Leasehold and Freehold Reform Bill

Baroness Thornhill Excerpts

Committee stage
Monday 29th April 2024 Lords Chamber

The financial redress that the amendment would offer would place pressure on managing agents and freeholders to deliver an adequate service to leaseholders and provide a financial incentive for transparency to leaseholders on service charge cost breakdowns. Acting otherwise would lead the managing agent to incur costs. I hope that my noble friend the Minister will take back this amendment for consideration.

[Baroness Thornhill (LD)]

I am pleased to say the good news is that we are all on the same page in this regard. The noble Baronesses, Lady Taylor of Stevenage and Lady Finn, have set out the context and the evidence for this. Like the noble Baroness, Lady Taylor, I too had many meetings in my former role about the fact that this issue affected individuals, whether with regard to roads or, in one particular acrimonious case, to playgrounds. So I think we all know which way we are going.

I shall speak to the amendments in my name and make a few general comments about this whole set-up. Amendments 86 and 91 deal with what we now know as the fleecehold issue. As has been said, we all know exactly what that entails. The commercial substance of the arrangement that is eventually arrived at really is a leasehold. Homeowners are often fleeced by the management company, which charges exorbitant fees for maintenance, and may be unable to force directors to hold annual general meetings or provide proper accounts, which I feel should be a basic right. However, leaseholders do not want to publicise the issue because it will reduce their ability to sell the property when they leave, a matter that has not been touched on. You do not want to tell a potential buyer what they are letting themselves in for, which is why the transparency measures in the Bill are important.

Management companies are often non-profit-making, passing on costs of maintenance to owners of homes, but are controlled by the original developer and outsource maintenance work to businesses connected to that developer. There is a body of evidence showing that that leads to increased costs, as local companies could often do the work far more cheaply. A significant problem is that homeowners do not have the resources to take the company to court or force it to hold meetings or to get competitive quotes for required work. In many cases their conveyancing solicitor was recommended by the developer, so the initial advice given was not truly independent.

Amendment 91 would ensure that residents could take ownership of an estate management company if the company had not provided residents with a copy of its annual budget, invited residents to an annual general meeting or acknowledged correspondence from residents. There are existing provisions that allow leaseholders to gain control of their freehold or the right to manage their own lease, but freeholders are assumed not to need that kind of provision. This amendment seeks to address circumstances where freeholders are trapped in a situation where they are being taken advantage of. Crucially, it would allow them to take control of the assets that are vital for the proper enjoyment of their homes.

I say to the Minister that I note the Government are bringing forward the appointment of a substitute manager, which I think is very similar, beginning in Clause 88. However, the householders in that situation would have to prove to a tribunal that the existing management was at fault, which can be difficult. It is the complexities in getting a substitute manager appointed that my amendment highlights. They may be up against the other side’s lawyer, and it is not unusual for KCs to be brought into tribunals in circumstances like this. It is indeed a fault-based policy, and it is a very complex matter to get redress. You cannot just sack the company if you want to take control with your own residents’ management company. Simply put, the amendment is a short cut to being able to take control without such complexities and is less adversarial.

Similarly, Amendment 86 would mean that services or works that would ordinarily be provided by local authorities were not relevant costs for the purpose of estate management charges. I make no apology for saying that this amendment is our statement of principle; we believe it is a matter of principle. The amendment would prevent freeholders being charged twice, first through council tax and then through their management company, for essential services such as roads and pavements. We are aware that there are significant issues as to how and why this situation has arisen, and we urge the Government to look into it further.

Among the other amendments, I single out Amendment 87 from the noble Baroness, Lady Taylor, which seems entirely sensible. It seeks to ensure that householders are not bailing out private developers for shoddy construction or defective homes. It is not right that someone who has paid a premium for their home is then expected to pay maintenance costs to sort out the mess left by the original developer cutting corners or, in some instances, breaching building regulations.

