer of police for a different police force and direct that the complaint be investigated independently by that force.”.
Jess Phillips
As I started to say earlier, I think the public would be surprised to hear that the provision in amendment 134 does not already exist. The amendment seeks to ensure that criminal behaviour that is uncovered in the family courts is disclosed in the vetting process for police officers.
When the Bureau of Investigative Journalism made freedom of information requests to police forces asking for the number of officers who had been made subject to non-molestation orders by the family courts, it was shocked to learn that forces do not collect that data. That means that evidence of rape, violence, danger or child abuse demonstrated in a UK court is not part of the vetting process for our police officers, who the Minister has asked us, quite rightly, to have faith in.
The granting of a non-molestation order requires the court to be satisfied that there is evidence of molestation, that the applicant or a child is in need of protection and that the order is required to control the behaviour of the person against whom it is sought. Those are significant findings when made in relation to a serving police officer. It is scandalous that there is not an established arrangement between the police and the family courts to ensure that not just non-molestation orders, but any judicial finding of domestic abuse, rape or child abuse against a serving police officer or someone who wishes to serve is automatically notified to the officer’s force, to inform vetting. The amendment would require such information to be considered during the vetting process.
My hon. Friend the Member for Nottingham North spoke about the duty of candour. We wish to see that in all public institutions, although that is obviously not within scope. The public would be horrified to hear that there will be teachers in their children’s schools, currently, who have been found to be child abusers in our family courts.
The famous case on this issue relates to this building. Because the family courts are so secretive, a court case was fought; two journalists had to take the institution to task in order to be able to report that a previous Member of this House was found in the family court to have raped his wife. I pay tribute to her for the bravery that she showed.
Currently, such a finding—a finding of rape against somebody who sat among us—would never otherwise be known. If that man now wants to try to get a job in a police force or advising police forces, he can knock himself out. I mean, his case was written about in the newspaper, but that is one in a million cases; that does not happen routinely, because of the secrecy. We should all be terrified that there is no safeguarding. A person can be found to be a child abuser in the family court, and not be allowed to see their children, but they could be teaching my kids and nobody would know, because it is secret. It does not go on a Disclosure and Barring Service check.
I happen to know of a series of cases of police officers found in the family courts, by UK judges, to be child abusers, rapists or domestic abusers, but nobody would ever know, and they carry on serving as police officers. I think the public would be appalled. Every one of the police officers I asked about this in our evidence sessions, including Andy Marsh, said that it would be helpful to know. They all said it would be helpful, essentially, to have the family courts keeping a repository of safeguarding information based on outcomes at court that can be fed into the DBS or the vetting system. There are other areas that we will discuss today where I could definitely feel myself ending up at loggerheads with some senior police officers, but not in this case.
New clause 34 would amend section 29 of the Police Reform Act 2002 to ensure that police officers and members of police staff have the same right as any member of the public to make a complaint of domestic abuse against a member of their force. Again, it is shocking to hear that this is not already the case. Section 29(4) of the 2002 Act prevents police officers and staff from making a police complaint against a member of their own force. This is a significant problem in police-perpetrated domestic abuse cases, because many police officers and staff are married to each other—just like in this place—or in relationships with other officers and police staff. Just to be clear, I am not married to anybody in this place; I think my husband has been to London twice in his entire life.
Of the victims of police-perpetrated domestic abuse who have come forward to give their accounts to the Centre for Women’s Justice, nearly 45% are themselves police officers or police staff. While police victims can still report criminal activity by their husband or partner, the fact that their complaints are not also investigated under the misconduct process is a huge problem.
Criminal investigations very often conclude with no further action—NFA—on the basis that it is one person’s word against another’s. Given the burden and standard of proof in criminal proceedings, either the police or the CPS—if it gets that far—decide that there is not a realistic prospect of securing a conviction. However, the standard of proof is different in disciplinary proceedings. Clearly, it is important, not only for the victim but for the protection of the public, that the matter is recorded and that there is a disciplinary investigation even if criminal proceedings are not pursued—we have all agreed on that this morning already.
The case study of “Celine” pulls together the key elements of a number of real-life cases. Celine is a police sergeant. Her now ex-husband is an inspector with the same force. Celine and her ex-husband were married for 12 years. During the marriage, Celine was subjected to controlling and coercive behaviour, including financial control, alienation from friends and family, belittling and abusive language, and intimidation, such as her husband driving erratically and locking Celine and her children in a bedroom. Since the marriage broke down, Celine’s ex-husband has been harassing her with phone calls and threatening emails.
