Co-operative Housing

Debate between Jonathan Reynolds and Gavin Shuker

Wednesday 11th July 2012 Westminster Hall

[Jonathan Reynolds]

I am grateful for my hon. Friend’s intervention; I see that as a major benefit and will say more on that later. There are already a number of housing schemes across the country that are run to varying degrees in accordance with the co-operative model. Because UK property law acknowledges only the legal states of freehold, ownership and tenancy, co-operative housing schemes do not have full legal recognition. A definition of fully mutual housing co-operatives does exist and slightly different legal rules apply. For instance, under the Housing Act 1988, fully mutual housing co-operatives are not permitted to grant either secure or assured tenancies. Instead, co-operatives grant non-statutory contractual tenancies. The case involving Ms Berrisford and the Mexfield Housing Co-operative shows that the currently available tenancy agreements are not wholly appropriate for co-operative housing organisations. In fact, although I appreciate that this sounds like a very technical point, the issue of contractual tenancies is crucial to understanding why this case has caused concern.

Currently, the majority of the members of a co-operative housing scheme are issued with what is known as a periodic tenancy. A periodic tenancy is regularly renewed at a specific point; it is usually granted from week to week, or from month to month. It can be brought to an end unilaterally, by the tenant or landlord.

As co-operatives are not legally capable of granting secure or assured tenancies, the rights of the landlord and the tenant are defined by the tenancy agreement. So, instead of statutory security, co-operatives ensure that tenants have security through the decision-making practices and policies, of which the tenants are a part. In addition, they usually give tenants an additional degree of security by inserting a clause in the tenancy agreement specifying the circumstances in which they would end the tenancy, such as non-payment of rent. The tenancy can still be ended if either the tenant serves notice or the co-operative issues a notice to quit, but the clause in the agreement specifies that the co-operative can serve notice to quit only in certain specific circumstances, such as non-payment of rent, which I have already mentioned, or antisocial behaviour or some other pre-defined breach of the tenancy. By and large, that system has operated effectively for co-operative housing projects in the UK for some time.

However, the Supreme Court’s Berrisford and Mexford ruling has thrown that practice into doubt. Ironically, the ruling has stemmed from the clauses in the agreements that are designed to offer greater security to tenants. The Supreme Court ruled that the clauses in the co-operatives’ tenancy agreements that specified particular circumstances in which the tenancy could be brought to an end actually created an uncertain term, and as no tenancy can be for an uncertain term, the Supreme Court ruled that it should instead be considered as a tenancy for life. That means that, instead of a periodic tenancy that was routinely renewed at regular intervals, the Supreme Court said that the tenancy should be considered as a form of tenure that is more commonly associated with home owners, because under the Law of Property Act 1925 a tenancy for life lasts 90 years or for the lifetime of the resident.

Again, that decision might sound technical, but it potentially has very wide-ranging implications for housing co-operatives, bringing in a wide range of legal provisions that are primarily aimed at home owners and that are therefore inappropriate for co-operatives. First, that is because, unlike periodic tenancies, fixed-term tenancies such as the ones I have mentioned cannot be ended with a notice to quit. Instead, they must be ended through mutual agreement or, where there has been a breach of tenancy, a legal process that is again usually associated with home owners. I understand there has already been a case in which a co-operative member has successfully argued a “Mexfield defence” against possession proceedings, arguing that in effect, he had a 90-year fixed-term tenancy that could not be ended with a notice to quit.

There are concerns that this ruling could open the door to potentially complex and costly legal processes. Determining whether co-operative tenancy agreements are periodic or fixed-term tenancies is not easy, and co-operatives across the UK are waiting to see how the county courts interpret the Supreme Court’s ruling on possession orders. They are scrutinising their tenancy agreements to consider what they can do to eradicate any uncertainty, while avoiding costly legal disputes. They know that currently, the only real way to determine the status of these tenancy agreements may be through the courts.

I have already outlined the impact this ruling might have on housing co-operatives in the unfortunate circumstances where possession proceedings are needed, but its implications could also impact on the day-to-day running of housing co-operatives for residents. For example, I understand that residents will no longer be able to rely on the so-called “right to repair” outlined in section 11 of the Landlord and Tenant Act 1985, because that only applies to tenants with a short tenancy.