On the other amendments in this group, the Minister is well aware of the thrust and direction that we are all pushing in. I am aware that the business models for development are predicated on whether or not these assets remain the responsibility of the freeholder, the developer or the local authorities. The arguments for this are very varied, ranging from—and I have heard this said—“Local authorities are strapped for cash and we do not want to maintain these amenities” to “Local authorities are asking for impossible standards that are not set centrally and that will add to our costs”, or “Local authorities set standards that mitigate against creating decent workplaces that people want to live in”. A similar example that I had to deal with was there being no trees on the pavements because the local authority felt that they were too difficult to maintain and added cost for looking after both the pavements and the trees. Who wants to live on an estate with no trees?

We need to return to this issue on Report, as the noble Baroness, Lady Finn, said—otherwise, we are piling up problems for tomorrow.

[The Earl of Lytton (CB)]

My Lords, the themes that have been touched on by the three noble Baronesses who have spoken to this group are familiar to me as a professional. They all pivot around these common realm assets—if I can call them that—that are left behind or, at any rate, put into some sort of park mode when the rest of the estate has been built out. These are things that have not been adopted and are placed in the care of an estate management company.

Local authorities may have all sorts of good reasons, within their own scope, for not wanting to adopt novel surfacing, additional lighting, planters or special features. But alongside this there are allied issues because, if they do not adopt, the construction cannot be guaranteed to meet adoption standards—by that I mean roads, drains and all the other things that would normally meet standards that are very often laid down in legislation.

This is an open goal for corner-cutting, which goes on. I cannot tell your Lordships how many times I have been asked to advise on the fact that there are defective drains outside the property, somewhere in the common realm—under the road, common parking areas or landscaped areas—and nobody knows what has happened. It can be not only drains and road construction but engineered embankments, landscaping and ponds: these do not necessarily get constructed to the right standards either, but it can be hugely expensive to try to fix them after the event, and that is where the problem is. The question of just parking them in a management company that then charges whatever it likes goes to the heart of standards, responsibility and the funding of the maintenance of them.

The accountability of management companies seems to be in many instances next to zero. The burden on the freeholders, where the costs charged to them reach that magic figure at which lenders start putting their ears back and question whether they want to lend, results in the sort of lock-in that we well know affects leasehold flats subject to remediation.

I very much support this group of amendments, although they probably need to go further in establishing responsibility and funding. That is something of which the Government really need to take notice, because this is an absolute scandal—not just for the fact that it has gained this moniker of “fleecehold” but because it affects people in their own homes and cannot be allowed to persist.

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[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.

[Lord Khan of Burnley (Lab)]

My Lords, I rise to speak to Amendments 67, 69, 76, 78I and 78J, in the name of my noble friend Lady Taylor of Stevenage. Noble Lords across the House have been emailed and briefed in relation to some very troubling real-life examples in the area of service charges—in fact, we heard earlier from the noble Baroness, Lady Fox of Buckley, about an unscrupulous situation.

In the other place, honourable friends have shared some horrific casework examples which clearly expose the unfit and unjust system leaseholders have been subject to. My honourable friend Matthew Pennycook MP, said:

“Soaring service charges are placing an intolerable financial strain on leaseholders and those with shared ownership across the country. Among the main drivers of the eye-watering demands with which many have been served over recent months are staggering rises in buildings insurance premiums and the passing on of significant costs relating to the functioning of the new building safety regime. Given that many leaseholders are being pushed to the very limits of what they can afford, do the Government now accept that the service charge transparency provisions in the Leasehold and Freehold Reform Bill … are not enough, and that Ministers should explore with urgency what further measures could be included to protect leaseholders better from unreasonable charges and give them more control over their buildings?”—[Official Report, Commons, 22/4/24; col. 636.]

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When will the Government announce the results of the ground rent consultation? There seem to be policy announcements and leaks in the media in relation to ground rent policy, but this has happened without the ground rent consultation even being published. This is severely disappointing, as we are approaching Report in the next few days. How can we possibly scrutinise the consultation now? I look forward to the Minister’s response in addressing the numerous concerns raised in your Lordships’ House.

