Draft Barnsley and Sheffield (Boundary Change) Order 2024
Barry Gardiner Excerpts(2 weeks, 2 days ago)
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Barry Gardiner (Brent West) (Lab)
How good it is to have your guidance, Mrs Harris, for our first legislative duty of the day. Today will be a busy one for all of us, with votes on the Budget and the ramifications of the US election competing in our minds for attention. While boundary changes may seem like minor political fare in comparison, it is important that we recognise that we are dealing with the fine grain of politics. People are affected at the most local level by the decisions we make.
I want to express my profound gratitude to our Whip, my hon. Friend the Member for Wellingborough and Rushden, for thinking of me as someone who just might be interested in the draft Barnsley and Sheffield (Boundary Change) Order 2024. I know that many colleagues would willingly have supplanted me and usurped my duties on this Sixth Delegated Legislation Committee. I can only guess at why she so singularly favoured me with the appointment, but I trust that the length of the speech I am about to make will be sufficient to express to her just how appreciative I am that she allotted me this task.
Inevitably, boundary changes can be controversial. Sometimes we risk separating a region from its history. I do not know whether this is an old saying or just something I have been saying for a very long time, but scratch history and you find geography. Our history is moulded by our natural environment. Each region has its own that depends entirely on the fertility of its land, its proximity to the oceans, and trade routes and its access to fresh water and natural resources such as coal or precious metals. The boundary commission has the serious job of keeping our democracy relevant and connected to people, but sometimes, quite without wishing to, it can end up dividing the community and confusing future residents, all at the expense of the taxpayer.
The Minister made much of the fact that the draft order would affect only 12 households, and the final recommendations of the Barnsley and Sheffield principal area boundary review say:
“Our final recommendation to change the district boundary in this area currently affects 12 households”.
However, the recommendations also say that that figure will rise to 284 households by the time the development has been built. That is about 800 to 1,000 people. The Minister also said that no representations were made. Well, of course they were not; people have not yet moved into those 284 households, so how could they have been? That is why it falls to us here in Parliament to consider what those individuals, when they move in, might wish to know.
Let us look carefully at what will be at stake for those 284 families. Of course, we should be just as concerned were the draft order to affect only the current 12 families, but let us consider precisely what will divide those future families from their nearest neighbours in the other part of Oughtibridge Mill. The local authorities’ argument is that it would be more convenient administratively for them if the whole development came under Sheffield, but we ought to be more concerned with the families and what that might mean for them; the decision we take today will have a profound influence on their lives.
Any hon. Member who has looked carefully at the map of the area will have noticed that the part of the Oughtibridge Mill development currently under the jurisdiction of Barnsley council in the Penistone East ward is not only by far the larger part of the site—I would say it is about three to four times the size of the part in the Sheffield area—but actually separated from the residential area of Oughtibridge village by not one, but two major physical barriers.
The first barrier is the River Don, with only one narrow river crossing available to the whole Barnsley side of the estate. Any resident travelling from the eastern part of the development at the far end of Aspen Road who wanted to walk to the post office in Oughtibridge village would face a 1½-mile journey—a 3-mile round trip. But the River Don is not the biggest problem; there is also the A6102. Langsett Road North is a major road—in parts a four-lane highway—and runs parallel to the River Don. It is not a shared artery that binds the people on one side of a community to the people on the other; it is a road that forms a natural boundary and separates people. No doubt that double barrier was what the boundary commission was accounting for when it made its original proposal.
We must not assume that some of the 284 families would not rather enjoy being residents of Barnsley council and appreciate the vision of individuals such Councillor Sir Stephen Houghton CBE, who chairs the Barnsley 2030 strategy board, and Bob Kirton, his vice-chair. Their strategy is about “celebrating and championing” the borough as it progresses to 2030 and sets out some bold ambitions. In developing the Barnsley 2030 strategy, they have worked closely with communities, businesses and organisations across all sectors and with local councillors. In the strategy, it was confidently stated that
“our borough’s vision and ambitions represent everyone who has an interest in the future of Barnsley.”
When it was written, that included the people in the Oughtibridge Mill development. Who are we to deny those residents access to the bold and ambitious plan that these councillors speak of? The strategy concludes:
“We truly believe that together we can tell a better and shared story of our borough and we have a real opportunity to turn Barnsley into the place of possibilities.”
In passing this order, we would deny those possibilities to 284 families.
I live in the London borough of Brent, but I am only too aware of how many families in Brent prefer to say that they have a Harrow address. Indeed, many of them have a Harrow postcode to justify their little white lie. We have seen no impact assessment of what such a boundary change might do to the value of these properties in Barnsley and Sheffield.
Barry Gardiner
Indeed. I am talking about the effect on the future value of these properties. Residents who have moved in under one local authority may find the value of their property affected by its suddenly being designated under another. I must stress that I respect both councils and have no doubt that they look after their populations equally well, but we should have been provided with an impact assessment to show that there are such—
David Simmonds
On a point of order, Mrs Harris. We have heard from the Minister about the strong support of the two local authorities, and that has given us a great deal of detail to reflect on. On that basis, may I move that the Question be now put?
Jim McMahon
Thank you for that, Mrs Harris. I thank my hon. Friend the Member for Brent West for his contribution. Given his diligence in preparing for his speech, I am happy to recommend to the Whip that he joins us for future Delegated Legislation Committees. I thank members of the Committee for—
Barry Gardiner
On a point of order, Mrs Harris. A point of order was made and I believe a motion was made, but I did not hear any vote taken on the motion. I would have thought that that was the function of the Chair.
Building Safety and Resilience
Barry Gardiner Excerpts(2 months, 1 week ago)
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Alex Norris
My hon. Friend is too humble to point to her role in Milton Keynes, but the political will exercised on that and many other housing issues has got results. The Government will display the same degree of political will, and we need to see it in local government, too. Milton Keynes sets a really good example.
Barry Gardiner (Brent West) (Lab)
It is troubling that many owners, who, according to the Act, are responsible for fire safety in these blocks, are seeking to establish themselves in foreign jurisdictions, often in tax havens. How can the Government take action to ensure that those who are responsible—often those who were responsible for the defects in the first place—and who are now seeking to evade jurisdiction in this country, can be brought to justice? Will the Government have to appropriate these buildings to do the remediation work that is so badly needed, and not at residents’ expense?
Alex Norris
This is on two tracks. First, we have deals with 55 of the biggest developers to do those remediations. The money is there, and they need to get on with it. A significant majority, if not a vast majority, of cases will see that action. That will cover most people. As my hon. Friend says, action is not as easy where firms have gone bust, disappeared or chosen more nefarious options to evade their responsibilities. We have set aside grant funding to ensure people do not suffer as a result of that, so I hope that gives an assurance that, no matter the hoops or the attempts at evasion made by those who really ought to do better, the Government will stand by the people who are most affected.
Alex Norris
I am grateful for that thoughtful intervention. I can assure my hon. Friend that Ministers are indeed considering that as part of this whole process. We need to learn those lessons.
Barry Gardiner
On regulation, my hon. Friend will know that Sir Martin Moore-Bick’s report made very strong statements about the difficulty of reconciling the role of maintaining standards with the competitive environment. It was when building control ceased to be the responsibility solely of local authorities and became privatised building control functions that things started to go wrong. What action will my hon. Friend and the Government take to ensure that one set of standards is applied in one particular way and is not subject to trading? Saying “We will give you a shortcut if you come to us” is what went on, but it is wrong and needs to stop.
Alex Norris
Throughout the debate, colleagues have raised important and startling accounts of just that—the way in which standards have been circumvented. That speaks to what my hon. Friend the Member for Sheffield South East said at the beginning about how the culture has fallen into a race to the bottom. On the regulatory changes that my hon. Friend the Member for Brent West (Barry Gardiner) wants to see from the Government, we are looking at the report and have made commitments to come back on it within six months. We will give the Chamber the chance to discuss the report in greater detail. I hope he can give us the space to come forward with those suggestions and changes, but his points are well made.
Leasehold and Freehold Reform Bill
Barry Gardiner ExcerptsTuesday 27th February 2024
(8 months, 4 weeks ago)
Commons ChamberRead Full debate Leasehold and Freehold Reform Act 2024 View all Leasehold and Freehold Reform Act 2024 Debates Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 27 February 2024 - large print - (27 Feb 2024)
Barry Gardiner (Brent North) (Lab)
The Minister was most accommodating throughout the proceedings in Committee, and we are all grateful to him for the way in which he has listened.
Further to the point raised by my hon. Friend the Member for Sheffield South East (Mr Betts), the Minister will know that many developers have located themselves extrajudicially in places such as the Cayman Islands. Wembley Central Apartments Ltd in my constituency has finally ended up there, as have many others. What in this Bill will enable us to extend our reach and force such companies to respond, reply and do what the Building Safety Act 2022 already says they ought to do?
Lee Rowley
The hon. Gentleman makes an important point, which I know we debated in Committee. He correctly highlights the challenges in certain areas of enforcement. If I may, I will come back to that later in the debate.
George Eustice (Camborne and Redruth) (Con)
Let me begin by declaring my interest as an adviser to the HSPG group, which among other things is a registered provider of social housing.
I rise to speak to new clause 68, which is based on a specific challenge that I have encountered in my constituency and that affects residents in more than 70 homes spread across three locations in the town of Hayle and the village of Mount Hawke. The experience of those cases exposes a potential gap in the Bill and in policy on the issue of shared ownership. The Bill deals at some length with standard leasehold agreements and the problems of extortionate ground rents, as well as with some of the issues around service charges and management companies with which we are familiar. However, in the early 2000s some agreements were put together that were technically leasehold agreements but that masqueraded as shared ownership agreements, even though those shared ownership agreements do not comply with the standards of modern shared ownership agreements.
The agreements I have encountered contain a number of defects, and I would like the Minister’s view on them. The first is that the freehold on those homes is not held by a registered provider. It was initially owned by the developer who built the sites, but it has changed hands twice. In a way that is familiar to many Members, the freehold has ended up in the hands of an offshore investment vehicle based in the British Virgin Islands, and with a company called Rockwell, which has not been easy for residents to deal with over the years.
The second major defect in the agreements is that there is no provision for staircasing or enfranchisement of the leaseholder’s share of the property. Residents typically own between 58% and 72% of their property, but their stake is fixed and cannot be extended. There is no right to extend under the agreement. The agreements are under a 990-year lease and there is no ability to extend that, although I appreciate it is a long-term lease.
The third defect is that even if residents could enfranchise and extend or staircase their ownership within the agreement, a section 106 covenant means that the properties must be sold to a local connection with a significant discount on market value. The way that has been worded in the agreement means that it is simply not worth the while of residents to increase their share, since there would be no value to the increased share that they would have.
Finally, there was something described as ground rent, although in practice a big chunk of that was effectively a rent on the shared ownership portion. The ground rent was initially around £20 per week, but that was linked to the retail price index on an escalating model. It has now got close to £2,000 per year for those residents, and it is still increasing rapidly.
All of those defects in that leasehold tenure arrangement or shared ownership arrangement—indeed, it appears to be neither one nor the other—mean that all of the properties have been judged unmortgageable by lenders, and that means the residents are trapped. They cannot sell their properties because no one can get a mortgage to buy them. These are people in my constituency who had a local connection. Typically, they are on modest incomes. These agreements and these homes were sold to them as a way to get a foot on the housing ladder, and for those residents it has transpired to be a complete nightmare.
I will say a word about planning and pay tribute to Penwith District Council, as it was then, and Cornwall Council. Planning was granted between 2004 and 2006, and the local planning authorities did their due diligence. They could see that this shared ownership model was defective, and they refused planning permission on all three sites on that basis. The Minister might ask how these homes were then built and sold under the arrangement, but I suspect he can predict the answer, which is that they were approved at appeal by the Planning Inspectorate, an agency within his own Department. The situation that my constituents face has been caused principally by a chronic failure of due diligence by the Planning Inspectorate, as is often the case with such issues.
In conclusion, my new clause 68 seeks to address a gap in the Bill and to give the Government the opportunity to atone for the mistakes of the Planning Inspectorate. It deals explicitly with shared ownership agreements and would create a statutory right to staircase ownership and put a cap on the rent of the freeholders’ portion of the home. I do not intend to press new clause 28 to a Division this evening, but I hope that the Government will consider the matter closely. I would like to meet the Minister or the Secretary of State and share with them and their officials a copy of the shared ownership agreement that my constituents are suffering under so much, with a view to seeing whether the Government might consider further changes at later stages of the Bill’s consideration to address a gap in it. Given that the Planning Inspectorate has been somewhat culpable in creating this problem for my constituents, I hope that the Government will seek to do that.
