Leasehold and Freehold Reform Bill

Debate between Lord Moylan and Baroness Thornhill

Committee stage
Monday 29th April 2024 Lords Chamber

[Baroness Thornhill (LD)]

The problem is evident and not disputed, but the solutions are clearly debatable.

We support the amendment from the noble Lord, Lord Bailey of Paddington, as we share his concerns. The insurance scheme in the Bill, without the permitted insurance payment being set at something nominal such as £5 or £10 a year, could become another cost centre for freeholders. We know how difficult it is for freeholders, especially on larger developments, to get like-for-like quotes. Often, brokers will not even quote, which makes challenging at tribunal very difficult, especially when the freeholder claims that their fees are for works done and not pure commission. It is good for there to be a backstop in the insurance scheme in the Bill, so that brokers are fairly remunerated, while ensuring that other parties in the distribution chain, including freeholders, are banned from profiteering from the captive leaseholders who pay but do not get to choose the policy.

Amendment 82 in the name of the noble Baroness, Lady Taylor of Stevenage, and signed by my noble friend Lady Pinnock,

“would prohibit landlords from claiming litigation costs from tenants other than under limited circumstances determined by the Secretary of State”.

Clause 60 puts limits on the right of landlords to claim litigation costs from tenants. When the Bill was in the Commons, the Minister said that

“unjust litigation costs should not be incurred”—[Official Report, Commons, Leasehold and Freehold Reform Bill Committee, 25/1/2024; col. 347.]

by leaseholders—and we agree—but the Bill as drafted does not go far enough in preventing that happening. There will be circumstances in which it is appropriate for leaseholders to bear those costs, but we believe that Amendment 82 makes provision for that. The presumption should be that the costs are not borne by the leaseholder, unless in circumstances specified by the Secretary of State.

My noble friend Lady Pinnock’s Amendment 80 would require the Financial Conduct Authority

“to report on the impact of the provisions in the bill around insurance costs in order to monitor progress on reducing costs passed on to leaseholders”.

I am pleased to say that the Law Society also supports the amendment. Rising insurance premiums have sent service charges soaring in the last few years, mostly due to the costs associated with remediation works following the tragedy of the Grenfell Tower fire. That means that even the leaseholders who can access funding to help them pay for vital works to their buildings are still paying the price to remedy a problem that they did not cause.

Clause 57 places a limitation on the ability of landlords to charge insurance costs to leaseholders. This is a very welcome step in the right direction. It is essential that this provision works as intended to protect leaseholders from extortionate costs. The Financial Conduct Authority’s report into insurance for multi-occupancy buildings, published in September 2022, found not only that premiums were rising, with mean prices increasing by 125% in the period from 2016 to 2021, but that the level of commission rates for brokers was

“an area of significant concern”,

with eye-watering rates of up to 60% being seen.

The FCA also found that brokers were sharing commission with the freeholder or the property management agent, meaning that they were unfairly profiting from leaseholders. Commission—and not cover or costs—was therefore the driving factor in the choice of policy. The provisions in the Bill to limit the ability of landlords to charge insurance costs to leaseholders, alongside the Bill’s increased transparency requirement, should—one hopes—go a long way to protect leaseholders. We also note that as of 1 January this year, the regulator will force insurance firms to act in leaseholders’ best interests and to treat them as a customer when designing products. They will be banned from recommending an insurance policy based on commission or remuneration level. It is clearly very early days, but we hope to see some improvement from that.

There is, of course, the argument that the Government should go further. A cap on service charges for leaseholds, especially at a fixed amount rather than as a percentage, has been suggested as a way to properly protect leaseholders from unreasonable costs. We would, therefore, want to place a requirement on the FCA, whose thorough report provided the impetus for these provisions, to assess whether it has had an impact in reducing costs for leaseholders and preventing freeholders and managing agents profiting off them. We hope that the provisions of the Bill will provide the necessary relief for leaseholders, who are clearly facing exorbitant costs. It will, however, be essential that the Government keep a close eye on the impact of Clause 57 and take action if it is not going far enough.

Finally, the noble Lord, Lord Moylan, does have some amendments in this group—I looked very worriedly at this point. On the surface, they appear to be about making the process simpler and easier, which is probably a good thing and worth consideration. I look forward to hearing what the noble Lord says.