[Baroness Thornhill (LD)]

My Lords, before the noble Baroness takes the Dispatch Box, I apologise to the Committee and to the noble Lord, Lord Moylan, in particular. Due to lots of pieces of paper, I commented on two amendments that are actually in group 4, so I reassure the Committee that I will not be repeating those comments.

[Baroness Scott of Bybrook (Con)]

My Lords, I apologise in advance for the length of my response. This is a large group so I might go on for quite a long time. I apologise for that, but I think it is important that I respond to all the amendments.

I thank the noble Lord, Lord Khan of Burnley, who spoke to the amendments from the noble Baroness, Lady Taylor. Amendment 67 seeks to give the right to challenge the reasonableness of a service charge to leaseholders who pay a fixed service charge. I recognise that leaseholders who pay fixed service charges do not have the same right to challenge the reasonableness of their service charges as leaseholders who pay a variable service charge. However, there are good reasons for that. The main sectors where fixed service charges exist are the retirement and social housing sectors, where households are often on limited or fixed incomes; certainty over bills is paramount for these homeowners. Leaseholders, especially on low incomes, who pay a fixed service charge have more certainty over the amount of their service charge compared with those who pay a variable service charge. They will know about and understand the level of the charge before they enter into an agreement.

Landlords benefit from not having to consider tribunal applications, but in return they have a clear imperative to provide value for money: if they underestimate the costs, they will have to fund the difference themselves. They will still need to provide the quality of service as set out in the lease since, if they do not, they may be taken to court for breach of that lease.

By giving the right to challenge fixed service charges in a similar way to how variable service charges can be challenged, there would likely be operational and practical challenges. For example, if landlords underestimate costs in one year but overestimate them in another, it is feasible and reasonable to be able to challenge the unreasonableness only in the year when costs are overestimated. It is not proposed to give the landlord an equivalent right to apply to seek to recover the balance of an underestimated cost on the basis that it would be reasonable to do so. There is a possibility that landlords may move to variable service charges, and that could have unintended and undesirable consequences for leaseholders with a fixed income who benefit from the certainty of fixed service charges.

Through the Bill, leaseholders who pay a fixed service charge will be given additional rights. Landlords will be required to provide the minimum prescribed information to all leaseholders. I consider that the additional rights given to leaseholders who pay fixed service charges will allow them to better understand what their service charges pay for, and to hold their landlord to account. I hope that, with that reassurance, the noble Lord will not move the noble Baroness’s amendments.

I thank the noble Lord for Amendment 69 in the name of the noble Baroness, Lady Taylor, which seeks to remove the provision that enables the appropriate authority to exempt certain categories of landlords from the requirement to provide a standardised service charge demand form to the leaseholder. I recognise the importance of all leaseholders receiving sufficient information from their landlord to enable them to understand what they are paying for through their service charge. Requiring landlords to provide leaseholders with a standardised service charge demand form contributes to increased understanding. However, I am aware that there could be instances now or in the future where it is necessary to exempt landlords from that requirement. It could be too costly or disproportionate to expect certain categories of landlords to provide that level of information. As the Minister for Housing mentioned in the other place, one example might be the Tyneside leases.

Prior to any exemptions being agreed, we will consult with stakeholders to determine whether an exemption is justified. I emphasise that the list of exemptions is expected to be small—if it is needed at all, in fact—and full justification will be required for any agreed exemptions. I note the noble Baroness’s concerns but I hope that, with this reassurance, the noble Lord will not move the amendment.

I also thank the noble Lord, Lord Khan of Burnley, for Amendment 76, which would create a power for the appropriate authority to prescribe the maximum costs that landlords may pass on to leaseholders for providing information. I recognise that leaseholders can face increasing service charge costs and that not capping costs for providing information could drive landlords to charge unreasonable amounts.

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Some would argue against decriminalisation because that stick leaseholders have as a last resort to force bad landlords to give them information to defend themselves is very important. The Government should support leaseholders in having a strong place to start from.