I support the general thrust of the Bill in all its attempts to deal with management charges, service charges and ground rents, but I hope that the Minister will agree to meet me to discuss some of these remaining issues.
Barry Gardiner
It was 1 December 1998. I had been an MP for one year and seven months to the day, and I was chained to the railings of College Green by 200 cheering leaseholders. Thankfully, they were friendly. It was to illustrate that leaseholders felt that they are were prison. Those were the days before social media, and it was a photo op. The BBC ran the headline, “Leaseholders demand more control”. They still do.
Since then, we have had the Commonhold and Leasehold Reform Act 2022, which was an attempt to resolve some of the problems, such as forfeiture of a person’s home for a failure to pay a small service charge, the ground rent grazers charging money for no service and moneys not being held in trust in sinking funds. It is strange that after 25 years, these should be the very areas that yet another Bill on leasehold reform is pretending and failing to solve.
I say “failing”, because that is the reason I rise to support new clause 5, tabled by my hon. Friend the Member for Greenwich and Woolwich (Matthew Pennycook). It is ridiculous that a landlord can take away a person’s home worth hundreds of thousands of pounds for a simple failure to pay a minor service charge amounting to a couple of hundred pounds and where there is a dispute over whether the service was even provided. That is why I tabled new clause 16 about moneys being held in trust, which would implement a provision of the 2002 Act that has never been brought into force. We heard in Committee that the policy had strong support from stakeholders, including spokespeople for the Property Institute and the Leasehold Advisory Service. Even the British Property Federation has campaigned for this provision of the 2002 Act to come into force, yet it is not here in the Bill. Of course, 2002 was a time when nobody had even predicted the new rentier practices that freeholders and developers have since invented to extract money from homeowners for the privilege of living in their own homes: the scandals of leasehold houses; the repeated doublings of ground rents; and the inclusion of commercial areas and shared services in any development to stop any hope of residents exercising their right to manage.
Leasehold and Freehold Reform Bill (Ninth sitting)
Barry Gardiner ExcerptsTuesday 30th January 2024
(9 months, 3 weeks ago)
Public Bill CommitteesRead Full debate Leasehold and Freehold Reform Act 2024 View all Leasehold and Freehold Reform Act 2024 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 30 January 2024 - (30 Jan 2024)
Matthew Pennycook
Under my reading of the hon. Gentleman’s amendment, if it is ensured that services or works that would ordinarily be provided by local authorities are not relevant costs for the purposes of charges in this part, who will pick up the bill? If the local authority is not compelled to adopt the amenities, our concern is that no one will maintain them. To address his point directly, I worry that his amendment would not ensure that the private estate management company picks up the charge. I will come to why I think our amendment is a superior way of addressing this very real problem.
Barry Gardiner (Brent North) (Lab)
I am listening carefully to my hon. Friend. It may interest him to know that I was on a private estate in Kingswood at the weekend, for some reason. It soon became apparent that the developer had gone into liquidation and the estate was being run down in a quite dreadful way. As my hon. Friend said, in that situation, the developer itself and the management of the estate had, to all intents and purposes, ceased—residents were very voluble on things not being done—but the local authority had not adopted the road in the first place, and the services were suffering accordingly.
Matthew Pennycook
We are all driving at the same point. I was very much taken by the CMA’s conclusion that reducing the prevalence of these arrangements requires a combination of the mandatory adoption of amenities and putting in place corresponding common adoptable standards. If we do one without the other, we risk some unintended consequences.
My concern about the amendment tabled by the hon. Member for North East Bedfordshire is that we cannot simply remove from estate charges costs that should in an ideal circumstance be borne by local authorities and then expect the private management company to simply pick them up. I fear that the more likely scenario will be that the amenities are not properly maintained. That is a real concern, and should be for residential freeholders on the estates. As the hon. Member for North East Bedfordshire outlined, there are some good reasons why local authorities are reluctant to adopt public amenities on private or mixed-tenure estates.
Barry Gardiner
The Minister will recall that in response to a Government consultation in 2018, the Government committed to introducing a section 24 right for freeholders on housing estates, but that has not appeared in the Bill. It would have given those freeholders the right to go to a first-tier tribunal and appoint a court protective manager. The Minister and his officials may wish to reflect on and remedy that failing in the Bill. However, even that would be an imperfect measure, because it would not ensure that leaseholders in homes on estates had the same rights as leaseholders in a development block, for whom the Bill seeks to facilitate the right to manage. Will the Minister look at that issue and ensure that that provision is realised?
The Minister for Housing, Planning and Building Safety (Lee Rowley)
It is a pleasure to serve under your chairmanship, Sir Mark, and it is good to continue debating these issues this morning. I am grateful to all hon. Members who have raised such important points. I do not think that the disagreement between Members on any of the Benches is about whether there are issues; the question is rather about the technicalities of how to approach them, what to do and what is proportionate.
I will talk briefly about the amendments. Although the Government cannot accept them now, I hope that my hon. Friend the Member for North East Bedfordshire and the shadow Minister will listen to the points that I make; the broader point is that I am listening carefully and have a lot of sympathy for the underlying point, which we are all trying to solve. The question is about how we do it and whether we need to go further.
There was an extended debate between my hon. Friend the Member for North East Bedfordshire and the hon. Member for Greenwich and Woolwich. I will not try to repeat that, but not because I do not want to give due regard to everything that my hon. Friend put on record or to his underlying point. He is absolutely right that there is a problem; we all see it in our constituencies. The challenge, as I see in my constituency of North East Derbyshire, is that there is now a move towards greater estate management outside the demise of the local representation of the state. It works in some areas and for some elements, but there are specific areas and specific estates in which it clearly does not work. We have all heard the stories about the issues that are visible.
In the past, it would have been typical for local authorities to have adopted estates, but that is moving further and further away from reality. There is a question about whether there are some elements of estate management where it is reasonable to have some kind of arrangement outside the aegis of the state, but equally I accept the argument that that has gone too far in certain areas.
Lee Rowley
My hon. Friend is absolutely right. If the Committee will indulge me, I have personal experience of examples of this in North East Derbyshire, and I know the complexity involved in getting this correct. I have an estate by an unnamed developer in the south of the constituency, near Wingerworth, where this discussion is going on already. Before Christmas, I spent two hours talking to representatives of owners on the estate and to the estate management company itself. I recognise the complexities on an estate that was being managed relatively adequately from afar but clearly still had issues.
The second example—this is why we have to be so careful to get this right—is from the other side. Fenton Street in Eckington has been unadopted for more than a century. The residents recognise that it is unadopted and have bought their houses understanding and acknowledging that. Possibly it was been adopted many decades ago, but there is no record.
We have to make sure that this works for everybody. In an ideal world, everybody would be scooped up and this would all be fixed in one fell swoop with whatever a benevolent Government could do, but that is not the reality of the choices that we face. Nor is it often the reality of what happens when a Government try to do things that work in the way that we all intend. Although I understand the intention behind the two amendments, I encourage hon. Members to withdraw them.
Barry Gardiner
The Minister has not responded to the point about a section 24 court-appointed manager. Would that not give a power enabling redress for residents in situations such as the one he outlines, where there has been a complete failure to adopt and maintain? Will he commit to considering that point as part of the mix?
Lee Rowley
We may touch on some of those elements under later clauses. The hon. Gentleman’s core point is about whether the Government are willing—without providing any guarantees in this place—to look at additionality. Of course we are. There are the usual caveats, which I have explained in previous sittings, about what we can do, how we do it, and the priorities, but this is an area in which we are listening carefully.
In conclusion, I ask my hon. Friend the Member for North East Bedfordshire and the hon. Member for Greenwich and Woolwich to consider withdrawing their amendments. I hope that they have heard that I am serious and willing to look at the issue again, although I cannot offer guarantees at this stage.
I will turn briefly to clause 41, to put on the record exactly what the clause contains and what we are voting for. Freehold homeowners on private and mixed-tenure estates who pay estate management charges have fewer protections than leaseholders paying the service charges that we have spoken about. Clause 41 will introduce limitations on what estate management companies can charge homeowners through estate management charges. Subsection (1) states:
“Costs incurred by an estate manager are relevant costs…only to the extent that they are reasonably incurred.”
Clause 41 will ensure that where these costs are incurred in the provision of services or the carrying out of works, they will be relevant costs only if the services or works are of a reasonable standard.
Subsection (2) makes it clear that when an estate management charge is payable in advance, only reasonable costs are payable. Furthermore, after reasonable costs have been incurred, any necessary adjustment must be made to the charge by repayment, reduction of subsequent charges or any other method. Those new rules are equivalent to requirements in the leasehold regime and provide homeowners with more confidence that they will not be overcharged. We seek to provide increased protections for homeowners through the clause. I commend it to the Committee.
Leasehold and Freehold Reform Bill (Tenth sitting)
Barry Gardiner Excerpts(9 months, 3 weeks ago)
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Matthew Pennycook (Greenwich and Woolwich) (Lab)
I rise to say simply that the Opposition welcome this group of Government new clauses.
Barry Gardiner (Brent North) (Lab)
I, too, welcome the new clauses, but I do so in the knowledge that they do not provide a perfect solution. My concern, and the question I put to the Minister, relates to situations such as the one that I outlined the other day. Where information is held by a series of Russian dolls, as it were, the ultimate one of which is located in the Cayman Islands—as is the case with Wembley Central Apartments in my constituency—what ultimate redress do the leaseholders have? Damages does not get to the nub of the problem.
Lee Rowley
As the hon. Member has outlined, we spoke about this issue on Thursday. I have a lot of sympathy for the point that he makes, and I think we agreed that we would explore it further; I was going to write to the hon. Gentleman and the Committee, if I recall correctly. He is right to raise and highlight that point. Where we can make further progress, we should try to do so. As I know he will appreciate, there is ultimately a challenge when entities move out of jurisdictions, but that should not mean that we should not have a look at whether we can make things better, if not perfect.
Question put and agreed to.
New clause 42 accordingly read a Second time, and added to the Bill.
New Clause 43
Estate management: sales information requests
“(1) An owner of a managed dwelling may give a sales information request to the estate manager.
(2) A ‘sales information request’ is a document in a specified form, and given in a specified manner, setting out—
(a) that the owner is contemplating selling the dwelling,
(b) information that the owner requests from the estate manager for the purpose of the contemplated sale, and
(c) any other specified information.
(3) An owner of a managed dwelling may request information in a sales information request only if the information is specified in regulations made by the appropriate authority.
(4) The appropriate authority may specify information for the purposes of subsection (3) only if the information—
(a) relates to estate management, estate managers, estate management charges or relevant obligations, and
(b) could reasonably be expected to assist a prospective purchaser in deciding whether to purchase a dwelling.
(5) The appropriate authority may by regulations provide that a sales information request may not be given until the end of a particular period, or until another condition is met.
(6) In this section and sections (Effect of sales information request) to (Enforcement of sections (Effect of sales information request) and (Charges for provision of information))—
(a) a reference to purchasing a dwelling is a reference to becoming an owner of the dwelling, and references to selling a dwelling are to be read accordingly;
(b) ‘sales information request’ has the meaning given in subsection (2);
(c) ‘specified’ means specified in, or determined in accordance with, regulations made by the appropriate authority.
(7) A statutory instrument containing regulations under this section is subject to the negative procedure.”—(Lee Rowley.)
This new clause, to be inserted after NC14, would provide for the owner of a managed dwelling to give a sales information request to the estate manager in anticipation of selling the dwelling.
Brought up, read the First and Second time, and added to the Bill.
New Clause 44
Effect of sales information request
“(1) An estate manager who has been given a sales information request by the owner of a managed dwelling must provide the owner with any of the information requested that is within the estate manager’s possession.
(2) The estate manager must request information from another person if—
(a) the information has been requested from the estate manager in a sales information request,
(b) the estate manager does not possess the information when the request is made, and
(c) the estate manager believes that the other person possesses the information.
(3) That person must provide the estate manager with any of the information requested that is within that person’s possession.
(4) A person (‘A’) must request information from another person (‘B’) if—
(a) the information has been requested from A in a request under subsection (2) or this subsection (an ‘onward request’),
(b) A does not possess the information when the request is made, and
(c) A believes that B possesses the information.
(5) B must provide A with any of the information requested that is within B’s possession.
(6) A person who is required to provide information under this section must do so before the end of a specified period beginning with the day on which the request for the information is made.
(7) A person who—
(a) has been given a sales information request or an onward request, and
(b) as a result of not possessing the information requested, does not provide the information before the end of a specified period beginning with the day on which the request is made,
must give the person making the request a negative response confirmation.
