Lord Best
Main Page: Lord Best (Crossbench - Life peer)
Lord Best
My Lords, I, too, am very grateful to the noble Baroness, Lady Gardner of Parkes, for initiating this important debate on the management of leasehold flats. Since I agree with virtually everything she said, and virtually everything that everybody else said, I will not dwell on those points.
Since most leasehold property is managed by managing agents, we need to consider whether the current arrangements are satisfactory in ensuring that they do a good job. I declare my interest as chair of the property ombudsman TPO, which handles complaints by tenants and, significantly, by landlords about managing agents. I feel able to speak in this debate despite my interest because the property ombudsman TPO is principally concerned with estate agents that handle sales, where 95 per cent of agents are members, and managing and letting agents that handle rented properties, where the TPO accounts for some 60 per cent of the sector. There is another ombudsman service, quite separate from us, that handles the great majority of complaints about agents who look after leasehold property.
On ombudsman services in general, the resolution of disputes without the need to go to the courts, or in this case to take matters to tribunal hearings, has considerable advantages. Ombudsmen are not champions of consumers any more than they are on the side of providers. They must be entirely independent of both. They can in that capacity not only resolve disputes in individual cases but play a significant role in raising standards in an industry. For example, complaints against estate agents in relation to property sales have fallen, and the level of awards that agents have been required to pay has also fallen over recent years. It seems very likely that the pressure and publicity from the work of the property ombudsman in judging the behaviour of agents against a clear code of practice contributed significantly to this improvement.
Throughout their professional bodies, and in professional and trade magazines and journals, there is constant reference to the standards to be expected of agents in treating with consumers. Where the ombudsman's decision leads to an offending agent being expelled from the scheme, local publicity has a powerful impact. The ombudsman cannot deal with the more extreme cases, not least because his powers are limited to making a maximum award of £25,000 in the case of the TPO, and some matters must still go to the courts. However, the ombudsman service means that huge numbers of disputes can be resolved at low cost—indeed, at no cost to the complainant.
I recognise that there can be additional complications for leaseholders. An individual leaseholder may be insistent that the managing agent should take action, perhaps in accordance with their contractual agreement, where the cost of the agent doing so may mean that the management company, comprising the residents who will all have to pay, is not so keen for the managing agent to proceed in this way. In other words, there may be three parties engaged in a dispute: the individual leaseholder, the leasehold management company and the agent. This will require additional sorting out. One hopes that such cases are in the minority, and I would advocate much greater use of the existing ombudsman service to settle disputes and to raise standards for residential leaseholders.
We know that the Government are not keen on any new regulation in the private rented sector. The property ombudsman has argued for the same requirements on managing letting agents as exist for estate agents under the Consumers, Estate Agents and Redress Act, which would make it compulsory for all agents to belong to an ombudsman scheme. In the absence of such legislation, it seems that we must rely on voluntary action by agents to join an ombudsman scheme. The advantage to the agents will be that as consumers become aware of the difference between agents that belong to an ombudsman scheme where they can get their disputes addressed and agents that are outside such schemes, the market will ensure that few agents remain beyond the pale. In the private rented sector, a number of agents have got together with the National Approved Letting Scheme, and with the professional bodies representing agents, to launch a safe agents scheme that in particular requires all agents to have client money protection insurance. A publicity campaign by bodies representing leaseholders, such as the Federation of Private Residents’ Associations, to ensure that leaseholders choose only agents that belong to an ombudsman scheme, would certainly help to raise accountability and standards.
I will also comment on the practices surrounding payments that are required of leaseholders or their successors when they leave or die. Some contracts in retirement housing stipulate payments to the freeholder, and these exit fees have been the subject of serious complaint. Here I declare an interest as chair of the Hanover housing association, which has taken on the freeholds of several thousand leasehold retirement flats. From this I know that practices in the sector can vary from the good to the bad. At the positive end it can be beneficial to offer to occupiers the option that some part of the service charge—usually that covering the building up of a provision for major repairs, the replacement of lifts and so on—should be deferred until the occupier leaves. This will mean that every month those on tight incomes will have more spending money, and the accumulated service charge will come out of the sales proceeds when they leave or die.
At the other extreme are cases of small print where the occupier—or their heirs and successors—is required to pay 5 per cent of the sales proceeds to the freeholder in return for no discernible benefit. There have been complaints that purchasers did not understand such requirements buried in their contracts. The Office of Fair Trading looked at these questions, and it would be helpful to have an update from the Minister on the action that the OFT intends to take—not to throw the baby out with the bathwater but to clamp down on unfair and misleading contractual arrangements that are discovered. Although I recognise the Government’s aversion to statutory regulation, will the noble Baroness comment on the value of extending the role of ombudsman services?