[Baroness Thornhill (LD)]

We fully understand the passion expressed by the noble Lord, Lord Bailey of Paddington, about criminality and having a last resort. We must think of it in regard to the worst rogue landlord offences, of which there are many, and I am sure several noble Lords have seen things worthy of that description. While we do not entirely go along with the noble Lord, we are interested to understand why the Government are using the Leasehold and Freehold Reform Bill to do away with a long-standing leaseholder right to bring a private prosecution against a landlord who has refused service charge and accounts transparency; it is surely a sign that they are trying to hide something.

The Government are bringing forward a new regime for service charges, under which landlords’ failure to comply with the requirement will be subject to damages of no more than £5,000 per leaseholder, which to us feels too low. Why does this policy have to strip leaseholders of a right to pursue a persistently abusive landlord with a private criminal prosecution? If the right was poorly drafted in the first place, surely it should be retained and made effective in the Bill?

We agree to a certain extent with the amendment’s attempt to bring local authorities into scope. As we know from past tragedies, local authorities are often treated far too leniently by leaseholder legislation, receiving exemptions from basic requirements. We broadly agree, but I look forward to the Minister’s response to the amendment.

[Baroness Taylor of Stevenage (Lab)]

My Lords, I thank the noble Lord, Lord Bailey, for his passion on this matter, as the noble Baroness, Lady Thornhill, said. It is appropriate to bring a probing amendment on this, to seek out some clarification from the Government about their intentions. It is clear that service charge accountability sits right at the heart of much of the Bill, and we would not want to do anything against that. It does seem a little odd that part of the Bill’s intention is to remove that right of private prosecution, so I look forward to the Minister’s reply.

The other point raised by the noble Lord was that we are going to have a hiatus when the Bill is passed, because it is not going to come into force until 2025-26. Can the Minister comment on what leaseholders can resort to in that interim period, in order to get matters justified if they have a persistent rogue landlord? Otherwise, we will have a gap where the original provisions are repealed and these ones have not yet come into force.

I agree with the noble Baroness, Lady Thornhill, about council leaseholders. There are other protections in force for council leaseholders. The health and safety Act and its provisions should sit there to protect council leaseholders from any poor landlord practice from councils—I know they have not always done so, but they should.

I am interested to hear the Minister’s response to this very good probing amendment.

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[Lord Bailey of Paddington (Con)]

I beg to move. Excuse me—I am dyslexic, and procedure is massively hard for me. One day I will get it all right—and all at the same time.

[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.

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[Baroness Fox of Buckley (Non-Afl)]

My Lords, my Amendment 104 is very much part of the amendments I have—both today and on other days—that look at the way the law, as it was previously made, might not be doing what it is intended to. I am interested in restoring Section 24 management for leaseholders suffering at the hands of some predatory freeholders, suffering sky-high service charges and run-down buildings—some of the things we have been talking about.

Like many other noble Lords here, I still have the scars from scrutinising the Building Safety Bill when I first arrived here. It was the most hugely complicated piece of legislation, but it went through the House relatively quickly because of the importance of the topic. As I think we are all aware now, that speed probably led to a number of unintended consequences that have since come to light. One surely unintended consequence of the Building Safety Act is the way that its accountable person regime undermined Section 24 of the Landlord and Tenant Act 1987. Due to the wording of the Act’s accountable person policy, Section 24 court-appointed managers are barred from assuming their duty-holder role. Until that point, these tribunal-backed managers would be entrusted with all of the building’s management, when it was determined that the freeholder could not be trusted to remain in control of a development and leaseholder service charges.

I am not commenting in general on the accountable person policy per se, although there are problems with it. But it is odd that there is such a wide range of entities that can be the accountable person, including leaseholder-controlled resident management companies and right-to-manage companies, yet strangely, the Act prohibits a Section 24 manager from taking on the role, despite the fact that a Section 24 manager would have been appointed by a tribunal panel, which was satisfied that they had the credentials and experience needed to steward a development that had fallen foul of a poor freeholder. I do not understand how this happened, or why.

It is important to note that Section 24 has been a lifeline right for ripped-off leaseholders unable to buy their freehold or claim the right to manage because of costs or strict qualifying criteria. This is an attempt to ensure that Section 24, which is the ultimate backstop scheme, is restored in the Bill, to give leaseholders a clear route to remove freeholders and their management agents if it has been shown that they have actually been ripped off and it is the only route open to them.