(8) A ‘negative response confirmation’ is a document in a specified form, and given in a specified manner, setting out—
(a) that the person is unable to provide the information requested because it is not in the person’s possession;
(b) a description of what action the person has taken to determine whether the information is in the person’s possession;
(c) any onward requests the person has made and the persons to whom they were made;
(d) an explanation of why the person was unable to obtain the information, including details of any negative response confirmation received by the person;
(e) any other specified information.
(9) A person who is required to give a negative response confirmation must do so before the end of a specified period beginning with the day after the day on which the period referred to in subsection (7)(b) ends.
(10) The appropriate authority may by regulations—
(a) provide that an onward request may not be made until the end of a particular period, or until another condition is met;
(b) provide for how an onward request is to be made;
(c) make provision as to the period within which an onward request must be made;
(d) provide for circumstances in which a duty to comply with a sales information request or an onward request does not apply;
(e) make provision as to how information requested in a sales information request or an onward request is to be provided;
(f) make provision for circumstances in which a period specified for the purposes of subsection (6), (7) or (9) is to be extended.
(11) In this section and sections (Charges for provision of information) and (Enforcement of sections (Effect of sales information request) and (Charges for provision of information)), ‘onward request’ has the meaning given in subsection (4)(a).
(12) A statutory instrument containing regulations under this section is subject to the negative procedure.”—(Lee Rowley.)
This new clause, to be inserted after NC43, would require an estate manager who has been given a sales information request to provide the information requested, and request that information from other parties.
Brought up, read the First and Second time, and added to the Bill.
New Clause 45
Charges for provision of information
“(1) Subject to any regulations under subsection (2), a person (‘P’) may charge another person for—
(a) determining whether information requested in a sales information request or an onward request is in P’s possession;
(b) providing or obtaining information under section (Effect of sales information request).
(2) The appropriate authority may by regulations—
(a) limit the amount that may be charged under subsection (1);
(b) prohibit a charge under subsection (1) in specified circumstances or unless specified requirements are met.
(3) If an estate manager charges the owner of a managed dwelling under subsection (1), the charge—
(a) is an administration charge for the purposes of this Part, and
(b) is not to be treated as an estate management charge for the purposes of this Part.
(4) For the purposes of this Part, the costs of—
(a) determining whether information requested in a sales information request or an onward request is in a person’s possession, or
(b) providing or obtaining information under section (Estate management: sales information requests),
are not to be regarded as relevant costs to be taken into account in determining the amount of any estate management charge.
(5) A statutory instrument containing regulations under this section is subject to the negative procedure.”—(Lee Rowley.)
This new clause, to be inserted after NC44, would regulate charges for the provision of information under NC44.
Brought up, read the First and Second time, and added to the Bill.
New Clause 46
Enforcement of sections (Effect of sales information request) and (Charges for provision of information)
“(1) A person who makes a sales information request or an onward request (‘C’) may make an application to the appropriate tribunal on the ground that another person (‘D’) failed to comply with a requirement under section (Effect of sales information request) or (Charges for provision of information) in relation to the request.
(2) The tribunal may make one or more of the following orders—
(a) an order that D comply with the requirement before the end of a period specified by the tribunal;
(b) an order that D pay damages to C for the failure;
(c) if D charged C in excess of a limit specified in regulations under section (Charges for provision of information)(2)(a), an order that D repay the amount charged in excess of the limit to C;
(d) if D charged C in breach of regulations under section (Charges for provision of information)(2)(b), an order that D repay the amount charged to C.
(3) Damages under subsection (2)(b) may not exceed £5,000.
(4) The appropriate authority may by regulations amend the amount in subsection (3) if the appropriate authority considers it expedient to do so to reflect changes in the value of money.
(5) A statutory instrument containing regulations under this section is subject to the negative procedure.”—(Lee Rowley.)
This new clause, to be inserted after NC45, would provide for the enforcement of obligations under NC44 and NC45.
Brought up, read the First and Second time, and added to the Bill.
New Clause 1
Abolition of forfeiture of a long lease
“(1) This section applies to any right of forfeiture or re-entry in relation to a dwelling held on a long lease which arises either—
(a) under the terms of that lease; or
(b) under or in consequence of section 146(1) of the Law of Property Act 1925.
(2) The rights referred to in subsection (1) are abolished.
(3) In this section—
“dwelling” means a building or part of a building occupied or intended to be occupied as a separate dwelling, together with any yard, garden, or outhouses and appurtenances belonging to it or usually enjoyed with it;
“lease” means a lease at law or in equity and includes a sub-lease, but does not include a mortgage term;
“long lease” has the meaning given by sections 76 and 77 of the Commonhold and Leasehold Reform Act 2002.” —(Matthew Pennycook.)
This new clause would abolish the right of forfeiture in relation to residential long leases in instances where the leaseholder is in breach of covenant.
Brought up, and read the First time.
Lee Rowley
Indeed—so let me see how to get out of this one. Out of principle, from a Conservative perspective, we would want people to have choice about how they approach such things. It is also the case that there is an additional operator, which is the person who owns the capital or the asset. We need to consider that carefully. Having started conversations with officials in the Department, I think there is a challenge around complexity. There is always a challenge with complexity; that is not an argument in itself but a recognition of the reality. I recognise that there are people in this room with much more experience than me on this issue, and hope colleagues will take what I say in the spirit in which it is meant. There will be a point at the end of this process when the sheer number of additional things that have been requested mean that there will need to be prioritisation.
This is a good Bill, and we should not take away from that fact—I think everybody present acknowledges that—but as the Secretary of State said on Second Reading, where we can improve it, we will seek to do so. I confirm that we are looking at this issue in more detail and hope we will be able to say more in the Bill’s following stages, if that is possible—I emphasise the “if”, with no guarantees. I urge the hon. Member for Greenwich and Woolwich, if he is willing, to withdraw his new clause, solely on the basis that if something happens in the future, the provisions should be in primary legislation, not introduced under Henry VIII powers.
Matthew Pennycook
New clauses 27 and 28 concern building safety. The building safety crisis exists within the context of leasehold property and has been rendered more acute by the iniquities on which the leasehold system rests, yet the solutions to the specific problems faced by leaseholders in unsafe buildings are different from the general failings of the leasehold tenure that the Bill has sought to address in a limited number of areas. However, while the provisions in parts 1, 2 and 3 of the Bill are not answers to the problems of dangerous cladding and non-cladding defects, the relationship between the building safety crisis and residential leasehold properties makes the Bill the ideal vehicle for implementing a number of those solutions.
As the Committee will know, the building safety crisis is far from over. It has been almost seven years since the horrific fire at Grenfell Tower that claimed the lives of 72 innocent men, women and children, yet the Minister will know that there remain many thousands of unsafe buildings across the country that still require remediation.
Barry Gardiner
The Minister may also know that last night in my constituency the London fire brigade had to attend with 125 firefighters and 25 fire engines—three with the tall turntables—to put out a fire at King Edward Court. More than 100 people were evacuated from the building—safely, I am pleased to add—but the cladding on that building was similar to that at Grenfell. Here we are, seven years on from Grenfell, and three and a half years since the survey of that building took place in which it was reported that the cladding was of that combustible type, and still the Building Safety Act 2022 has not been able to ensure that, between the manager and the developer, those residents remain safe.
Matthew Pennycook
I am very glad that the residents were evacuated safely, but my hon. Friend highlights a problem that will apply to many other buildings across the country. The pace of remediation is far too slow. We often talk about remediation works as if they were just a practical issue—“When will it start and when will I be updated?”—but for so many residents there remains a very real risk to their health, their safety and in many cases their life. That is why we need to grip the crisis and ensure that it is addressed. No one disputes the fact that some progress has been made over recent years in addressing the building safety crisis, or the fact that the Minister has personally devoted considerable time and attention to the issue, but it really is a damning indictment of the Government’s record that nearly seven years on, the crisis remains unresolved for the vast majority of blameless leaseholders whose lives remain blighted by it.
Rachel Maclean
I want to make a brief remark in sympathy with the shadow Minister’s policy objectives. I will not be supporting his new clause, but I have had extensive discussions with the Minister, who knows that I feel strongly that we should have a pathway to commonhold in the future.
Commonhold is a system that works well. Commonhold, or a version of it, works extremely well in almost every other major developed country in the world. We are quite unique in the UK—for some bizarre reason—in having this leasehold system, which is to the great regret of me and the leaseholders who live in such houses and flats. Unfortunately, something like 1.5 million people live in leasehold houses and something like 5 million people overall live in leasehold dwellings. It does not need to be that way.
In 2002, the former Labour Government did try to legislate in this regard, but a number of those measures were not enacted—we are going back into ancient history. Nobody really seems to know why it did not happen, but we now need to seize the opportunity. This Bill has been a long time in gestation; it has benefited from the contributions of many Ministers to get it to this point. I know that the Minister is listening to me, and I think it is important that we do not miss the opportunity, even at this late stage, to introduce some of the commonhold framework measures that the Department has been looking at in great detail. I hope that the Minister has listened, and he and his officials will take that point away.
Barry Gardiner
The hon. Lady is absolutely right to go back to the 2002 Act. In fact, I think in a speech on its Second Reading, I said that we would have to return to that Act in six or seven years’ time to amend the deficiencies in it. I am sad to say that here we are, 22 years later, still not having amended those deficiencies, and the Minister’s response, I am afraid, has indicated that we will not amend them again under this Bill. This is urgent, and leaseholders have been waiting for far too long for the remedy that my hon. Friend the Member for Greenwich and Woolwich has proposed. That is why I feel that it is vital that I support his new clause.
Question put, That the clause be read a Second time.
Barry Gardiner
I am grateful to my hon. Friend for the way in which he has introduced his new clause 30. We heard from witnesses the difficulty faced by leaseholders on larger developments in attaining that 50% participation threshold for the right to manage. It can be a more permissive regime than collective enfranchisement, wherein someone else’s property interests are being compulsorily purchased. Right to manage is just regulating the management of the building and ensuring democratic resident control of the managing agent and service charges.
We heard from Philip Rainey KC in the oral evidence, who said, almost 10 years ago, that the right to manage should be a no-fault right and it should not be caveated with the need to solicit half of the entire building. He suggested the 50% threshold should be reduced to 35%. We have heard leaseholders say that this is not enough, because the threshold is even harder to meet nowadays with high levels of buy to let and overseas leaseholder populations, as suggested by Harry Scoffin of Free Leaseholders, when he gave oral evidence to the Committee. This proposal could help leaseholders to bring their service charges under resident control and scrutiny.
That is the position for flat owners almost everywhere else in the world, including north of the border in Scotland. I believe that the Government should support the amendment from my hon. Friend the Member for Greenwich and Woolwich. If I were to hear any indication that the Government might be so inclined or that they would introduce a measure that would achieve the same effect, I would happily withdraw new clause 33.
Lee Rowley
After a number of days of often great agreement across the Committee, it is my job, unfortunately, to point out where we cannot agree, so I apologise for doing that again. The hon. Member for Greenwich and Woolwich has indicated that he is probing the Government with new clauses 30 and 31—at least, I hope he is. We understand the point that he is making, but we are seeking to apply the Law Commission’s recommendation that the participation level should remain at 50%. On that basis, we are not proposing to change that at this time. I do not think it is necessary to create the report, because we have taken a view within this legislation that—
Barry Gardiner
Thank you, Sir Edward. It has long been recognised that my hon. Friend the Member for Greenwich and Woolwich is a much more reasonable gentleman than I am. I would be inclined to press the new clause to a vote, but I do not want to try the patience of the Committee. My hon. Friend and I will discuss these matters further and, if the Government do not act, we will see what we might do on Report. I will therefore not press the new clause.
Matthew Pennycook
I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 32
Premises to which leasehold right to manage applies
“Section 72 of the CLRA 2002 is amended in subsection (1)(a), by the addition at the end of the words ‘or of any other building or part of a building which is reasonably capable of being managed independently.’”—(Barry Gardiner.)
This new clause which is an amendment to the Commonhold and Leasehold Reform Act 2002 adopts the Law Commission’s Recommendation 5 in its Right to Manage report which would allow leaseholders in mixed-use buildings with shared services or underground car park to exercise the Right to Manage.
Brought up, and read the First time.
Barry Gardiner
I beg to move, That the clause be read a Second time.
I am very happy to move the new clause, which would amend the Commonhold and Leasehold Reform Act 2002 to adopt recommendation 5 of the Law Commission’s right to manage report. That would allow leaseholders in mixed-use buildings with shared services or an underground car park to exercise the right to manage.
