Leasehold and Freehold Reform Bill (Seventh sitting)

Alistair Strathern Excerpts

Committee stage
Thursday 25th January 2024 Public Bill Committees

[Lee Rowley]

I thank the shadow Minister for the amendment. Again, while I understand and acknowledge the underlying intent behind it, and share his inclination to reduce the cost for leaseholders to exercise the rights to form a company and bring a claim, we will not accept the amendment today for reasons that I will explain. It is perfectly clear that, and I think we will all accept this across the Committee, up until now the situation has been balanced in favour of landlords, who have been able to recover their process costs from leaseholders at times. The Bill will change that, as has been acknowledged, and will significantly broaden the cases in which each party will be required to bear their own costs. However, it is important that we take steps to protect landlords from unfair costs.

On amendment 7, the Government judge that it would be unfair if a landlord were required to meet their own process costs where a right to manage claim is withdrawn or ceases to have effect as a direct result of unreasonable conduct from the RTM company. The power for the tribunal to order payment of costs for such ceased claims also includes protections for leaseholders. The landlord will not be entitled to costs automatically and it will be necessary to make an application to the tribunal for an order to that effect. If the tribunal does not consider that costs should be payable, it can decline to make an order. I note that the shadow Minister acknowledged that in his initial remarks.

In aggregate, and with that in mind, my and the Government’s view is that, while the cost regime must change, if the amendment were passed, it would expose freeholders to the risk of facing burdensome and unfair costs. I ask the shadow Minister, if he is willing, to withdraw the amendment.

Turning to clause 23 itself, as has been indicated, leaseholders bringing forward a right to manage claim currently face unknown and potentially significant costs. That is because, under current rules, they must meet reasonable costs of a landlord as well as their own costs, and the costs of others often run into thousands of pounds. Those costs—also known as non-litigation costs—include professional services, surveyors, accountants and insurers from which a landlord may incur costs as a result of the claim. Clause 23 seeks to help by removing the requirement for right to manage companies and their leaseholder members to contribute towards those non-litigation costs, meaning that both parties to a claim will bear their own. It does so by replacing the existing cost regime in the 2002 Act.

A requirement that landlords should bear their costs means that they have an incentive to keep costs down, which hopefully reduces some of the issues that the shadow Minister highlighted, and to process claims quickly because they will not be able to pass those costs on to leaseholders bringing forward the claim, potentially reducing the overall cost for both landlords and leaseholders. To protect landlords from frivolous right to manage claims, the clause includes an exception, so landlords can claim costs where the claim has been withdrawn, abandoned, struck out or otherwise ceases, or where a RTM company has acted unreasonably. Under those circumstances, as has been outlined, the landlords can apply to a tribunal.

To reduce existing obstructions to the process, the clause amends the 2002 Act to ensure that a person complying with the duty to provide information cannot withhold supplying a copy of a document to a right to manage company on the basis that they are waiting to receive a reasonable fee. However, the right to manage company will still be liable for reasonable cost of a person complying with that duty.

The clause also removes the current one-way cost shifting rule for litigant costs, which means that only landlords can currently claim the litigation costs from the RTM company, if they are successful. It is only fair that parties to litigation should bear their own costs, and that is the change that has been made.

Finally, the clause prevents landlords from passing costs on to leaseholders via the service charge. We believe that, in aggregate, these measures will reduce uncertainty in making a right to management claim by making sure that each side to a claim bears their own costs. I commend the clause to the Committee.

[Alistair Strathern (Mid Bedfordshire) (Lab)]

I rise briefly to support the comments from my hon. Friend the Member for Greenwich and Woolwich. Although I welcome much of the Minister’s message about removing some of the deterrents to taking on the right to manage on estates, having spoken to a number of residents and campaigners in my constituency, I know that if the clause is not removed it will continue to be a real deterrent and to expose them to a risk of significant financial liability that they would be poorly placed to take on. I know the Minister has already set out that he is unwilling to support the amendment today, but I hope that the Government will reflect on whether they might be willing to come back to the point to ensure there is no unnecessary deterrent to leaseholders in obtaining the right to manage effectively.

[Matthew Pennycook]

I thank the Minister for his response. There are two differences of opinion, the first of which is on the principled point of whether it is right that leaseholders should be charged for exercising their statutory right. We lean quite strongly towards the argument that they should not be, in principle.

The more pertinent argument for me is the second point I made, which, in all fairness, I do not think the Minister addressed. Let us be clear: in many respects, the Bill forces the Government to judge the right balance to strike between the interests of leaseholders and landlords. In coming to that view, the Bill has to account for the possibility that it creates quite perverse incentives, and I do not think it does that here or in a number of other places. This is one example of where that might happen. If a landlord wants to frustrate, disrupt or stop an RTM claim, the way in which the Government have implemented the exception to the general rule will incentivise them to fight the claim on the basis that they can try and convince the adjudicating party that the claim is defective, in the hope of recovering costs. A leaseholder exploring whether to take forward a claim is then faced with the risk of significant liabilities, as mentioned by my hon. Friend the Member for Mid Bedfordshire.

That will deter a huge number of leaseholders from exercising the right. Landlords will know it and fight more claims because they know that the deterrent effect of the exception to the general rule will be quite powerful in a number of cases. We argue quite strongly that we should just end the process costs for leaseholders as a matter of principle. That will incentivise many more groups of leaseholders to seek to acquire the right to manage. For that reason, we are minded to press the amendment to a Division.

Question put, That the amendment be made.