Leasehold and Freehold Reform Bill

Debate between Lord Thurlow and Baroness Thornhill

Committee stage
Wednesday 1st May 2024 Lords Chamber

[Baroness Thornhill (LD)]

My Lords, I too support Amendment 94 in the name of the noble Lord, Lord Best, which was so well outlined by him with his usual clarity and reason. It is an amendment that I was determined to put my name to, but its popularity was such that I was too late. However, I listened intently to the informed contributions from the noble Baroness, Lady Hayter, and the noble Lord, Lord Young of Cookham, and look forward to the contribution of the noble Baroness, Lady Taylor. This will therefore be possibly my shortest and easiest contribution to the Bill, simply saying that, between them, the proposers have nailed this issue with an amendment that should be workable and which we hope that they will take forward on Report.

The noble Lord, Lord Best, listed the broad coalition of support for a regulator and indeed it appears that it is ready to go. This is something which the noble Lord has campaigned on for years. His report was widely accepted and praised for its thoroughness and its remarkably workable plan for the way forward, which he has stated in detail. Interestingly, the recommendations of his working group went much further than this amendment, so the movers of the amendment are being pragmatic and measured because they want to see change now—we support that.

I found the contribution of the noble Lord, Lord Truscott, on redress, particularly interesting. It reminded us that, currently, regulation in the property sector is voluntary and sanctions are limited. This Bill will not change that enough. Do your Lordships not think it is shocking that anyone can set up a firm from their bedroom and very soon be handling hundreds of thousands of pounds of leaseholders’ and taxpayers’ money while being largely unaccountable to the leaseholders who, on the whole, do not choose them to manage their block or control their service charges? This cannot be right. An individual can set up in business as a property manager without any formal qualifications, experience or even insurance.

It seems shocking that there has been so much good legislation to protect much smaller sums, such as deposits for renters, but nothing to protect leaseholders’ funds. We have regulations and regulators for individuals and companies handling much smaller amounts of people’s money. Leaseholders are usually required by the terms of their lease to make advance payments towards the service charge and to contribute to a sinking fund or reserve fund. These sums can be substantial, especially if major works are planned, which is why we supported the amendment tabled by the noble Baroness, Lady Fox, earlier in the Bill on consultation on major works. The Federation of Private Residents’ Associations has asserted that there is no other area in the UK in which money is held by a third party that is not regulated—unless somebody can tell me otherwise. The federation suggests that moneys held by unregulated and unprotected third parties may well exceed £1 billion.

If we want to change the behaviour of such property agents, there needs to be a much more professional approach to training and development, as the noble Baroness, Lady Hayter, exemplified well. Mandatory professional standards should be set, along with the oven-ready code of practice.

Even within the sector, the good guys—and there are good ones—do not want the rogues giving them a bad name and tarring everyone with the same brush. It is clear that the Government are procrastinating on this issue, so much so that several years after the report from the noble Lord, Lord Best, very little has happened. The fact that the Government have not taken the opportunity with this Bill to introduce relevant property agent regulations proves that they have probably yielded to the anti-regulation voices among their ranks, despite their acceptance in principle of the case for regulating property agents, which has also been accepted by the majority of interested and affected parties. We are all seeking a solution, and Amendment 94 is certainly worthy of consideration, and we urge the Government to give it that consideration. I look forward to the Minister’s reply and to Report, definitely.

[Lord Thurlow (CB)]

My Lords, I have not heard a voice in the Chamber this afternoon against the amendment from the noble Lord, Lord Best. It is such a refreshing amendment, it is long awaited, and we have heard, and we all knew, that his report was kicked into the long grass many years ago by the Government, and that is something of a disgrace. Even in the Levelling- up and Regeneration Bill debates last year, this subject was much discussed. We must not overlook that large cohort of hugely responsible and professional property managers—and there are many—but our focus must be on those who fail to adopt high standards, those who knowingly overcharge, those who take discreet commissions, and those in the pockets of clients with dubious standards.

This subject of rogue managing agents has come up again and again in this Bill; the time has come to act. The amendment clearly has strong cross-party support, and we have heard that the Government want to do it in principle. If the Government really want to do something for leasehold occupiers, this is it: simple regulation of property managing agents and other related property advisers; no one to practise without registration; a no-nonsense, strictly monitored and enforced system of effective supervision; and a simple, advertised complaints procedure for the lessees and rigorous monitoring of those complaints. This amendment has my wholehearted support. I hope the Government will adopt it; if not, I hope it is pressed on Report.

Leasehold and Freehold Reform Bill

Debate between Lord Thurlow and Baroness Thornhill

Committee stage
Monday 29th April 2024 Lords Chamber

[Lord Thurlow (CB)]

My Lords, I congratulate the noble Earl, Lord Lytton, on his high-speed gallop through a large number of his Friday afternoon amendments. They were quite technical, and anyone who managed to keep up with them all deserves a prize. It was very good indeed. I will address one of them, Amendment 78F. It is very short but very important.