We had some debate on this issue last week. I recall, from the time of the 2002 Act, that flatted developments—especially mixed-use blocks—had not taken off yet in England in the same way as they have over the past 22 years. Given the proliferation of mixed-use buildings, the paradigms of the 2002 Act are therefore now outdated and unfair. Developers have sought to use the Act to secure the exclusion of leaseholders on the basis of shared services. If the Government do not move on the issue of shared services, many of the leaseholders in mixed-used buildings who would otherwise have benefited from the uplift in the non-residential limit from 25% to 50%—which, as I said last week, I welcome—will still not qualify for the right to manage or for enfranchisement.
We heard from the founders of the National Leasehold Campaign and from Free Leaseholders on this point. It was clear from the evidence that the presence of a plant room or underground car park alone can disqualify leaseholders from appointing their own managing agent and controlling the service charges, which they already have to pay but do not have any influence over.
The Law Commission did a great deal of work on the right to manage. It stated:
“We recommend that premises should be eligible for the RTM if they are a building or part which is reasonably capable of being managed independently. This means that if leaseholders cannot demonstrate that their premises are either a self-contained building or self-contained part of a building, the RTM will still be available if the premises are nevertheless a building or part which is reasonably capable of being managed independently. This might be straightforwardly demonstrated where parts of a building are already subject to separate management arrangements.”
That is the Law Commission’s case, and it looked into this with great care. It said:
“We think this will lead to fewer Tribunal cases and where there are still disputes the focus will instead switch to whether the premises can properly be managed autonomously, rather than their physical attributes.”
So I plead the backing of the Law Commission; I plead the common sense of some of the foremost jurors of our age. I am sure that the Minister will take on board their wisdom, if not mine.
Lee Rowley
I am grateful to the hon. Member for Brent North for moving the new clause. The Government support the aim of the amendment to improve leaseholders’ rights. As he indicates, we are taking forward key recommendations of the Law Commission to do that. The Bill takes forward the most significant measures to increase access to the right to manage and makes it simpler and cheaper for leaseholders to make a claim.
To implement the wider recommendations, the Government need to proceed carefully and undertake further work to ensure that the regime will operate satisfactorily. The Government will keep the remaining recommendations from the Law Commission’s right to manage report under consideration following the implementation of the Bill’s provisions. I thank the hon. Member for bringing forward the amendment, but I hope that because the most significant measures have already been introduced, he may be convinced enough not to push the new clause to a vote.
Barry Gardiner
With that very reasonable response, I am happy to beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 34
Commencement of section 156 of the CLRA 2002
“(1) Section 181 of the CLRA 2002 is amended as follows.
(2) In subsection (1), after ‘104’ insert ‘, section 156’.
(3) After subsection (1) insert—
‘(1A) Section 156 comes into force at the end of the period of two months beginning with the day on which the Leasehold and Freehold Reform Act 2024 is passed.’”—(Barry Gardiner.)
This new clause would bring into force a requirement of the Leasehold and Freehold Reform Act 2024 that service charge contributions be held in designated accounts.
Brought up, and read the First time.
Barry Gardiner
I beg to move, That the clause be read a Second time.
New clause 34 would bring into force the requirement that service charge contributions be held in designated accounts. The new clause seems like a quick win for the Government: it would boost the security of leaseholder funds and would implement a policy that was in the Commonhold and Leasehold Reform Act 2002 which, unusually—22 years later—has still not been brought into force.
We have heard from witnesses such as Martin Boyd at the Leasehold Knowledge Partnership and Andrew Bulmer at the Property Institute, who have signalled support for such a policy. I understand that the British Property Federation has been actively lobbying for section 156 of the CLRA 2002 to be enacted since at least October 2012, so I hope that the Minister will see the new clause as eminently reasonable and will be prepared to comply.
Lee Rowley
Landlords and managing agents hold significant sums of leaseholder money, and it is right that they should be held to account for ensuring that such money must be managed effectively, as the hon. Member for Brent North indicates. Those who hold service charge moneys must hold them in trust, and the moneys must be deposited at a bank, building society or financial institution that is regulated by the Financial Conduct Authority. This ensures that those moneys can be used only for their intended purpose and that they are treated separately from the landlord’s other assets. This approach seeks to provide protection.
As the hon. Gentleman indicated, the effect of his new clause would be to commence section 156 of the CLRA 2002. The Government are not convinced that it is necessary. Procedurally, primary legislation is not required. I know that the hon. Gentleman will say, “Well, you’ve had the primary legislation for a significant time, so I’m giving you help to get it through,” but it can be done through secondary legislation, and I am afraid that we would seek to move it back into that domain. There is a perfectly reasonable discussion to be had about whether this provision is enacted, but I do not think that we need this primary challenge in order to continue that debate.
Barry Gardiner
Once bitten, twice shy. We were promised this measure in 2002. I am not convinced that I should accept the same blandishments once again, so I am afraid that I really do want to push this one to a vote.
Question put, That the clause be read a Second time.
Richard Fuller
I think that that reassurance has been provided. The particular issue is that when people buy these homes, the solicitors are usually appointed by the people selling them. It is important that the Minister thinks carefully about that, and it sounds very much as if he is doing so. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 36
Asbestos remediation
“(1) The Leasehold Reform, Housing and Urban Development Act 1993 is amended as follows.
(2) After section 37B, insert—
‘37C Asbestos remediation
(1) This section applies where a claim to exercise the right to collective enfranchisement in respect of any premises is made by tenants of flats contained in the premises and the claim is effective.
(2) The landlord must cause a survey of the premises to be undertaken by an accredited professional to ascertain whether asbestos is, or is liable to be, present in those parts of the premises which the landlord is responsible for maintaining.
(3) Where the survey required by subsection (2) reveals the presence of asbestos, the landlord must, at the landlord’s cost, arrange for its safe removal.
(4) If the removal of asbestos required by subsection (3) is not carried out before the responsibility for maintaining the affected parts transfers to another person under the claim to exercise the right of collective enfranchisement, the landlord is liable for the costs of its removal.’”—(Barry Gardiner.)
Brought up, and read the First time.
Barry Gardiner
I beg to move, That the clause be read a Second time.
The Minister will be relieved to know that this is genuinely a probing new clause, which I am pleased to move on behalf of my right hon. Friend the Member for East Ham (Sir Stephen Timms). He is not a member of the Committee, but he certainly wishes to raise the issue on Report.
New clause 36 would address the problems relating to enfranchisement when asbestos has been found, or is liable to be found, in the structure of a building. It requires that a survey be done prior to any enfranchisement process, and sets out that the landlord would be responsible for the remediation if asbestos should need to be cleared from the building. I am laying out the new clause before the Committee so that the Minister can set out his thinking about such problems in buildings, in the full knowledge that my right hon. Friend the Member for East Ham will speak to it on Report.
Lee Rowley
I thank the hon. Member for Brent North for moving the new clause. I heard the right hon. Member for East Ham make his case clearly on Second Reading, and I asked officials at the Department to go and look at it. I will read this into the record for their benefit and that of the right hon. Gentleman.
The Government recognise the devastating impact that asbestos-related disease has on those who are exposed and on their families, and we are committed to ensuring that the risk of asbestos exposure is properly managed. New clause 36 would either duplicate existing UK law or change the well-established evidence-based policy in this area.
Specifically, proposed new subsection (3) would mostly duplicate the existing duty in regulation 4 of the Control of Asbestos Regulations 2012 for landlords to survey the common areas of their property, where they are responsible for maintenance. It is true that there is no current requirement for the survey to be done by an accredited professional. That is partly because currently only organisations, not individuals, can be accredited to carry out surveys. The Health and Safety Executive is carrying out research to see whether changes to the accreditation of surveyors would be beneficial. That is in response to a recommendation from the recent inquiry into asbestos by the Work and Pensions Committee, chaired by the right hon. Member for East Ham.
Proposed new subsection (3) would be a significant departure from current health and safety policy regarding asbestos. It could increase the risk of exposure to asbestos: it could create a situation in which asbestos was removed, irrespective of whether it was in good condition. Evidence shows that any removal of asbestos is difficult and inevitably involves disturbing asbestos fibres and making them airborne. In some cases, asbestos can be removed only if there is significant and highly invasive work to the fabric of the building. For that reason, the HSE’s long-held view is that asbestos that is unlikely to be disturbed or is in good condition gives rise to less risk if it is left in situ and monitored until a suitable opportunity to remove it arises, such as refurbishment or demolition. That part of the new clause goes against HSE policy. Such a policy shift in this case would have significant implications for the legal framework for the management of asbestos across the built environment. Understandably for such a hazardous substance as asbestos, any proposed changes to how it is managed in the UK must be considered carefully.
While I appreciate the points that the hon. Member for Brent North has made on behalf of the right hon. Member for East Ham, I hope that that explains why the Government are not supporting new clause 36. I look forward to comments from them, should we have missed anything. I hope that the hon. Member for Brent North will consider withdrawing the new clause.
Barry Gardiner
I am grateful to the Minister for reading that into the record. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 37
Eligibility for enfranchisement
“(1) The LHRUDA 1993 is amended as follows.
(2) In section 3—
(a) in subsection (2)(a), after third ‘building’, insert ‘, or could be separated out by way of the granting of a mandatory leaseback on the non-residential premises to the outgoing freeholder’;
(b) after sub-paragraph (2)(b)(ii), insert ‘or
(iii) are reasonably capable of being managed independently or are already subject to separate management arrangements;’
(3) In section 4(1)(a)(ii), after ‘premises;’, insert ‘nor
(iii) reasonably capable of being separated out by way of the granting of a mandatory leaseback and reasonably capable of being managed independently from the residential premises;’”—(Barry Gardiner.)
This new clause would ensure that leaseholders in mixed-use blocks with shared services with commercial occupiers would qualify to buy their freehold.
Brought up, and read the First time.
Barry Gardiner
I beg to move, That the clause be read a Second time.
New clause 37 would ensure that leaseholders in mixed-use blocks with shared services with commercial occupiers would qualify to buy their freehold. We have covered this ground to a certain extent, and I do not wish to detain the Committee unduly.
I commend the Government for bringing forward the reforms that promised to liberate leaseholders in mixed-use buildings and developments, including the lifting of the 25% non-residential premises limit to 50%. However, with the advent of compulsory leasebacks on commercial space to the departing freeholder, there is now a workable mechanism to split out the commercial units and their management from the ownership and management of residential leasehold homes and the common parts for the other side of the building.
It is imperative to remove any other outdated impediments to freehold purchase faced by leaseholders of flats in mixed-use buildings, if the reforms to enfranchisement are to be successful on the ground. Without moving on shared services and the structural dependency rules that bedevilled the 1993 Act, many leaseholders in mixed-use blocks, who would otherwise stand to benefit from the proposed changes that the Government have put forward, could be instantly disqualified from exercising their enfranchisement rights to gain control of their building and their service charges because of a shared plant room or a car park that connects them to the commercial occupiers and that they had no hand in constructing. That seems unfair, especially given that developers are increasingly building flatted developments in which the flats have shared services with commercial units for matters of efficiency and cost.
Mixed-use schemes are proliferating in our constituencies. The issue of shared services, structural dependency and structural detachment will continue to be a major one for leaseholders seeking self-rule, so long as the Government do not cut the red tape in the 1993 Act and, relatedly, in the 2002 Act in relation to the right to manage. I look forward to the Minister’s considered response.
Lee Rowley
I am grateful to the hon. Member for Brent North for moving new clause 37. As he says, we have talked about the issue before, including on new clause 33, so I will not detain the Committee for more than a few moments. However, the brevity of my remarks does not in any way seek to diminish the importance of this discussion.
We agree with the overall ambition behind new clause 37; as the hon. Gentleman has graciously accepted, we are seeking to increase the non-residential limit. This is a discussion about whether the improvements that are already in the Bill should go any further. I hope that I have already articulated, in our debates on previous amendments and previous clauses, the reasons why we are not seeking to agree to that at this time. I hope that on this occasion the hon. Gentleman will agree to withdraw his amendment.
Barry Gardiner
We have indeed been over this ground. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 38
Right to manage: procedure following an application to the appropriate tribunal
“(1) The CLRA 2002 is amended as follows.
(2) After section 84, insert—
‘84A Procedure following an application to the appropriate tribunal
(1) Where an application is made to the appropriate tribunal under section 84(3) for a determination that an RTM company was on the relevant date entitled to acquire the right to manage the premises, the Tribunal may, if satisfied that it is reasonable to do so, dispense with—
(a) service of any notice inviting participation;
(b) service of any notice of claim;
(c) any of the requirements in the provisions set out in subsection (2); or
(d) any requirement of any regulations made under this part of this Act.