Celine made a complaint to her force about her ex-husband’s behaviour. There was a cursory criminal investigation, but—as they always are—it was “NFA’d” because the investigating officer took the view that there was no corroborating evidence of Celine’s account. Celine submitted a victim’s right to review request and asked for clarification on what was happening in terms of a misconduct investigation. She was initially told that there would not be any misconduct investigation, because of the NFA decision in the criminal investigation and because she is a police officer and so cannot make a police complaint. We need to have it categorically written into any code of ethics that an NFA decision in a criminal case should not be used in an employment case. We also have the issue of Celine not being able to make a complaint in the first place.
Celine challenged that and pointed out that her allegations should be investigated as a conduct matter, even if she was precluded from making a police complaint. Very shortly afterwards, she was told that the professional standards department had considered the case and that no further action would be taken. Celine asked for an explanation, but was told that since she was not classed as a complainant in the misconduct investigation, due to her being a police officer, it would be a breach of her ex-husband’s rights for her to be told anything about it, and that the force would not correspond with her further on the matter. Celine tried reaching out to her Police Federation representative for support, but was told that because the Police Fed was assisting her ex-husband, it could not offer her any assistance.
Being a police officer, and section 29(4) of the Police Reform Act, prevented Celine from having the same rights as a member of the public. Had that not been the case, her report of abuse could have been treated as a formal police complaint. She would have had the right to require the police to record it, and therefore deal with it under the statutory scheme set out in schedule 3 to the PRA. She would also have had the right of review of the outcome, either by the local police and crime commissioner or the Independent Office for Police Conduct, depending on whether the complaint had been handled by the force or by the PCC at the investigation stage. All those rights are currently withheld from police officers and members of police staff when they raise concerns about the conduct of an officer in their own force.
New clause 33 would go further, by ensuring that all allegations of police-perpetrated domestic abuse are treated either as a recordable police complaint or as a recordable conduct matter. Although all police complaints and conduct matters are required to be logged, they are not all required to be recorded. Schedule 3 to the Police Reform Act 2002 and regulations made under it specify which complaints and conduct matters have to be recorded. Recordings make a real difference, because complaints and conduct matters that are recorded have to be dealt with in accordance with the statutory process set out in schedule 3—I feel like the Minister! If a police complaint or conduct matter is not recorded, it is likely to be dealt with informally by the police, outside the statutory complaint system. Some might call that being brushed under the carpet.
Importantly, a number of forces do not use the national Centurion database to log complaints and conduct matters that are not formally recorded and therefore are handled outside schedule 3. That means that such complaints and conduct matters are not captured in the Home Office or IOPC statistics on police misconduct, resulting in the undercounting of the extent of police-perpetrated domestic abuse. A cynical person might suggest that that gives the force an incentive to find that a complaint or conduct matter is not recordable under schedule 3, because that means that there are no formal requirements to investigate and it will not appear in the official figures.
A further critical issue when complaints and conduct matters are not recorded and are dealt with informally outside the schedule 3 process is that information about the complaint or conduct may not be available for vetting purposes, or if further allegations are made against the officer or member of police staff in future. That risk is especially high if information is stored on local force systems and the officer or member of police staff transfers to a different force. We have seen in some of the most high-profile cases that it was the moving between forces that was problematic.
Let me lay out the problem with another case study. “Sally” was in a relationship with a police officer for more than 15 years. During that time, she suffered physical, emotional and psychological abuse from him, including while she was pregnant with her child. Sally did not feel able to report the abuse to the police, but her midwife noticed bruising and Sally opened up to her about what had been going on. The midwife made a referral, which led to Sally being contacted by the police. Sally told them about the abuse, but did not feel able to make a formal complaint, because she was financially dependent on her partner and expecting his child. She was worried that if she pressed charges, her partner would lose his job. The police did not take the matter forward and the abuse continued.
Eventually, several years later, Sally found the courage to leave. She subsequently learned through friends of friends that her ex-partner had gone on to abuse his new partner, and that he was now working on the force’s sexual offences and domestic violence team. Sally decided that she needed to report the abuse formally, because she was worried about her ex-partner working in a frontline role with victims of domestic abuse. When she did so, she was shocked to learn that the force did not have any record of the previous referral from the midwife or GP, or the account that she had given them at the time. The Minister was talking about vetting and other intelligence, but some gaping gaps clearly remain in what goes on to the recording and what does not. If the force had been required to record the earlier report as a conduct matter, as the proposed new clause would require, it would have had to investigate it under schedule 3 of the Police Reform Act. It would have had to have been recorded and should have informed Sally’s ex-partner’s vetting status and deployment within the force.