This issue came to my attention in February, when Melissa York in the Times reported a devastating story of Canary Riverside in Tower Hamlets. This story really made an impact on me, because there the leaseholders have benefited from court protection, with Section 24 management, since 2016. A Section 24 manager was installed because the freeholder, a Monaco-based billionaire, John Christodoulou, had lost the confidence of the tribunal due to his company’s seeming financial mismanagement and poor estate maintenance. After years of fighting by the leaseholders, in March this year the Upper Tribunal found that the freeholder had used a related firm to overcharge the development by £1 million in secret insurance commissions—the kinds of issues we were discussing earlier today.

Yet despite this and other well-evidenced service charge abuses, and the fact that the leaseholders have benefited from independent Section 24 management, The Times reports that

“an oversight in the new Building Safety Act means the same court that removed his management company could put Christodoulou back in control of service charge moneys and safety works, including £20 million for cladding remediation”.

It seems to me that the Building Safety Act’s seemingly arbitrary exclusion of Section 24 managers from its accountable person regime did not intend to do this, but its effect is that those Canary Riverside leaseholders, among others, are faced with the prospect of their landlord staging a comeback and regaining control over block management, even though the leaseholders’ work over years, accumulating evidence to prove fault, has been accepted at tribunal level. That work is now undermined because a statutory right that leaseholders relied on for years is now blocked by the Act.

This is so frustrating, and it needs to be tackled in Parliament, as the courts are bound by the laws we make here. In December, in the first test case on this—Canary Riverside—the First-tier Tribunal confirmed that the Building Safety Act does not allow a Section 24 manager to be the accountable person. In March the Upper Tribunal agreed. Despite those tribunal decisions going against them, I commend the leaseholders at Canary Riverside, and say all power to them. They are still appealing in order to keep their Section 24 protection.

This is heroic work, which should remind us all of the real-life toll of the sort of issues leaseholders have to take on. They are ordinary people who bought leasehold flats, and who have ended up going in and out of court regularly—and there is not just the toll, but the costs. Nearly £200,000 has been committed in legal fees already. This is a sharp reminder that the unintended consequences of laws we make here can have wide-reaching, even devastating, effects on real people’s real lives.

We need to put right this wrong, here in Parliament, and to use the Bill to do so. The Section 24-accountable persons clash was raised in January with MPs on the Public Bill Committee by Free Leaseholders, End Our Cladding Scandal and Philip Rainey KC, who all drew this to our attention. As a consequence, the MPs Nickie Aiken and Barry Gardiner moved amendments on this issue in the other place. I would really appreciate it if the Minister looked into fixing this, because I do not think it is what we ever intended to do with the Building Safety Act. It is a loophole, and it has the most devastating consequences for leaseholders, which I am sure we could simply put right.

[Baroness Thornhill (LD)]

My Lords, I admire the persistence of my noble friend Lord Foster of Bath in his indefatigable pursuit of the perhaps unsexy but very important issue of electrical safety defects, as evidenced in his Amendment 95A.

The first group of amendments relates to building safety—a subject that we have debated many times in this Chamber in recent years, following the tragic events of the Grenfell Tower fire. Amendments 82C to 82M, in the name of the noble Earl, Lord Lytton, relate to a proposal that higher-risk buildings should have a building trustee. The trustee would be an impartial figure, whose role would be to ensure that the interests, rights and responsibilities of the landlord and leaseholders were balanced, that the building was properly maintained, and that the service charge provided value for money—a practice that exists elsewhere. We find the noble Earl’s proposal interesting, and certainly worthy of consideration in the future. However, it is quite a detailed proposal which may not have the chance to be scrutinised further in the context of the Bill.

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I am suggesting that this definition should become the standard for well-advertised descriptions, used by estate agents, freehold and development sellers, and solicitors. I am not suggesting that estate agents all go off and do degree courses, as somebody did recently, but updating them, so that they know what “leasehold” means, would be helpful. This amendment ensures that this will happen, until we at last move away from this iniquitous tenure and commonhold becomes the norm. In the meantime, at least let us be honest. I beg to move.