(2) Subsection (1)(c) applies to the following provisions of this Act—
(a) section 73;
(b) section 74;
(c) section 78;
(d) section 79;
(e) section 80;
(f) section 81.’”—(Barry Gardiner.)
This new clause would provide the appropriate tribunal with the discretion to dispense with certain procedural requirements where it is satisfied that it is reasonable to do so. It is designed to deal with cases where a landlord attempts to frustrate an RTM claim by procedural means.
Brought up, and read the First time.
Barry Gardiner
I beg to move, That the clause be read a Second time.
New clause 38 would provide the appropriate tribunal with the discretion to dispense with certain procedural requirements where it is satisfied that it is reasonable to do so. It is designed to deal with cases in which a landlord attempts to frustrate a right to manage claim by procedural means.
Let me enlighten the Committee. This morning I received the following email: “Your amendment NC38 to the Bill—right to manage—is the single best thing to happen to the right to manage since it was introduced in 2002. It will put an end to the litigation over detailed procedural objections which has frustrated this important statutory right.” The gentleman went on to say that he believes this “despite me (1) earning a good living from right to management disputes and (2) being chair of the local Tory association.”
The Law Commission report from four years ago highlighted “the tactical, game-playing approach” of some freeholders and how the current law is acting to incentivise unnecessary litigation between the parties. Mark Loveday’s proposal, which I have adopted, seems eminently sensible to provide the tribunal with the discretion to waive a right to manage application of leaseholders where the breaches are deemed to be non-material. That is a necessary guard against vexatious litigation by freeholders to thwart legitimate right to manage bids. Sadly, as a barrister, Mr Loveday has seen all too many cases in which landlords have used irrelevant technicalities in the existing legislation to try to scupper leaseholders trying to exercise their right to manage. I want to put on the record my thanks for Mr Loveday’s defence of leaseholders’ rights in the Settlers Court case and the Canary Gateway case.
I hope the Committee will understand that Mr Loveday gave evidence in writing to this Committee. The new clause draws on his proposals, which are contained within his written submission. Mr Loveday is not just a barrister, but the editor of the standard work, the fifth edition of “Service Charges and Management”. He is not just somebody who has a passing knowledge; he is recognised as an authority in these matters.
For the sake of full disclosure, I should add that the gentleman who wrote to me so effusively about my new clause was in fact Mr Loveday, so it was really about his own amendment.
Lee Rowley
I am grateful to the hon. Member for Brent North for tabling new clause 38. I understand that he seeks to reduce landlords’ ability to frustrate right to manage claims. We all share his view, and we also do not want leaseholders to fail on minor technicalities, but at the risk of disappointing his Conservative friend, we believe that there are good reasons for the procedural requirements in a right to manage claim. For example, standard requirements provide legal certainty for all parties. I recognise that there is a valid discussion to be had around the issue, but that is the position that the Government come down on. We are concerned about giving a broad, sweeping power in respect of disapplication.
There are also potential unintended consequences. All qualifying leaseholders are entitled to become members of the right to manage company, and no one person can be excluded for any reason. The legislation opens membership to all qualifying leaseholders. The procedural requirement to serve the notice inviting participation informs leaseholders of their rights to join the claim and become directors of the right to manage company. Providing discretion to the tribunal to disapply this could result in some leaseholders failing to receive adequate information about the claim and being denied such an opportunity. I am not saying that that is likely to happen; I am simply taking it to its logical extent. There are other potential areas where it would go. I am not saying that it is likely, but it is possible.
It is accepted that some landlords have sought to defend right to manage claims on the basis of minor, technical flaws in compliance with the procedural requirements. The tribunal, however, generally takes a common-sense, pragmatic approach to errors that are not critical or of primary importance. That should limit the scenarios in which there is a problem. Landlords will also have an added disincentive to raise vexatious disputes, as they will now pay their own litigation costs.
On the basis of both those points, I hope that the hon. Member for Brent North might be willing to withdraw his new clause and convince his new Conservative friend that it is not necessary at this time.
Barry Gardiner
I will press the new clause to a vote and leave it to the Minister to persuade his Conservative friends.
Question put, That the clause be read a Second time.
Barry Gardiner
I beg to move, That the clause be read a Second time.
This new clause would set matters for the tribunal to consider when deciding whether to dispense with all or any of the requirements for landlords to consult tenants in relation to any major works. That is something that I am particularly concerned about, because in 2002 I sought to bolster transparency over the nature and costs of major works that leaseholders were paying for, and the troubles that they were experiencing in their blocks. I am also concerned because the freeholder that successfully neutered key provisions on major works is the same Daejan—then Daejan Holdings, part of the Freshwater Group—which over the years has caused absolute misery for many leaseholders in my constituency and in many other right hon. and hon. Members’ constituencies. It was one of the landlords whose behaviour saw me begin my campaign against the iniquities of leasehold back in the 1990s.
Since the Daejan v. Benson Supreme Court case of 2013, the factual burden on freeholders has been transferred to leaseholders. It was ruled that the conduct of the landlord is irrelevant, no matter how flagrantly it might have behaved in failing to adhere to the consultation requirements, unless it can be shown that the conduct caused actual prejudice. As a result of that decision, in many first-tier tribunal cases, it is now freeholders who are seeking dispensation from consultation requirements on major works. Hapless leaseholders are left trying to prove prejudice in the face of clear breaches of the legal requirements, and landlords, who of course are much better resourced, are able to game the system accordingly.
In Daejan, Lord Wilson issued a strong dissenting judgment, as did Lord Hope. Both thought, correctly, that what is reasonable should be left to the tribunal. They mentioned transparency and accountability, both ignored by the Supreme Court. In fact, Lord Wilson described the conclusion of the majority as subverting the intention of Parliament. I urge the Government to revisit their position on major works in the Bill and ensure that leaseholders have, at the very least, the same transparency and accountability that they were assured under the 2002 Act, before the Supreme Court interfered in 2013 with Daejan, fettered the tribunal’s discretion in this vital area and accordingly undermined leaseholders’ rights.
Lee Rowley
I am being tempted again to comment on the Supreme Court and the veracity of its decisions, but I will stick to the new clause. As the hon. Gentleman indicated, it seeks to amend the Landlord and Tenant Act 1985. We agree that there should be protections for leaseholders when their landlord is seeking to dispense with the requirements to consult on major works. Where a landlord has failed to comply with the statutory requirements, they must apply to the appropriate tribunal to dispense with the requirements to consult. Should they fail to consult and fail in any application for dispensation, the costs that they may pass on to the tenant are limited to a £250 threshold.
We believe that the appropriate tribunal is best placed to consider the circumstances of each application for dispensation. We would not wish to fetter the tribunal’s ability to consider a wide range of matters when deciding whether it is reasonable to dispense with the consultation requirements.
Barry Gardiner
What has happened here is that the whole weight of proof has been shifted by the Court’s decision. It has been shifted precisely against what was the legislative intent, which is why I think it is appropriate that the Minister seeks to reinstate what Parliament originally said it had decided and wanted to be the case, and ensure that the tribunal has the ability to exercise its judgment in that way.
Lee Rowley
Let me ask the hon. Gentleman whether he is willing to allow me to go away and look at this issue without any promises or guarantees. I am not across the level of detail that he obviously is, and I need to be in order to discharge the very legitimate questions that he has asked. If he is prepared to withdraw the new clause, I am happy to write to him, and if there is something that we need to take forward, I would be happy to look at it in future phases of the Bill.
Barry Gardiner
On that basis, I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 40
Meaning of “accountable person” for the purposes of the Building Safety Act 2022
“(1) Section 72 of the Building Safety Act 2022 is amended in accordance with subsections (2) and (3).
(2) After subsection (2)(b), insert—
‘(c) all repairing obligations relating to the relevant common parts which would otherwise be obligations of the estate owner are functions of a manager appointed under section 24 of the Landlord and Tenant Act 1987 in relation to the building or any part of the building.’
(3) In subsection (6), in the definition of ‘relevant repairing obligation’, after ‘enactment’, insert
‘or by virtue of an order appointing a manager made under section 24 of the Landlord and Tenant Act 1987’.
(4) Section 24 of the Landlord and Tenant Act 1987 is amended in accordance with subsection (5).
(5) Omit subsection (2E).”—(Barry Gardiner.)
This new clause would provide for a manager appointed under section 24 of the Landlord and Tenant Act 1987 to be the “accountable person” for a higher-risk building.
Brought up, and read the First time.
Barry Gardiner
I beg to move, That the clause be read a second time.
New clause 40 would provide for a manager appointed under section 24 of the Landlord and Tenant Act 1987 to be the accountable person for a higher-risk building. A number of stakeholders raised in the evidence sessions that there is a major problem with the way in which the Building Safety Act 2022 is interacting with the 1987 Act, with the practical effect of depriving leaseholders of redress and the ability to replace a failed or failing freeholder from controlling their homes and service charges.
The accountable person regime of the 2022 Act has critically undermined the section 24 court-appointed manager scheme, which has been a lifeline for leaseholders who cannot afford to buy the freehold or mobilise 50% of their neighbours to participate in an enfranchisement claim but who face a predatory—or very often absentee—freeholder, have high and opaque service charges or suffer block deterioration and badly require independent and professional management. That was the whole point of having the accountable person in the court-appointed manager scheme.
The section 24 regime also gives leaseholders who do not qualify for the right to management the ability to replace freeholder management of their building and moneys by applying to tribunal to consider whether it is just and convenient to install an officer of the court—a section 24 manager—to steward the development with tribunal backing and a special management order that provides them with a bespoke scheme of management and effectively replaces the leases. The section 24 manager essentially steps into the shoes of the landlord. But the Building Safety Act has expressly disallowed a section 24 manager from double-hatting as the accountable person and the principal accountable person through its definition of accountable persons and its amendments to the Landlord and Tenant Act 1987.
That must be an oversight by Government or an unintended consequence of the Building Safety Act, because fettering a section 24 manager in this way will encourage tribunals not to grant new section 24 orders on the basis that while such an order may be just because of freeholder failure, it would not be convenient, since there would now be two squabbling managers for functions under the BSA versus a court appointee installed under the 1987 Act. Even with the reforms to enfranchisement and right to manage in this Bill, many leaseholders will still be unable to meet the qualifying criteria to remove freeholder management. We need to keep that pathway for a court-appointed manager open and accessible to leaseholders seeking relief. With the BSA, Parliament quite rightly sought to give leaseholders new statutory protections. Surely the intention of the BSA was not to take away leaseholders’ existing rights.
At Christmas, a tribunal heard about this issue as part of the long-running litigation at Canary Riverside, an estate in east London where leaseholders have enjoyed court protection via the section 24 scheme since 2016. Regrettably, it determined that section 72 of the Building Safety Act and the amendments made to section 24 by section 110 of the 2022 Act prohibit a section 24 manager from being an appointed person, and a tribunal cannot order a section 24 manager to carry out building safety responsibilities that Parliament has decided should fall outside the section 24 regime and which should be the responsibility of an AP.
The tribunal said,
“We accept that this conclusion is likely to have significant practical consequences”
for the manager. It also said,
“We accept too that there is a risk of disagreement between him and the PAP as to how the cladding-removal works should be progressed.”
The 22 December 2023 tribunal decision in the Canary Riverside case has effectively given the freeholder licence to take back control of leaseholders’ homes and moneys, despite being stripped of management rights by the court in 2016 because of its poor financial transparency and non-existent accountability to leaseholders. It now runs the risk of allowing the freeholder to take up to £20 million in public money from the building safety fund. The same freeholder’s related company, Westminster Management Services, wrongly demanded £1.6 million in insurance commission and fee—a kick-back from the leaseholders, as determined by a tribunal in December 2022.
Lee Rowley
I am grateful to the hon. Gentleman for outlining that in such detail. I will be brief and to the point. We are reviewing this, and I think that an important point has been raised. In the meantime, we have asked the Building Safety Regulator to review all higher-risk buildings that currently have a section 24 manager in place, with a view to considering whether an application for a special measures order should be made for any of the buildings impacted. On that basis, I hope that the hon. Member may withdraw the new clause until we have concluded the review.
Barry Gardiner
I want to press the new clause to a vote.
Question put, That the clause be read a Second time.
Barry Gardiner
I beg to move, That the clause be read a Second time.
