Baroness Maddock
Main Page: Baroness Maddock (Liberal Democrat - Life peer)
Baroness Maddock
To ask Her Majesty’s Government what plans they have to reform leasehold legislation.
Baroness Maddock (LD)
My Lords, in preparing for this short debate I have, as usual, been grateful to the House of Lords Library for its research. I am also grateful to the Consumers’ Association’s Which? and to the liberal think tank, CentreForum.
The previous occasion on which I spoke about leasehold reform at any length was during the passage of the Commonhold and Leasehold Reform Act 2002. However, in 2014, further reform is still needed and is very much a live concern for the millions of people living in leasehold properties. The issue continues to be raised in both Houses of Parliament.
Leasehold is the norm for many people, particularly those living in urban areas. The majority of new homes being built are flats, bringing the whole matter of leasehold further to the fore. The current system vests too much power in the hands of freeholders. As a Liberal, I always want to devolve power to as many people as possible, so I want to see leaseholders having a proper say in the management of their homes.
What is the problem? England and Wales are almost unique in operating a system of leasehold tenure on many bought properties. The system is aimed mainly at the need to ensure the upkeep and management of communal areas and, sometimes, to enforce positive covenants affecting all the residents. CentreForum’s report, Reforming Leasehold for the 21st Century, described leasehold as a “quasi-feudal system”.
One of the biggest problems is that most freeholders do not manage the properties themselves but employ management agencies to carry out their duties. These agencies have no legal responsibility to the leaseholders, and therefore have very little incentive to provide a reasonable service. In addition, these management agencies face very little competition. If leaseholders are dissatisfied with the services provided by these agents, there is nothing that they can do unless they can persuade the freeholder to make a change. The right to manage is a little known provision which allows leaseholders to manage a group of properties without having to buy the freehold. However, it requires 50% of leaseholders to support such a move. CentreForum suggests that, to encourage the take-up of this system, service charges should include information about the right to manage.
Usually, leaseholders have little or no contact with the freeholder; everything is done through the agents. There is an option to take cases for change to the leasehold valuation tribunal, but it can be a very time-consuming process and there are issues around costs. One of the big problems that often face leaseholders is unexpected major works. Leaseholders can find themselves in severe financial difficulty simply because the owners—or, very often, the managers—decide, for example, to replace all the windows, with little notice or consultation, leaving leaseholders with an unexpected major bill.
Which? Money highlighted other areas of concern in a 2011 article based on consumers’ evidence. One such area was the cost of insurance. Which? Money had unearthed examples of leaseholders saving up to 60% on their insurance premiums simply by cutting out the middleman and arranging their own cover. There have been suggestions that managing agents take a cut on arranging insurance and that they are not interested in getting a good deal. There is a lot of evidence around this and I am sure that my noble friend Lady Gardner will highlight some of these issues. In short, however, a lack of transparency around charges and no independent regulation has meant that there is very little pressure on agents to give leaseholders a fair deal.
As I indicated in my opening remarks, more and more people are living in leasehold properties than ever before. In 2012, an estimated 5 million people were living in 2.5 million leasehold properties in England and Wales. An estimate of the total charges they are paying comes to about £2.5 billion. In the 10 years to 2012, the number of cases of dissatisfaction that leaseholders have taken to the leasehold valuation tribunal has increased by 400%.
Has anything been done to assist leaseholders? During the passage of the Enterprise and Regulatory Reform Act 2013, the coalition Government accepted arguments that stronger protection was needed for leaseholders. I am pleased that, as a result, all letting and management agents now have to belong to a recognised redress system—I expect the Minister will give us an update on that. Also, the Leasehold Reform (Amendment) Act 2014 became law last month. It was a private Member’s initiative that the Government supported, which removes the requirement for a tenant to sign any notice of claim to a new lease in person. This is particularly helpful to anybody with a disability.
I am also aware that the Government committed to spending up to £2 million every year between 2011 and 2015 on a tenant empowerment programme for tenants in social housing. The Minister will no doubt expand on this when she responds. I know too that the Government have asked the Office of Fair Trading to undertake a market study into property management services. However, it is very disappointing that the study will not include an assessment of the legal framework that underpins freehold and leasehold management arrangements in England and Wales. The study also excludes local authority and social housing; the reason given for this by the Government was, they said, because registered social landlords will be responding to the needs of residents. I wonder if that is really a good enough reason, particularly when you can now find—in new developments—private ownership, shared ownership and social housing all in one building. I will be interested in the Minister’s comments on this.
We should be particularly concerned about elderly leaseholders. Most sheltered housing developments are sold on a leasehold basis. What assessment have the Government made about how well this sector is functioning? There is quite a lot of anecdotal evidence on this subject but there is a serious lack of authenticated facts. I wonder how the Government are keeping track of what is actually going on in the area of leasehold.
What could we be doing now? The Liberal Democrats have supported the creation of a national register of landlords; without the knowledge of who is leasing property, it is very difficult to take action against rogue and dodgy landlords. We also need to create greater drive towards the use of commonhold, which was introduced more than 10 years ago, particularly given the make-up of our housing stock. The main problem is that commonhold is not available unless 100% of owners agree—this is, of course, difficult to achieve. During the passage of the 2002 Act, I supported my noble friend Lord Goodhart in his lead in moving that the threshold be reduced to 80%. Meanwhile, CentreForum has proposed that, in order to build a critical mass of commonhold properties and to establish the system as part of the norm, all new blocks of flats built after 2020 should be sold as commonhold. As I indicated earlier, we should definitely also have better promotion of and information about the right to manage for people living in leasehold accommodation.
Lastly, it would be good to look at helping leaseholders when they are charged by the freeholder when they want to make improvements. The freeholder can receive a second benefit from this because, invariably, the improvements increase the value of the property. When the lease is then renegotiated or sold at a higher value, the freeholder benefits. CentreForum has proposed that the right to charge for permission to make improvements should only be available when the freeholder can prove that the charge requested would reduce the value of the property.
This is an important area and my noble friend Lady Gardner will give us a lot more vital information about it. I am disappointed that people who I know care about this subject have not been able to be with us for this debate. I hope that, when the Minister responds, we will not hear too many excuses for why we cannot take action in this important area of property ownership.