[Lord Moylan (Con)]

My Lords, I had assumed that the noble Baroness had risen to speak to the amendment standing in the name of her noble friend Lady Pinnock. I will speak to the amendments in my name in this group. Although there are eight of them, they fall into three broad topics, so I hope to dispose of them fairly quickly.

The first are Amendments 81 and 81A. These relate to the ability of right-to-manage companies to bring legal proceedings and charge the costs to the service charge. The effect of the Bill is that freeholders will not be able to charge legal costs to the service charge unless they obtain a ruling from a tribunal. In the case of right-to-manage companies exercising the functions of the freeholder, they have no source of income apart from the service charge. If they are not able to charge their legal costs to the service charge, then they will not be able to bring legal action at all. In fact, without that ability, they would not even be able to initiate legal action unless the directors of the company were willing to fund the preliminary legal activities from their own pockets. If they were willing to do that, and they proceeded to court, they might find that the court or tribunal did not find that they were entitled to recover their costs or find that they could recover only part of their costs as a result. Again, they would have no recourse to any source of funds apart from their own individual pockets in such circumstances.

The second amendment, Amendment 81A, would extend this provision not just to right-to-manage companies but to residential management companies. Right-to-manage companies were established under the Commonhold and Leasehold Reform Act 2002, but there are other residential management companies that exist that are not right-to-manage companies under that Act. These two amendments are alternatives; they are both probing.

I have heard that the Government are aware that this is a problem and are willing to do something to address it, so I hope that this particular probe will find a positive response from my noble friend on the Front Bench, because it cannot seriously be the Government’s intention to make it virtually impossible for anyone to become a director of a right-to-manage company without having to face serious personal financial risks that were never envisaged when RTM companies were established in 2002.

Amendments 81B, 81C, 81D and 81E all work together. They relate to a different problem, which is that the Bill allows a court or tribunal to award costs to a freeholder in certain circumstances specified in the Bill. However, if these costs are not paid, the only recourse the freeholder has is to go back to the court and seek a new judgment to have the costs awarded to them, whereas the normal method of dealing with such a matter is to make a simple online claim for a judgment in default. That course of action is precluded, as I understand the Bill, in the case of freeholders seeking to recover the legal costs that have been awarded to them. All this will do is burden the courts with more applications, which can and should be, and are normally, dealt with through an online process that takes a few weeks to go through. That surely should be available to freeholders.

The third topic in this group relates to Amendments 82A and 82B. These, again, are probing amendments to understand why the Government are extending the protection in relation to legal costs to all leaseholders, when surely the intention must be to extend it to those leaseholders who are home owners—that is, who own the property that is the subject of the legal dispute. The Bill has the effect of giving this protection also to investor leaseholders—those who hold the property entirely as an investment. I do not understand the Government’s logic in doing this, and these amendments probe that by suggesting that it should benefit home owners only.

Leasehold and Freehold Reform Bill

Debate between Lord Moylan and Baroness Thornhill

Committee stage
Wednesday 24th April 2024 Lords Chamber

[Baroness Thornhill (LD)]

My Lords, I have asked to speak to the amendments in this group, which is a bit shorter than it would have been had the Clause 47 stand part notice remained. That was certainly something on which I would have urged the Government to stand firm.

We strongly support Amendment 60 in the name of the noble Baroness, Lady Taylor of Stevenage. Anyone who has done a bit of googling on the right to manage can see that right-to-manage claims by leaseholders are often fiercely opposed by freeholders. What is meant to be a so-called no-fault process can involve costly and stressful litigation for leaseholders, as freeholders drag the right to manage claim into the tribunal system. Freeholders gameplay and try to block RTM bids, because the right to manage signifies loss of their control and ability to rip off leaseholders in perpetuity.

Against this backdrop of right-to-manage cases going to tribunal and becoming the subject of “lawfare” by freeholders, it is surely reasonable to ensure that right-to-manage companies cannot incur costs in instances where claims cease. The way things stand, it is clearly intended to be a disincentive to leaseholders to seek the right to manage, and that imbalance cannot be right. Some noble Lords may remember the Canary Gateway case: it took an outrageous four years for the shared-ownership leaseholders to secure their right to manage, with the freeholder-driven litigation going as far as the Court of Appeal.

Turning to Amendments 61 and 62 in the name of the noble Lord, Lord Moylan, we on these Benches would support them in principle as they are increasingly sold as access to the right to manage. However, they stand in stark contrast to the noble Lord’s other amendments, which sought to reduce leaseholder access to collective enfranchisement and right to manage.