New clause 43 would require all allegations of police-perpetrated domestic abuse to be investigated and to be referred to the IOPC for determination of the mode of investigation—whether the matter requires investigation by the IOPC itself, or whether it should be referred back to the perpetrator’s force or referred to an independent force for investigation.
The Chair
Before we proceed, it was not quite clear from what the hon. Lady said whether there is a sub judice consideration involved in any of the cases she referred to.
The Chair
Nevertheless, everyone should be very careful that any of the examples they use do not fall into the sub judice category. I accept the hon. Lady’s assurance.
Alex Norris
I rise to speak to new clauses 35 and 36 in my name, which concern vetting arrangements for the police, particularly in cases involving violence against women and girls.
New clause 35 proposes that all police officers must be re-vetted every five years—it is currently every 10—and that vetting clearance must not be granted to those who have received a caution or a conviction for serious violent or sexual offences including domestic abuse, coercive and controlling behaviour, stalking, harassment, sexual assault or abuse, rape and female genital mutilation. Under my new clause, those who fail vetting for such offences would be dismissed.
After so many horrific high-profile cases in recent years, many outside this place would be shocked and appalled to learn that such measures are not in place and that the vetting procedures are poor enough to allow potential threats to the public to wear a uniform that should be a symbol of safety and security. We must tackle this issue head on. We know the police recognise that; chiefs do not want individuals in their forces who have shown through their behaviour that they do not meet that standard. Giving them the tools is important in rebuilding confidence in the police, which is a priority for all of us. The new clause would give chiefs tools to dismiss those people if necessary.
I will make a slight case against subsection (2)(b) of my own new clause on the five years provision. During the evidence sessions, I asked Andy Marsh from the College of Policing what the right period for vetting should be, and he said then, as he has said to me previously, that, if we are not there already, we are on the way towards being able to move beyond timed sweeps of vetting and instead use lifetime interrogation through new technologies. There is often a risk of saying things are AI when they are not AI, but they probably are in this case. Machine techniques can be used to interrogate databases of all sorts, including those that my hon. Friend the Member for Birmingham, Yardley mentioned, such as the ones in the family courts.
That would make the vetting period moot, because vetting would be up to date. Any time that there is a breach, whether it relates to conduct towards women and girls or broader matters, that would be flagged to a chief straightaway and the vetting could be re-evaluated. That is very exciting, and if the Minister stands up and says that that is where we are going, that would be enough for me, but I want us to be in that place as soon as possible, so I would be interested in his views on that.
New clause 36 is on a similar theme, although there is no high tech involved in it. It would introduce a more straightforward requirement for warrant cards to be removed from officers under investigation for crimes relating to violence against women and girls. To be clear, this is not about prejudging an individual before a full and proper investigation has taken place. They would presumably still be at work doing other duties, or if they were suspended they would still be receiving pay. It is about ensuring high standards and the safety of others. My hon. Friend mentioned life in Parliament. It is rare that we hold better standards than others, but in this place we act differently if a serious allegation has been made, with no presumption of guilt, and I think the public would expect something similar from the police.
The warrant card is both a totem of an officer’s service and a huge factor in how they do their job, but in serious cases—the Sarah Everard case is the most obvious—they can be misused. Individuals at points of stress may act in such ways, so the removal of the warrant card is one way of putting in a restriction. This proposal has the support of Dame Vera Baird and the Domestic Abuse Commissioner, Nicole Jacobs, who has pushed for the removal of the warrant card in cases of police-initiated domestic abuse.
On amendment 134, in the name of my hon. Friend, I think the public would find it astonishing that that measure is not already in place. Clearly, when it comes to vetting and being secure about who is serving in such important roles, we need full evidence of their character and behaviour. To leave out that proposed measure would be to leave out a huge bit of the fence, so I certainly support it.
On new clauses 33 and 34, I support my hon. Friend’s points about making police-perpetrated domestic abuse a recordable complaint. If new clause 33 is not the best way to do that, I will be interested to hear the Minister’s challenge. New clause 34, which would grant equal rights to make a complaint, makes a lot of sense.
On the new clauses tabled by my right hon. and learned Friend the Member for Camberwell and Peckham (Ms Harman), I hope the Minister will talk about how he feels Casey is being implemented. Some of the new clauses, such as new clause 8, overlap with my own. I look forward to hearing the Minister’s response, and I look forward to hearing my right hon. and learned Friend’s case for them on Report.
Ordered, That the debate be now adjourned.—(Scott Mann.)