This new clause would implement recommendation 41 of the Law Commission’s report on enfranchisement, that the prohibition on leaseholders of three or more flats in a building being qualifying tenants for the purposes of a collective enfranchisement claim should be abolished. The Law Commission could not be clearer on this issue. It said:
“We remain firmly of the view that this rule–that a leaseholder of three or more flats in a building is not a qualifying tenant in respect of any–is ineffective in excluding investors from collective enfranchisement rights. It is easily avoided by sophisticated investors, and thus only penalises less well-informed leaseholders of multiple units. We do not think that there is any good justification for retaining the exclusion in its current form… Crucially, we think that removing the restriction will provide the opportunity to enfranchise to a number of leaseholders who should benefit from enfranchisement rights, but who currently do not do so. Take the building which we gave as an example in the Consultation Paper: one containing seven flats let on long leases, of which three are owned by the same person. This building is ineligible for collective enfranchisement, as there are only four qualifying tenants (and therefore the two-thirds requirement is not fulfilled). However, it may well be in the interests of the four qualifying tenants to carry out a collective freehold acquisition: indeed, the investor who owns the three other leasehold flats may also wish to participate. It may be asked why, from the point of view of the five owners in the building, it is desirable that they be prevented from acquiring the freehold jointly. In this case, the four owners of their individual flats would still have the largest say in the control of the building following the claim (assuming every owner participated).”
Removing the bar on leaseholders with three or more properties from qualifying for a collective enfranchisement is a Law Commission recommendation. It could be done easily and have the practical effect of ensuring that more leaseholders can acquire the freehold and gain control of their homes and service charges, meeting a key Government goal for this Bill.
I am aware that some freeholders buy up leases in a block using separate special purpose vehicle companies in order to make it harder for leaseholders to hit the 50% participation threshold and thwart enfranchisement bids. Meanwhile, innocent leaseholders who have three flats in their name as part of their retirement plan are instantly disqualified from participating in the freehold purchase. That is unfair, but it could be easily remedied by this amendment or another amendment were it to come from the Government.
Lee Rowley
The Government recognise that the Law Commission did not think that there was a justification for keeping the exclusion in its current form and recommended its removal, as the hon. Gentleman has indicated. However, there might be unexpected consequences if the exclusion is removed, and the Government need to proceed carefully. For example, removal of the restriction may spur investors and speculators to buy up blocks, which may not be in the interests of the remaining leaseholders and take properties out of the market that could otherwise be acquired by owner- occupiers. Investors would be able to buy multiple flats in a building in order to take control of the building following a collective acquisition claim.
Furthermore, the exclusion as it applies currently has the effect of limiting the circumstances that could result in one leasehold owner monopolising the freehold once it has been acquired. Leaseholders of a single flat may find that they escape the control of one freeholder to find that they are now subject to the control of a single owner of multiple flats, creating the same issues.
I recognise that the restriction has the effect of denying some leaseholders the right to collective enfranchisement, and there is no equivalent requirement when claiming the right to manage. However, the nature of the interest being acquired is different and the difference in approach is appropriate. I hope I can assure the hon. Member that the Government understand his concern. I hope he agrees, although I hear he might not, that the current restriction provides a level of protection for leaseholders. I ask him to consider withdrawing his new clause.
Barry Gardiner
I am grateful to the Minister for recognising the problem here. I urge him to consider coming back on Report with his own amendment to try to circumvent the other issues that he has rightly raised, which might counterbalance on the other side. On that basis, I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 48
Right to participate in enfranchisement
“(1) The Secretary of State may by regulations make provision to enable qualifying leaseholders to buy a share of the freehold at a development where a collective enfranchisement has already taken place.
(2) Provision made under subsection (1) is to be known as a ‘right to participate’.”—(Barry Gardiner.)
This new clause would enable the Secretary of State to make regulations allowing those residential leaseholders whose unit qualified for a collective enfranchisement, but whose leaseholders were unable or unwilling to do so at the time, to exercise the right to participate in the enfranchisement upon payment of a proportionate sum.
Brought up, and read the First time.
Barry Gardiner
I beg to move, That the clause be read a Second time.
This new clause would enable the Secretary of State to make regulations allowing those residential leaseholders whose unit qualified for a collective enfranchisement, but whose leaseholders were unable or perhaps unwilling to do so at the time, to exercise the right to participate in the enfranchisement subsequently upon payment of a proportionate sum.
Through its work the Law Commission emphasised the inequity of leaseholders who did not have the money to participate in the freehold purchase or were not even holding a lease on the qualifying flat at the time of the enfranchisement, having no right under the current law to buy a share in the freehold to make their home more saleable and to be part of the decision-making process of those enfranchisement leaseholders with management control.
The Law Commission stated that
“in the Consultation Paper, we proposed that a leaseholder who did not participate in a collective freehold acquisition should, at a later date, be able to purchase a share of the freehold interest held by those who did participate. We maintain our view that the policy has merit. Indeed, a clear majority of consultees were supportive of our provisional proposal.”
Barry Gardiner
We were discussing the right to participate, and I was quoting the Law Commission, which stated that
“in the Consultation Paper, we proposed that a leaseholder who did not participate in a collective freehold acquisition should, at a later date, be able to purchase a share of the freehold interest held by those who did participate. We maintain our view that the policy has merit. Indeed, a clear majority of consultees were supportive of our provisional proposal.”
Additionally, the Law Commission believes that
“the existence of the right to participate”—
attaching to an individual leasehold unit—
“might even encourage leaseholders making a collective freehold acquisition claim to invite others to join in the first place, and might also be a partial solution to the ping-pong problem”,
as the Law Commission describes it; I will not go into detail about that. The Law Commission states that, unlike with the right to manage and the notice inviting participation, leaseholders
“proposing to make a collective enfranchisement claim are not obliged to invite all other leaseholders in the building to participate in the proposed claim, nor even to inform them of their intentions. This means that leaseholders can be excluded from the opportunity to exercise their enfranchisement rights, either inadvertently or deliberately.”
The Law Commission received various suggestions as to how leaseholders could be made aware that a collective freehold acquisition has taken place and therefore that the right to participate is available to them. The new clause seeks to give the Government the flexibility to bring forward—through either regulations or, preferably, their own amendments—some provision to remedy the situation. I look to the Minister for his advice.
Lee Rowley
The principle of a right to participate is sound, and I think we all agree on that across both sides of the Committee. However, as with many of the new clauses, there are practical issues with such a right, and we struggle to see a way that it is addressed through the Bill.
I will not detain the Committee for too long, but currently leaseholders who did not participate in a previous collective acquisition claim have no means to require the previous participants to allow them to join, as the hon. Gentleman outlined. There is an existing route around that for the non-participant leaseholders if they can agree with the participating enfranchised leaseholders to allow them to obtain a share in the ownership of the building through negotiation; however, enabling that through a statutory right is complicated. The Law Commission gave considerable thought to the issues and how they may be resolved, and, although it too agreed with the principle of such a right, it was not able to make a recommendation for the creation of the right to participate without separate and detailed work on the measure. Its report analysing the difficulties that arise is publicly available.
As set out by the Law Commission, a number of highly complex questions need to be resolved, including when and to whom the right should apply; whether to include former landlords in possession of a leaseback; the terms of participation; the premium payable; the cost of the claim; and any remedies available if damages are appropriate. Bluntly, they go to the core of an individual’s rights, so the whole framework for the regime needs to be in place in order to ensure certainty on who has those rights and how they can best be exercised in practice. As a result, while I understand and appreciate the sentiment behind the new clause, it is a broad power to set out a regime that is extremely complicated, and the Government are unable to accept it at this time, while accepting the principle and hoping that in the future we can make progress on it.
Barry Gardiner
I am grateful to the Minister for recognising the need to do something in this area and accepting that there is a problem here that it would be best to resolve. I simply point out that leasehold reform Bills tend to come infrequently before Parliament, and I urge him to come back at a later stage with his best endeavours to resolve the problem. On that basis, I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 50
Control of boards of estate managers
“(1) Within six months of the passage of this Act, the Secretary of State must by regulations provide for—
(a) every estate manager (see section 39(3)) to be constituted such that a controlling majority on its board is held by an owner or lessor of a managed dwelling (see section 39(5));
(b) the requirement stipulated in paragraph (a) to be in place within two years of the sale or lease of the first managed dwelling.
(2) Regulations under subsection (1) may amend primary legislation.”—(Richard Fuller.)
This new clause would provide for the Secretary of State by regulations to oblige every estate management company to have a majority of residents on its board within two years of the sale or let of the first house or flat on the managed estate.
Brought up, and read the First time.
Richard Fuller
I beg to move, That the clause be read a Second time.
I am receiving some interesting guidance from the Government Whip that I should seek to speak at length on the new clause, which is contrary to all his earlier exhortations, which were rather of the flavour that I should shut up entirely. I am not getting any further guidance from the Whip, so I will go at my own pace.
New clause 50 is a suggestion to the Minister. We have discussed the general hope that people subject to estate management charges should have much greater control over their estate management companies. They potentially should have the right to self-manage and it should be much easier for them to change from one estate manager to another. At the moment it can take a considerable time for estate management companies essentially to be set up and/or for them to go through what is essentially a transfer to resident control. I think all members of the Committee know this, but I will just inform them that we have had a number of representations from people who have talked about how long they have had to wait, including someone who said that a family had to wait up to 13 years for the right to manage their own estate management company and endured poor service over that entire period.
As the Minister thinks about his options to bring forward on Report or in further deliberations improvements to the rights of people, the new clause suggests that, by law, within two years of the sale or lease of the first building a majority of the directors of the estate management companies should be residents of their community.
Leasehold and Freehold Reform Bill (Seventh sitting)
Barry Gardiner ExcerptsThursday 25th January 2024
(10 months ago)
Public Bill CommitteesRead Full debate Leasehold and Freehold Reform Act 2024 View all Leasehold and Freehold Reform Act 2024 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 25 January 2024 - (25 Jan 2024)
Matthew Pennycook
I thank the Minister for his response. Let me just deal initially with the three Government amendments, with which we take no issue. On the ground rent consultation, I will not labour the point, because I get the sense we will not get any further information out of the Minister. It is always easier to say this from the Opposition side of the Committee, but it would have been logical to have had the ground rent consultation well in advance of the Bill, as then we could have had a Bill with all the elements properly integrated. It is not like the Government did not have enough time. I think that the previous Secretary of State, the right hon. Member for Newark (Robert Jenrick), announced the second part of the two-part seminal legislation back in 2019, so the Government have had time—but that is where we are. By the sound of what the Minister is saying, we will have to significantly overhaul many clauses in the Bill if the Government do decide to enact one of the five proposals.
On amendment 6, I do not find the Minister’s argument convincing. The Law Commission recommended a 250-year threshold. The Government have clearly determined that they need not follow that recommendation to the letter, although they have implemented the principle of it. They have chosen to put their finger on the scale, as the Minister said, at a different threshold. I think trying to put one’s finger on the scale on this particular issue is likely to cause more problems than it solves. I hope the Government might think again about cutting the Gordian knot entirely.
The most common forms of lease are 90, 99 and 125 years. Leaseholders with the most common forms of lease will not be able to enjoy this right. The Government are in effect saying to them, “You must buy out under clauses 7 and 8—your lease extension and your ground rent at the same time.” From what the Minister said, it sounds like the Government think that is right because some leaseholders might disadvantage themselves by trying to exercise only the right in schedule 7. There is a case for giving those leaseholders the freedom to exercise their own judgment on that point—I am surprised the Minister has not agreed with it. A lot of leaseholders will be watching our proceedings who have leases of, say, 120 years and simply do not have the funds available to exercise their right to extend the lease and buy up the ground rent under clauses 7 and 8. This will therefore completely lock leaseholders with shorter leases out of extinguishing their ground rent provisions. We think that is inherently unfair.
Barry Gardiner (Brent North) (Lab)
Does my hon. Friend share my view that the Minister is a reasonable gentleman? [Laughter.] I know it may be specific to us and not widely shared. My hon. Friend having made such an eloquent case, the Minister may go away, reconsider this, speak to his officials, and perhaps, once the consultation has concluded, be able to come back with a different answer.
Matthew Pennycook
I thank my hon. Friend for that intervention, which tempts me to give a number of responses. As I am feeling generous this morning, I will say that I do think the Minister is a reasonable individual —far more reasonable in Committee than he is in the main Chamber—and I suspect that he agrees with me about the 150-year threshold. To encourage him to go away and think further, I think we will press amendment 6 to a vote.
Lee Rowley
Schedule 7 will confer on leaseholders a right to buy out their ground rent without extending their lease. As the premium payable will be subject to the 0.1% cap on ground rent, this measure will be especially helpful for leaseholders with high or escalating rents. Paragraph 2 sets out that leaseholders who qualify for a lease extension will have this right as long as their remaining term is at least 150 years. Community housing leases and home finance plan leases are excluded, as they were from the Leasehold Reform (Ground Rent) Act 2022. Leaseholders may not qualify for lease extensions because they have a lease of Crown land, or because they do not satisfy the low rent test in the Leasehold Reform Act 1967. Such leaseholders will qualify for the new buy-out right.