[Lord Moylan (Con)]

My Lords—

[Baroness Thornhill (LD)]

I hesitated and thought about cutting that bit out, but go on.

[Lord Moylan (Con)]

The noble Baroness could not expect to get away with that. Any attempt to cast me as a as a poodle of freeholders and opposed to leaseholders is bound to be foiled because it is untrue. I have made it clear throughout that I strongly support the right to manage and its extension. This is very different from expropriation of somebody else’s property. This is simply a technique for managing a building and managing it well.

I should also say while I am on my feet that when we exercised the right to manage in the block in which I live, many years ago, the freeholder was highly supportive because they were sick to death of the managing agent as well, and realised that their building would be managed a great deal better by us, as it has been. They have an interest in the building being well managed: they want the roof to be repaired; they want the facade not to fall off in chunks in the street because, after all, they, too, whatever else is said, have a long-term interest in the building.

[Baroness Thornhill (LD)]

My comments were not about right to manage. That was a good segue into another short speech by the noble Lord.

However, we are conscious that expanding right to manage to leaseholders under local authority landlords was never considered by the Law Commission, nor put out to public consultation. We are unsure whether the Government have done policy work in this area. It is a whole other ball game and will be challenging. But, in principle, given that many local authorities have been guilty of significant and tragic failures of service, to put it mildly, this should be a right of local authority tenants too. But it will be complex, for many of the reasons that were well outlined by the noble Baroness, Lady Taylor.

It is also worth reminding ourselves that local authority leaseholders have, since 1994, been able to take over management through tenant management organisations. I do not believe any work has been done regarding their success or otherwise. But such a review could ignite and inform this topic on another occasion. We welcome the probe by the noble Lord, Lord Moylan, and also the subtleties of his alternative proposals, and will certainly attend the said—and very popular —meeting.

Finally, I come to Amendments 65A and 65B, in the name of Lord Bailey of Paddington. The aim of Amendment 65A is a good one: to ensure that leaseholders in mixed-use buildings can avail themselves of the right to manage. At the House of Commons Public Bill Committee in January, MPs heard that many leaseholders in mixed-use buildings would still be unable to benefit from the reforms in the Bill to take over management—because, as the noble Lord said, of the existence of, say, a shared plant room or car park, under rules regarding structural dependency and self-containment. The existence of a plant room or other infrastructure is something decided by the original developer and leaseholders have no control over these factors, so it feels unfair to exclude them from right to manage based on the way a block has been designed, especially if they qualify under the new 50% non-residential premises limit.

Amendment 65B would put rocket boosters under the right to manage, opening it up to far more leaseholders. We on these Benches support the amendment and the intent behind it. Members in the other place have raised concerns that the 50% trigger is too high. The 50% participation limit on right to manage was also flagged as an issue by leaseholder campaigners at the Commons Public Bill Committee in January.

There may be concerns about 50% being less than a majority, but, as the noble Lord said, many leaseholders will never be able to obtain 50% support because of the high levels of buy to let in their block. But ultimately the Committee was persuaded of the case to bring down the 50% threshold. It is not right that just one person—the freeholder or landlord—has such control over leaseholders and can impact almost at will on their finances. As the noble Lord’s amendment suggests, 35% of leaseholders triggering a right to manage, with a right to participate for remaining leaseholders who did not originally get involved, is a far better situation than rule by one freeholder, whose interests, as the Law Commission concluded, are diametrically opposed to that of the leaseholder. Leaseholder self-rule with right to manage and a 35% participation threshold is a much more democratic state of affairs. Let us be honest: many councillors and MPs are elected to govern on much less than 50% of the vote—in fact, usually around 35%.

[Baroness Scott of Bybrook (Con)]

My Lords, I thank the noble Baroness, Lady Taylor of Stevenage, for Amendment 60, which would leave new Section 87B out of the Commonhold and Leasehold Reform Act 2002. This is a new power, inserted into the 2002 Act by the Bill, for the tribunal to order the repayment of a landlord’s process costs for right to manage claims which are withdrawn or cease to have effect in circumstances where a right to manage company has acted unreasonably.

The noble Baroness asked who would decide what was reasonable or unreasonable and the level of reasonableness. The costs will be determined by the tribunal, as is the case with other kinds of litigation or court proceedings.