[Gavin Shuker (Luton South) (Lab/Co-op)]

I congratulate my hon. Friend on raising this very important issue. I was very pleased to be one of the people helping him out on his ten-minute rule Bill. When I speak to housing co-operatives, it strikes me that one of the issues they are concerned about is the implications of this ruling for housing benefit. Can he say a few words about that?

[Jonathan Reynolds]

Absolutely, and I too am aware that this issue is causing significant concern. The concern stems from the understanding that co-operative tenants would be entitled to claim housing benefit only if clarification was sought. As I understand it, housing benefit is not usually payable to people with leases over 21 years, so this ruling would cause a significant problem to those people. Can the Government confirm as a matter of urgency whether co-operative tenants, like other tenants, would still be eligible to claim housing benefit?

When making the judgment, Supreme Court Justice Baroness Hale highlighted the fact that the rule about certainty was invented long before periodic tenancies. Others, including the retired Law Lord, Lord Browne-Wilkinson—back in the early 1990s, I believe—have acknowledged that this area of the law is not in a satisfactory state. I understand that CDS Co-operatives, the largest co-operative housing service agency in England, is already seeking to bring a test case before the Supreme Court. That case will ask the Court to consider whether the principle that a tenancy cannot be for an uncertain term can be overturned. However, that process will be long and costly, and even if CDS Co-operatives succeeds, the Supreme Court may rule that it is the role of this House and Parliament, not the Court, to change precedent derived from an interpretation of centuries of feudal law.

The Supreme Court ruling has raised serious questions for the co-operative housing sector. It would be wrong to leave the sector to deal with that fallout alone, so today I ask the Minister whether he can offer urgent assistance to housing co-operatives as they try to navigate their way through the implications of the judgment. However, I still firmly believe that Parliament needs to change the law in this area.

As my hon. Friends the Members for Luton South (Gavin Shuker) and for Rutherglen and Hamilton West (Tom Greatrex) said, last year I introduced a private Member’s Bill that would have acknowledged co-operative housing in law for the first time. I argued that existing landlord and tenant law assumes a fundamental conflict of interest between landlord and tenant and that that was inappropriate for the co-operative model. I suggested that the new form of tenure would open the way for the expansion of co-operative housing schemes at a time when the UK faces a significant housing crisis. The change in the law would formally have acknowledged the nature of housing co-operatives for the first time, but it would also have had the potential to increase access to affordable housing and would have enabled members of housing co-operatives to build up financial equity at a time when people are finding it harder than ever to take their first step on the housing ladder. That point is in response to what my hon. Friend the Member for Luton South said, because if that Bill had become law, it would for the first time give people a real option between ownership and renting. By virtue of being a member of the co-operative, they could pay an amount of money appropriate to their income, giving them an equity stake that would grow. They would not face the financial hurdles of buying for the first time, but they would have a greater stake than if they were simply renting.

In many countries, co-operative housing tenure is already recognised as a distinct way for members to acquire the right to occupy their homes. For example, in Sweden, where 18% of the population live in housing co-operatives, that has been part of the law since the 1920s. I am delighted that, in Wales, the housing White Paper, “Homes for Wales”, gives due prominence to the need to support co-operative schemes through legislation, committing to create co-operative housing tenure in Welsh housing law. I congratulate the Welsh Labour Administration, the Welsh co-operative movement and the Minister for Housing, Regeneration and Heritage, Huw Lewis AM, on Wales being the first part of the UK to do so.

The importance of the issues highlighted by the Berrisford v. Mexfield ruling is inextricably linked with the seriousness of the growing housing crisis in the UK. I am sure that I need not remind hon. Members here today that in the private rented sector, rents are increasing more quickly than wages, and at a time when living standards for working families are being squeezed and people are under huge pressure. Local authorities and housing associations own 1 million fewer homes now than in the late 1970s. Families can no longer rely on social housing. With the average price of a property in the UK in excess of £165,000, it is now harder than ever for first-time buyers to step on to the housing ladder.

We urgently need to find solutions to the problem. Co-operative housing schemes do provide an alternative solution. They can offer affordable, quality accommodation to residents, while empowering them to play a key role in the decisions that relate to their property. What is more, they have the potential to attract new investment into the provision of much-needed housing. We should be doing all we can to support the growth of the co-operative housing sector. We need to do more and we should start today by supporting existing co-operatives in the wake of the Berrisford v. Mexfield judgment.