Paragraphs 3 to 7 set out procedural arrangements for leaseholders and their landlords. They provide that the right is exercised by serving a rent variation notice on the landlord, including time limits for responses and arrangements for either party to apply to the tribunal if they so wish. The premium payable is the same as the term portion of the lease extension premium set out in schedule 2, and is subject to the ground rent cap. It is the capitalised value of the rent payable for the remainder of the lease.
Paragraph 8 provides that where the lease is not varied to provide that the future rent is a peppercorn rent, the leaseholder or landlord can apply to the tribunal. The tribunal shall decide whether it should be varied and, if it should, can appoint a person to execute the variation in place of the landlord. Paragraph 9 sets out the circumstances in which a rent variation notice ceases to have effect. A claim can be revived if it ceased to have effect due to a later extension or acquisition claim, where the later claim ceases to have effect.
Paragraph 10 sets out details of how the schedule applies in relation to the lease of a house; paragraph 11 does the same in relation to the lease of a flat. Finally, paragraph 12 gives various enabling powers to the Secretary of State, including giving effect to the rights, making provisions about notices and amending the details of how the schedule applies to the lease of a house or a flat.
Question put and agreed to.
Schedule 7, as amended, accordingly agreed to.
Clause 22
Change of non-residential limit on right to manage claims
Barry Gardiner
I beg to move amendment 129, in clause 22, page 38, line 21, leave out “50%” and insert “75%”.
This amendment would allow leaseholders with a higher proportion of commercial or non-residential space in their building to claim the Right to Manage.
Barry Gardiner
First of all, let me say what this is not about: it is not about enfranchisement. It is quite simply about the right to manage. I say that because a few days ago, a journalist got this entirely wrong. We welcome the change to 50%. The amendment would allow leaseholders with a higher proportion of commercial or non-residential space in their building to claim the right to manage. It is not about shared services or the percentage of the leaseholders who can be contacted; it is about square footage.
I welcome the proposed increase from 25% to 50%, but as we heard in the witness sessions, the Law Commission was originally asked by the Government to remove the 25% rule on the right to manage completely on the basis that leaseholders who are paying a service charge should have control over the areas for which they are being charged. This would leave the management of the commercial premises absolutely unchanged. It was taken out by the Law Commission, which actually wanted to be more restrictive than the Government, who had said that it could be 100%. On its reason for that, it said, “There could be, at the top of the Shard, 30 residential properties. This could have the perverse result of them taking control of a much larger area.” It used that special example to illustrate why it felt that 100% was not appropriate. The Government had suggested that we go a lot further, but the Law Commission said, “There are special cases, so let’s row back on this.” But then the Government came back with 50%.
Let us take the advice of the Law Commission and accept that 100% is not the right figure. I propose that we go to 75% and use that as the basis, because it would avoid that unique case that the Law Commission put forward. It would achieve what I think was the Government’s original intention of allowing more people in that situation the right to manage.
Barry Gardiner
If the Minister casts his mind forward to the next two amendments, which seek to give the Secretary of State the authority to determine the limit, and should the Minister indicate that, in the future, the Secretary of State would almost certainly not determine it to be less than 50%—as the Government have already proposed—then I just might be persuaded to withdraw my amendment.
Lee Rowley
I am grateful to the hon. Gentleman for his comments. We are sticking with what we have suggested, but I hope he will consider withdrawing his amendment none the less. I will just say a few words on our reasons for sticking with what propose in clause 22. We have been clear that we want to improve access to right to manage—I think that view is shared across the House—and we accept that the current limit of 25% of floor space is not proportionate. Therefore, through this clause, we are seeking to increase the non-residential limit from 25% to 50%, as has been discussed. That replicates clause 3 on collective enfranchisement, recognising that this is not a debate about collective enfranchisement on a specific clause.
For the reasons that we have outlined, 50% is the place where the Government have landed, and where we feel is most proportionate. We hope that it will mean that more leaseholders in mixed-used buildings can take over the management responsibilities of their properties. I commend the clause to the Committee, and I hope that the hon. Gentleman will consider withdrawing his amendment.
Barry Gardiner
I am grateful to the Minister for his response; he is courteous, as ever. I just point out that the all-party group on leasehold and commonhold reform, co-chaired by the Father of the House, the hon. Member for Worthing West (Sir Peter Bottomley), also made the recommendation that the Government look again at this issue. I am prepared to throw my weight behind amendments 26 and 27, so I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn .
Matthew Pennycook
I beg to move amendment 26, in clause 22, page 38, line 21, at end insert—
“(b) after paragraph 1(4) insert—
‘(5) The Secretary of State or the Welsh Ministers may by regulations amend this paragraph to provide for a different description of premises falling within section 72(1) to which this Chapter does not apply.’”
This amendment would enable the Secretary of State or (in the case of Wales) the Welsh Ministers to change the description of premises which are excluded from the right to manage. By virtue of Amendment 27, such a change would be subject to the affirmative resolution procedure.
Lee Rowley
I am grateful to my hon. Friend for his question. Notwithstanding the tone of my responses, given the Committee’s interest I will happily write to it to make sure there is clarity on that point. I hope that, as a general and broad macro point, my comment still stands.
Barry Gardiner
The Minister has yet again confirmed his reputation for being reasonable. Can I probe him on the point about reasonableness? Many leaseholders complain that there is an amount in their service charges, which they may think is either reasonable or unreasonable, for a particular service, but when they enquire about the service provider, they find that it is in fact their landlord under another name. They then pay not only the cost of that arm’s length contractor providing the service, but a 15% service charge on top of it. Many people would feel that this is another rentier practice that landlords are using. I appreciate that the issue does not relate specifically to amendment 10, but I would very much like to get the Minister’s thoughts about the reasonableness of that practice on record.
Lee Rowley
I am grateful to the hon. Gentleman for raising that point. He articulates another example of good law being used in a way that is, in my view—without talking about individual incidents—both unintended and inappropriate. I am not a lawyer, and do not seek or have any desire to be one, but as I understand it, there is a concept of reasonableness within the legal domain based on an Act from a number of years ago. Hopefully that helps to answer part of his question, at least from a structural perspective. On the variable service charge side, without talking about individual instances, that kind of instance is a clear example of where those impacted would be able to go through the process of challenging it, which I think would be very sensible. If I were a leaseholder, I might be very tempted to do that, unless the charge could be justified in a different way. On the fixed service charge side, although I accept that there is the potential for these kinds of challenges, conceptually that needs to be balanced with the fact that when the contract was entered, an agreement was made to consent to that amount, for whatever reason—good or otherwise. That is why we are pursuing this. However, I take the hon. Gentleman’s broader point.
Rachel Maclean
This discussion goes to the heart of some practices and problems that leaseholders have experienced across the sector. On behalf of the many retirement leaseholders, mentioned by the shadow Minister, the hon. Member for Greenwich and Woolwich, I will make a point and ask for reassurance from the Minister.
What we are talking about with this amendment is different from the ground rent issue. Ground rent is a payment for nothing—nothing is being provided—whereas something is being provided for service charges. There is a service, so there is a need for a charge; that is perfectly legitimate. As Conservatives, we do not dispute the fact that there should be financial recompense for services. However, we find ourselves with a problem, the law of unintended consequences and the drivers of business models.
I would welcome if the Minister could touch on this in his response, but my fear is that if ground rents are removed and business models need to adjust to make recompense for that, the natural behaviour of unethical operators in the retirement sector and possibly elsewhere—some are unethical and do not think about the people who bought properties in good faith—will surely be to seek to load their charges, their profit and loss, back on to the service charge in some way. I am not close enough to existing contracts to know whether they will be able to do that with a fixed charge, so the discussion might be better suited to when we talk about the variable charge. The Minister can help me on that.
The broad point stands, however, in the case of someone dealing with the estate of a loved one, perhaps someone who has passed on, is in care, is suffering from dementia or otherwise does not have the capacity to deal with all this—the Minister will be familiar with such cases. They might be stuck with a property that they cannot sell, and that often applies in such cases when service charges are racking up in a way that is difficult for people to get a handle on—
Barry Gardiner
I agree with all the points that the hon. Lady is making. I wonder whether she is aware of the report by Hamptons last year, which said that service charges had increased by 50% over the past five years. That is an indication of just how much of the gouging she is talking about is going on. Furthermore, leaseholders paid a staggering £7.6 billion in service charges last year. Of course, much of that is for the proper renovation of the property, but it seems an extraordinary amount. In fact, 10 years ago, Which? estimated that leaseholders were being overcharged by £700 million.
Rachel Maclean
I thank the hon. Gentleman for bringing those figures to the attention of the Committee. I am familiar with them, as are others. [Interruption.] I do not wish to detain the Committee any longer—I can see the Whip making that plain to me. I will leave my remarks there, perhaps to continue at a later point, but the Minister may wish to respond in detail.
Leasehold and Freehold Reform Bill (Eighth sitting)
Barry Gardiner ExcerptsThursday 25th January 2024
(10 months ago)
Public Bill CommitteesRead Full debate Leasehold and Freehold Reform Act 2024 View all Leasehold and Freehold Reform Act 2024 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 25 January 2024 - (25 Jan 2024)
Barry Gardiner (Brent North) (Lab)
I think the Minister referred to section 47 of the Landlord and Tenant Act 1987. Is he entirely confident that that is effective? I have a case in my constituency, in Wembley Central Apartments. The co-developers have sold on and on, and the owner is now in the Cayman Islands. The UK address to which one can apply is that of the managing agents, Fidum, but Fidum says, “We have asked our principals, and they say that they have asked their principals,” and it goes all the way to the Cayman Islands, and one gets nothing back. The leaseholders have been desperately trying to access the information for months. They have served the correct notice to the correct address in the UK, but they still cannot get the information that they require.
Lee Rowley
I recognise that in some instance it is an incredibly frustrating process to go through. As I know the hon. Gentleman will appreciate, this is a pretty technical element of policy. The assurances that I have received from officials and experts involved is that the legislation should cover those bases. There will always be challenges around finding people and going through operational processes. There will be challenges in finding people who do not want to be found easily, but ultimately the law is clear that they need to be found. From that perspective, I think that the law is sufficient. We do not think anything has been missed, but if something has, we will happily receive further correspondence and consider it.
Lee Rowley
Service charge demands are one of the most important ways in which leaseholders receive information from their landlord, as we have been discussing. Under current arrangements, landlords are required to issue any service charge demand in accordance with the terms of the lease, or otherwise in a manner that suits them. That has led to variable practice in the sector, which has often been to the detriment of the leaseholder, who then gets confused about what they are paying for and has to spend time chasing the landlord for more information.
Proposed new section 21C enables the Secretary of State and Welsh Ministers to prescribe a standard form and the information that it should contain. We will work closely with leaseholders, landlords and managing agents to ensure that we prescribe both the right information and the right level of detail. Proposed new section 21C(2) makes it clear that a failure to provide information in the new standard format will mean that the leaseholder does not have to pay the charge until the failure is remedied, and any provisions in the lease for non-payment will not apply. The Secretary of State will also have the power to create any exemptions if our work with stakeholders demonstrates that there is a good case for any landlord being excluded, either now or in the future.
Clause 27(2) omits existing legislation relating to obtaining information on a summary of costs, as well as other unimplemented legislation surrounding service charge demands. Those measures will be superseded by the provisions we are implementing in part 3 of the Bill, so it is not necessary to retain them. That measure, alongside others, should ensure that landlords provide relevant information to leaseholders, and I commend the clause to the Committee.
Question put and agreed to.
Clause 27, as amended, accordingly ordered to stand part of the Bill.
Clause 28
Accounts and annual reports
Barry Gardiner
I beg to move amendment 130, in clause 28, page 44, line 17, at end insert—
“(iii) a statement of all transactions relating to any sinking fund or reserve fund.”
This amendment would require the written statement of account which the landlord will be required to provide to a tenant to include a statement of all transactions relating to any sinking fund or reserve fund in which their monies are held.
This amendment would require the written statement of account, which the landlord will be required to provide to a tenant, to include a statement of all transactions relating to any sinking or reserve fund in which their moneys are held. Sinking or reserve funds in England and Wales contain literally millions of pounds. Even the smallest block of flats will have a fund of tens of thousands of pounds, yet leaseholders find that they cannot get information about what is happening with it. A landlord may be raiding it to meet their cash-flow problems, in the hope—which is not always fulfilled—of putting the money back later. If millions of pounds is held in a reserve account, leaseholders want to know what interest they may be earning on those funds or whether it is being quietly siphoned off by the landlord.