While we strive to reduce costs for leaseholders, we do not believe it is right to do so where the right to manage company acts unreasonably in bringing a claim and the claim also fails. For example, landlords should not have to meet their own wasted process costs where leaseholders clearly make an unfeasible claim or fail to bring the claim to an end at an earlier stage.

The noble Baroness should be assured that the new power for the tribunal does not automatically entitle landlords to repayment. If the tribunal does not consider that costs should be payable, it can decline to make an order. Removing new Section 87B would expose landlords to unfair costs. For these reasons, I ask the noble Baroness kindly to withdraw her amendment.

I thank my noble friend Lord Moylan for his Amendments 61 and 62. The amendments seek to remove or amend the existing exception to the right to manage for local authority premises so that the right can be used by their long lease holders. I should explain that there is a separate right to manage scheme for local authority secure tenants and leaseholders under the Housing Act 1985 and its relevant regulations. The Commonhold and Leasehold Reform Act 2002 therefore excepted local authority leaseholders from the long-leasehold right to manage to avoid creating conflicting schemes.

The Bill delivers the most impactful of the Law Commission’s recommendations on the right to manage, including increasing the non-residential limit to 50% to give more leaseholders the right to take over management, and changing the rules to make each party pay their own process and litigation costs, saving leaseholders many thousands of pounds.

An alternative route to management is available in some local authority blocks that contain a mixture of tenants and leaseholders, where a prescribed number and proportion of secure tenants are in support of exercising the right. This involves setting up a tenant management organisation. It would complicate a system that we are trying to simplify if two separate routes were to apply to a single block, and the Law Commission made no recommendations on local authority leaseholders.

Levelling-up and Regeneration Bill

Debate between Lord Moylan and Baroness Thornhill

Committee stage
Monday 24th April 2023 Lords Chamber

[Baroness Thornhill (LD)]

My Lords, I do not want to take up too much time, because much has already been said, but I want to add a couple of points that have perhaps not already been made and expand on one point from the noble Lord, Lord Young. It is really important to acknowledge that the Government have found the means to increase planning fees for major and minor applications to 35% and 25% respectively. That is a positive move in the right direction and it has to be applauded.

As always, the noble Lord, Lord Young of Cookham, has nailed Amendment 267 and I want to expand on one of his comments, on devolution. In reality, councils are effectively asked—and in effect taxpayers are asked—to subsidise a whole range of services, not just planning services. Licensing fees are one, and the one that really gets my goat is supplying credit agencies with the electoral register. There is a statutory cap on what can be charged, regardless of the actual cost. Even with land searches, which councils have to do the work on, the Land Registry actually gets the cash. I think it is an area that is ripe for looking at, particularly as we are in cash-strapped times; other agencies and other companies, not just the taxpayer, should pay the bill.

My only caveat about letting each individual council area decide absolutely on its fees is that “To those who have, more shall be given”. In areas where developers want to build—they are usually the areas where it is most lucrative and they will get the most profit—they will be able to get away with charging much higher fees simply because they can. I think the opposite should be true, so Amendment 267, which refers to the actual costs, is the fairest way of dealing with this, especially as salaries and other incidentals also vary depending on the geographical area that a council sits in.

[Lord Moylan (Con)]

My Lords, I will speak briefly in giving general support to the thrust of the amendments, not only on the grounds advanced by other noble Lords but because they would mitigate something I regard as a positive evil. It has become possible in recent years for major developers proposing major projects to offer to local planning authorities to fund the salary of a planning officer to help deal with their case. When I had responsibility in a London borough for planning policy, I resisted accepting that sort of offer, but perhaps we could afford to do so.

This strikes to some extent at the heart of public confidence in the planning system, which is always a little fragile. Noble Lords who have been involved in it will know that there are always people who suspect that there has been a fix and that something corrupt is going on, but that is not the case in my experience. However, to allow a developer to fund a planning officer only exaggerates that perception and damages public confidence in the planning system. The way out of this, not least in the context of devolution, must be to allow the charges to cover the costs. It also seems appropriate if we want to empower elected officials in local authorities. It is open to the possibility of abuse, as the noble Baroness, Lady Thornhill, said, and a local authority could seek to deter applications by setting punitively high fees, but my noble friend Lord Young of Cookham’s amendment broadly addresses that possibility. It might need a little refinement, but the principle is none the less clear and acceptable. I encourage support for this amendment because we are not taking sufficient notice of the evil I mentioned, which harms the planning system.