Leasehold and Freehold Reform Bill

Debate between Lord Bailey of Paddington and Baroness Jones of Moulsecoomb

Committee stage
Monday 29th April 2024 Lords Chamber

[Baroness Jones of Moulsecoomb (GP)]

My Lords, the number of amendments discussed today highlights just how many issues there are with the exploitation of leaseholders. The noble Baroness, Lady Taylor, mentioned the option of some pre-scrutiny with people who have expertise in this area—although I am not suggesting that I am one of them. That might have benefited this legislation.

Normally, with leasehold properties, people think that they are buying a house or a flat, but then they are laden with decades of financial obligations to a landlord who can charge a ridiculously long list of things to the leaseholders. That does not seem to be a very fair system. There are far more problems than your Lordships’ Committee will be able to resolve, so there is clearly a need for further legislation when a new Government come to power. I hope that the new Government will consider the issues raised in Committee, including my Amendment 78B, which shines a light on the growing trend of public assets being funded by leaseholders. For example, green spaces, play areas and roads are often being charged to leaseholders, even when they are freely accessed by the wider community.

These leaseholders are facing a double taxation: they are paying their council tax, which is used to fund play areas and roads provided by the local authority, and they are also being charged by their landlord for play areas and roads that are within the estate. There seems to a case for these publicly available assets to be brought into local authority management, ownership and funding. I would appreciate it if the Minister, and any budding future Ministers, could give their thoughts on the issue and perhaps undertake to look at it further.

[Lord Bailey of Paddington (Con)]

My Lords, my main focus so far has been boosting leaseholder control over service charges by removing barriers to the right to manage. However, we must dramatically reform the law for leaseholders who cannot gain this control and who wish to stand up to their freeholder on service charges. It is positive that the Government are enforcing service charge transparency and disclosure with the new right-to-inform scheme in Part 4, Clause 55, which makes changes to the Landlord and Tenant Act 1985, but I believe we need to go further and make it easier for leaseholders to challenge rip-off freeholders with their service charge.

Tribunals are very stressful: they take a long time and often do not have the power to enforce their decisions. This leaves leaseholders in a very strong predicament. Leaseholders normally have to file another application with the county court to get their money back for any overcharging, at least as they see it. My Amendment 78A is all about enforcement and giving teeth to tribunals’ decisions, where it has been determined that the service charges that the leaseholders have paid were not payable or were unreasonably incurred.

Various rules in Parliament have been passed in an attempt to regulate this behaviour of freeholders; again, I mean poor freeholders—the whole market is not like this. Often, these work only when leaseholders have the time, money and energy to enforce them at tribunal, which then is not always guaranteed when residents are up against armies of layers. Freeholders often hold many freeholds and have a big financial backing behind them and can just tire out leaseholders—they can work them into the ground and threaten them with forfeiture, for instance, should something go wrong. The Secretary of State was right to say that we need to put the squeeze on freeholders, but that means making freeholders actually fear leaseholders bringing cases against them at tribunal.

In my Second Reading speech, I mentioned that research from Hamptons has shown that leaseholders paid £7.6 billion in service charges. Many of those service charges were overcharge, and we want to create a situation where leaseholders can fight back. The annual service charge for flats in England and Wales has increased by 8.4% since the beginning quarter of 2023. Around 270,000 leaseholders are now paying more than £5,000 a year in service charges, which could quickly become a second mortgage for many leaseholders.

My Amendment 78A seeks to amend the Landlord and Tenant Act 1985 regime for service charge disputes to try to make service charge tribunals against freeholders more serious by taking three important steps. One is by providing an opt-out. At the moment, leaseholders have to sign up for a case to benefit. Even if the tribunal determines that they have been overcharged, unless they have signed up their neighbour may receive a payment but they will not because they did not sign up. That is unfair in modern life: you could be elderly; you could have children; you could just be away when all these things are going on. Your neighbour would receive benefit and you would not, even though you would also have overpaid. That is why we need an opt-out, not an opt-in, to make it more serious.

Secondly, after a successful Section 27A challenge by any leaseholder in a block, the freeholder would be under a duty to account to all leaseholders within a two-month period of the decision being handed down. This means that any money overpaid would have to be paid back within two months, because leaseholders—many of them owning a place for the first time, many of them young people, many of them elderly people on fixed incomes—have paid out this money which they often could not afford. They should get it back in a speedy fashion.

Thirdly, there should be interest after a two-month period if the freeholder has not paid back money owed to the leaseholders. This is to give the sanction some bite and to make sure that a freeholder does not just wait out hapless leaseholders because they have all the power and the financial power.

I would like to see some more action in this Bill to deter and punish bad behaviour by freeholders and ensure that leaseholders can swiftly get their money back where overcharging has been determined by a tribunal. My Amendment 78A gets us closer to that position.