Much of this Bill is designed to protect leaseholders from freeholders and their managing agents acting in concert in any attempt to inflate service charges. These in-house relationships are ripe breeding territory for dishonest behaviour and abuse, of which the noble Earl gave an example, in the opaque realm of service charges—something we look forward to being reversed or changed by this Bill. It is a money-making business model, albeit morally and actually dishonest. We should ban any close links of this kind between managing agents and their freehold clients, and inflict suitable penalties that are strong enough, or high enough in financial terms, to be a deterrent. If the Government really want to protect leaseholders, connected relationships giving rise to such potential abuse must be banned.

[Baroness Thornhill (LD)]

My Lords, I will speak to my Amendment 77 and make a few brief comments on other amendments. Amendment 77 would allow leaseholders to apply to the appropriate tribunal to ensure that freeholders who do not provide the agreed estate management services and allow a block to become run-down can be subject to a penalty at the sale of the freehold. There is clearly an issue of absent freeholders and little penalty when a managing agent is not appointed or adequate estate management services are not provided. The amendment would create a mechanism by which a penalty could be placed on the enfranchisement value and mean that leaseholders who have suffered from freeholder failures and consequently had to take the step towards acquiring the freehold should pay a lower cost for the collective enfranchisement of that freehold. This would reflect the freeholder’s dereliction of duty if a tribunal deemed it was warranted.

The Bill aims to remove barriers and rebalance legal costs for leaseholders to challenge freeholders at tribunal. Clause 56 addresses the enforcement of freeholders’ duties relating to service charges, and it includes provisions for tenants to make an application to the appropriate tribunal and the measures tribunals may put in place. As such, the amendment would just add to that. As well as having a power to make a landlord pay damages to a tenant for failure to carry out duties related to service charges, a tribunal would also have the power to apply a penalty to the enfranchisement value at the sale of the freehold to leaseholders. It does not seem fair, after having taken action to gain control of the freehold due to an absent freeholder, that leaseholders then have to compensate the freeholder with no penalty for that dereliction of duty. This is a modest amendment that would leave the judgment in the hands of the appropriate tribunal as to whether a penalty was warranted.

On Amendments 67 and 69, in the name of the noble Baroness, Lady Taylor of Stevenage, it is only right that leaseholders with old leases that have fixed service charges can challenge the reasonableness of those fees at tribunal. Evidence of costs being passed on in service charges is evident. This also ties in with Amendment 98D from the noble Earl, Lord Lytton.

We on these Benches support Amendment 69. We do not agree with the Government having a power to remove certain landlords from being subject to basic service charge transparency rules; all leaseholders are owed clarity on what they are paying for. We do not understand why that should not be the case.

I turn to Amendment 78 from the noble Baroness, Lady Fox of Buckley. We agree that leaseholders should be fully consulted on major works that they pay for; the noble Baroness showed that some of these costs are eye-watering. We agree with her proposal to restore the major works scheme in the Commonhold and Leasehold Reform Act 2002, which was eviscerated by the Daejan ruling by the Supreme Court in 2013, which the noble Baroness mentioned. We agree with the dissenting Lord Wilson in that decision, who said that the majority had subverted the intention of Parliament. It is not right that landlords no longer have to involve leaseholders in the decision-making process. We should use this Bill to at least restore the position to pre-Daejan so that transparency and accountability on major works are increased for leaseholders.

Amendment 78A, from the noble Lord, Lord Bailey of Paddington, would require a landlord who had lost a service charge determination, and who was meant to return the money to the leaseholders, to pay up in two months or else face compound interest. While Section 19(2) of the 1985 Act requires that overcharges be returned to leaseholders, landlords can and do ignore this. The same applies to similar provisions in leases. Where a tribunal has determined that a service charge or portion of it has been excessive, it should be relatively straightforward for leaseholders to get that money back. We on these Benches support that part of the thrust of the amendment—to ensure that landlords are under pressure to account to leaseholders in a timely manner, or otherwise experience financial penalties, as debtors in other parts of our economy do.

I turn to the mighty avalanche of amendments from the noble Earl, Lord Lytton. For us, Amendments 78D and 78E stand out. Amendment 78D provides for a new, tighter and more objective test of value for money to replace the current test of “reasonably incurred”, which could be open to a wide range of interpretation—obviously, this is in relation to service group charge costs. Amendment 78E pushes the Government to go further in the entitlement of leaseholders to have more and better information. Given the rationale behind the amendments from the noble Earl, Lord Lytton, we believe it is worth the Government giving them serious consideration.

Finally, although we have not yet heard from the noble Lord, Lord Moylan, we are minded to agree with his amendments, as right-to-manage and residential management companies are thinly capitalised. Unlike big freeholders, they will not have lending facilities, so would be unable to pay legal costs up front to take non-paying leaseholders to tribunal or county court. Right-to-manage and residential management companies are non-trading companies and have nothing except the service charges in their coffers. I look forward to the Minister’s responses.