[Baroness Thornhill (LD)]

My Lords, I support Amendment 84, in the name of the noble Baroness, Lady Fox of Buckley. There is no doubt that mis-selling of leasehold homes is going on. Indeed, some developers insist that you can buy a flat from them only if you go with one of their approved solicitors. These solicitors will most likely not alert you to the negative aspects of that lease. Public awareness and understanding are low, as the noble Baroness showed from personal experience. The noble Baroness mentioned estate agents. I went on to Rightmove’s website and found that it provides buyers no search function to differentiate between freehold and leasehold homes, which I mention because, apart from this feeling disingenuous, it highlights that the problem starts at the very beginning of the process.

As has been mentioned, the Levelling Up, Housing and Communities Committee did an inquiry into leasehold in 2018-19. Its report said:

“Many leaseholders reported that they were surprised to learn that they did not own the properties they had purchased in the same way as they might have owned a freehold property. One leaseholder, Jo Darbyshire of the National Leasehold Campaign, told us there was ‘a fundamental lack of understanding about what leasehold tenure means to consumers out there.’ Shula Rich, from the Federation of Private Residents’ Associations, described leasehold as ‘the fag end of a timeshare … it is not owning anything’ and called for greater clarity from the Government and industry that purchasing a leasehold should not be sold as the ‘ownership’ of a property in the same way as freehold”.


They are leaseholders, not home owners, and they did not get help to buy or anything other than the right to live in a building for the term of the lease.

It is important that key information is provided in ways that are accessible and easily understandable for consumers. We believe that managing agents and landlords should provide key information about leasehold properties at the marketing stage in a standardised format. The information should include the lease length, estimates of enfranchisement costs, the ground rent and service charging information, as required by National Trading Standards for marketing a property.

There are clearly significant differences between freehold and leasehold tenures, but these are not always apparent to prospective purchasers at the point of sale. It has been mooted that it would be more appropriate to refer to this tenure as “lease rental”. We agree with that—it would at least be honest.

[Lord Khan of Burnley (Lab)]

My Lords, I rise briefly to thank the noble Baroness, Lady Fox of Buckley, for introducing Amendment 84. The arguments that the noble Baroness made were the very reason why we should end leasehold and move towards commonhold. I hope the Minister can clarify some of the important concerns that she has raised.

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[Baroness Thornhill (LD)]

In the interests of time, I shall be very brief. I agree with much that has been said by the noble Baroness, Lady Fox, and, of course, by the noble Lord, Lord Best, who has, as always, put his finger right on the key issues with his considerable expertise. We look forward to the task force report he mentioned. Successive Governments have, quite rightly, promoted downsizing: the freeing up of a house for families who desperately need a larger family property. However, we have not done anything like enough to investigate the state of retirement housing in this country and certainly not yet got policies right.

Many of the problems in the retirement housing sector have already been mentioned: high service charges and management fees actually hit elderly residents hardest. They are also suffering withdrawal or reduction of the in-house resident manager, who is frequently now off-site. Their property is more difficult to sell because prospective buyers are obviously a smaller target group, but mainly because of the so-called exit fees or event fees charged when the house is sold. So people can find themselves in a position where a retiree’s heirs are locked in to paying for the flat years after their parent has died, because they simply cannot sell it. Ultimately, all this is related to the iniquities of leasehold tenure, which should and must be abolished.

[Baroness Taylor of Stevenage (Lab)]

My Lords, I agree with the noble Baroness, Lady Thornhill, that this will not finally be resolved until we get rid of this leasehold regime. Some of the most heart-rending cases I dealt with as a councillor were from older leaseholders, often on fixed incomes and subject to the most extraordinary hikes in service charges, ground rents and all sorts of other charges that were imposed on them. I have cited cases in previous debates in your Lordships’ House. The experience of the 90 year-old cited by my noble friend Lord Khan earlier today was from Hitchin in my local area.