The amendment would require the written statement of account, which the landlord will be required to provide to a tenant, to include a statement of all transactions relating to any sinking or reserve fund in which their moneys are held. As colleagues will remember from the evidence session that we had before we started our line-by-line scrutiny of the Bill, Martin Boyd of LEASE—the Leasehold Advisory Service—and Andrew Bulmer of The Property Institute said that this provision was really important to include; indeed, it is now part of their voluntary code. They pointed out that it was originally included in the Commonhold and Leasehold Reform Act 2002 but was never brought into force.
The provision is particularly dear to me because it is what started my campaigning for leasehold reform 26 years ago. A group of leaseholders in Mountaire Court came to me and explained that they had each paid £23,000 to their landlord, who was the head leaseholder. They lived in a block of 30 flats, so the total was well over £600,000. They said that the head leaseholder had gone into liquidation and that their money had gone. At that point, the freeholder came to them and said that they were prepared to do some of the work. The leaseholders had been arguing that the work should be done. The freeholder then came to them and said, “Yes, we’ll do the roof and the windows, but we need you to pay us £6,000 each to do that,” in addition to the £23,000 they had already incurred. They came to me and asked, “What guarantee do we have that our moneys are not going to be filched away in the same way as the original funds?”
I tracked back through Companies House—I think there were 156 different companies, which were ultimately registered, through Daejan Holdings, to Freshwater—to find out that the head leaseholder, who had gone into liquidation, had signed form 397, which allowed Freshwater to take any moneys that were left with the head leaseholder. All that money had gone back to Freshwater, and there was no way of accounting for it. The debate that I held with the then Minister at that time started the campaign. He said, “This is outrageous. These moneys should be held in some sort of escrow account.” They were not, however, and the leaseholders had no access to what was happening. It is important that there is real accountability for reserve funds, because at the moment it is being held blind from the people who are paying the money.
Lee Rowley
I am grateful to the hon. Member for his amendment. When I was a councillor in a location not too far away from him a number of years ago, I had similar experiences with the challenges of sinking funds, so I completely appreciate the point he makes. The amendment would prescribe that landlords provide specific information to leaseholders. I agree that they should have access to relevant information. My pushback is merely about where we put this as opposed to what we do, subject to consultation. I am very sympathetic to many of the points he made.
Clause 28(2) does give the appropriate authority the power to prescribe other matters that should be included as part of a written statement of account. We need a consultation to give relevant parties the ability to debate and discuss that and give their views. We must ensure that it is proportionate and cost-effective, but once we have gone through that consultation, I think there is a strong case for ensuring that there is sufficient information as he has outlined to some extent.
Barry Gardiner
I am grateful to the Minister for what he has said, but the strongest protection would be to have it on the face of the Bill. Even when it was on the face of the 2002 Act, the Government never brought it into force. So this is not something we have not had previously. It is right there in legislation for a leaseholder to have access to this information, but we have never brought it in. What the Minister is suggesting is actually a regressive step, taking leaseholders further away by saying, “We’ll do it through secondary legislation now.”
I really do think it is important to have this on the face of the Bill. We know how Committees work. I know the Minister cannot accept the amendment now, but I would ask him to go away and come back on Report. If he comes back with his own amendment to achieve the objective, I will be delighted.
Eddie Hughes (Walsall North) (Con)
It’s like those leases he keeps talking about; they just keep rolling round.
Lee Rowley
Thank you, Mr Efford. Would my hon. Friend the Member for Redditch like to intervene on me?
Lee Rowley
Sadly, I confess to not having that knowledge from back when I was at university; I probably was not studying the right things. I appreciate the point from my hon. Friend the Member for Redditch that there has been an opportunity for this to be implemented under Governments of both parties and it has not been done. I am always happy to listen to the hon. Member for Brent North, and I do appreciate the point he is making. It is this Government’s intention to move forward with this, albeit through secondary legislation, which I know he has concerns about. I am happy to put that on the record on the assumption and hope, at least on the Conservative side, that we are in government when this happens. I hope he will not press his amendment.
Barry Gardiner
I will press the amendment to a vote because I think it is important that we have it on the record.
Barry Gardiner (Brent North) (Lab)
I beg to move amendment 131, in clause 28, page 44, line 34, at end insert—
“(4A) Any of the contributing tenants, or the sole contributing tenant, may withhold payment of a service charge if the tenant has reasonable grounds for believing that the payee has failed to comply with the duty imposed by subsections (1) to (4); and any provisions of the tenancy relating to non-payment or late payment of service charges do not have effect in relation to any period for which a service charge is withheld in accordance with this subsection.”
This amendment would enable leaseholders to withhold service charge payments where the landlord has failed to comply with the obligation to provide a written statement of account in the specified form and manner within the six month period from the end of the financial year.
The Chair
With this it will be convenient to discuss the following:
Amendment 13, in clause 28, page 45, line 4, at end insert—
“(8) Where a landlord of any such premises fails to comply with the terms implied into a lease by subsection (2), any rent, service charge or administration charge otherwise due from the tenant to the landlord shall be treated for all purposes as not being due from the tenant to the landlord at any time before the landlord does comply with those subsections.”
This amendment would require courts and tribunals to treat the landlord’s compliance with the implied term requirement for annual accounts and certification as a condition precedent to the lessee’s obligation to pay their service charges.
Amendment 14, in clause 28, page 45, line 40, at end insert—
“(9) Where a landlord fails to comply with subsection (1), any rent, service charge or administration charge otherwise due from the tenant to the landlord shall be treated for all purposes as not being due from the tenant to the landlord at any time before the landlord does comply with that subsection.”
This amendment would require courts and tribunals to treat the landlord’s compliance with the implied term requirement for annual accounts and certification as a condition precedent to the lessee’s obligation to pay their service charges.
Barry Gardiner
Amendment 131 would enable leaseholders to withhold service charge payments where the landlord has failed to comply with their obligation to provide a written statement of account in the specified form and manner within the six-month period from the end of the financial year that is specified in the legislation. Arguably, it is more important for leaseholders that the accounts are presented in time than that they are presented in a specific form. I welcome what the Government have done to make sure that accounts are presented in a specific form, but the real crux of the matter is: are they presented in time? The amendment would enable leaseholders to have redress if they were not.
We heard in the evidence sessions of that huge imbalance of power in the leasehold system. Given that the Government already accept the principle of leaseholders withholding service charge moneys where they have not been demanded by a landlord in the right way, surely we should rebalance that imbalance of power in the landlord-tenant relationship in leasehold by permitting them to withhold service charges when they are not forthcoming within that allotted time. I believe that policy was also in the 2002 Act, but again, as with the provisions on sinking funds, it was not brought into force.
I also welcome amendments 13 and 14. Certainly, the former achieves something similar—maybe even better. If the Minister were able to give me an assurance that he were willing to accept amendment 13, tabled by my hon. Friend the Member for Greenwich and Woolwich, I might even be persuaded to withdraw amendment 131.
Matthew Pennycook
I rise to speak to speak to amendments 13 and 14. As I think my hon. Friend the Member for Brent North just touched upon, clause 28 inserts new sections 21D and 21E into the 1985 Act to create a new requirement for a written statement of account to be provided by landlords within six months of the end of the 12-month accounting period for which variable service charges apply. It also places an obligation on landlords to provide an annual report to leaseholders. We welcome the clause, as did my hon. Friend the Member for Brent North, for the reasons discussed in the evidence sessions last week. The 2002 attempt to mandate a form of regular service charge accounts and statements was ultimately unsuccessful, with the replacement section 21 of the 1985 Act never brought into force. As a result, service charge processes remain unstandardised.
A staggering range of different procedures are being used across the country. Some leases specify the form that annual budgets and accounts must take, while others do not. Some require certification by the freeholder, managing agent, management company, accountant or auditor, while others do not. Some prescribe deadlines by which budgets or accounts must be produced and make adherence to those conditions a precedent to liability to pay a service charge, while others do not.
Clause 28 clearly seeks to overhaul this fragmented patchwork of arrangements by introducing the new section 21D, making annual accounts and certification by a qualified accountant a mandatory requirement and, through new section 21E, introducing a statutory duty to provide leaseholders with an annual report about their service charges. By introducing the mandatory requirements that it does, new section 21D(2) implies a term into leases of dwellings with variable service charge provisions.
In our view, the decision to imply terms raises a number of questions and concerns. First, do the implied terms of new section 21D replace any equivalent existing provisions in the lease? If not, landlords and managers will potentially be forced to prepare two sets of accounts: one under the existing terms of the lease and the other under the new implied terms in section 21D. Secondly, why are no express sanctions for non-compliance included in new section 21D? That point was raised by Amanda Gourlay in the Committee evidence sessions.
Given that the implied terms are not covered by the enforcement provisions in new section 25A—provided for by clause 30—surely it is not the Government’s intention to require leaseholders to apply for specific performance through the courts when it comes to this matter. Thirdly, despite the clause including no right to recover implied costs, there is a risk that some landlords will nevertheless seek to recover the extra costs of complying with these requirements through service charges. Can we be sure that leaseholders will not find themselves picking up the bill for complying with the new mandatory requirements? I would welcome the Minister’s response to each of those questions and concerns, in writing if he is not able to address each in detail today—they are very specific and technical.
Perhaps the more significant question that arises from the decision to imply terms by means of new section 21D is whether the landlord’s compliance with those terms will be treated by the courts and the tribunal as a condition precedent to the lessee’s obligation to pay their service charges. We believe it is important that it is made clear in the Bill that compliance with the implied terms in question is a condition precedent to the lessee’s obligation to pay their service charges and that, by implication, leaseholders are not required to pay if the landlord does not comply with the implied terms. Amendments 13 and 14 would have that effect, with the same desired outcomes as the welcome amendment 131, in the name of my hon. Friend the Member for Brent North, but without the tribunal potentially having to arrive at a judgment on the state of mind of the leaseholder who is withholding their charge. I hope the Minister will accept those amendments as a means of providing the necessary clarification.
Lee Rowley
I thank the hon. Members for Brent North and for Greenwich and Woolwich for their amendments.
Amendment 131, in the name of the hon. Member for Brent North, seeks to enable leaseholders to withhold payment of their service charges when accounts are not provided within six months. I absolutely agree with the sentiment that information must be provided in a timely manner, and that there have to be consequences for not doing so. However, the question is whether withholding the service charge is a proportionate and effective means of doing so; the effective question is whether the risk of doing so creates unintended consequences. For example, were a leaseholder to withhold payments in circumstances where it is found that section 21D had been complied with, that may render the leaseholder liable to pay their landlord’s litigation costs, depending on the terms of the lease. Withholding payments also creates consequences for other leaseholders and may eventually mean that works are not carried out. I recognise that that is not the intention or the point that the hon. Gentleman is making, but in the portion that we are looking at, it is important that we consider all potential unintended consequences.
Services of certified accounts will, for most landlords, be a necessary step for a landlord to identify whether they have spent more than estimated during the accounting period and, where the costs incurred during that period are more than was estimated, the landlord will wish to serve a further demand to recover the shortfall. It is in the landlord’s interest to do that, but I recognise that not all landlords act in a completely rational way or a way that necessarily follows logic. Should a landlord, however, fail to issue a demand for costs within 18 months of those costs having been incurred, then through new clause 6, the leaseholder would not be liable to contribute towards those costs at all.
I realise that that answer will probably not address every part of the concern expressed by the hon. Member for Brent North; it is the same as when I applied that logic to the amendment in the name of the hon. Member for Greenwich and Woolwich. However, I hope it demonstrates both that we are clear that it should be done—that there is a logic, an incentive and a rationale for it to be done—and that there is ultimately a cliff at the end of it, a cut-off point in the event that they do not do it. I hope that provides some assurances; I will see whether that is enough to tempt the hon. Member for Brent North to withdraw his amendment.
Barry Gardiner
I appreciate what the Minister has said about that cliff edge of 18 months. We have talked about cynicism in this Committee before, but let me tell the Minister what I believe may happen. I think a landlord who is withholding information will decide that they can now do so with impunity for 17 months and 28 days, and then they will serve the required information up on a plate. The provision is almost tempting them to do that. If the Minister is going to rely on that, rather than looking at the question again in further detail, I urge him to reduce that timeframe substantially. I will not put a figure on it—I do not say that it should be 12 months, or nine months—but it should be reduced substantially. However, I am very happy to withdraw my amendment in favour of amendment 13.
Lee Rowley
I am grateful to the hon. Gentleman for his comments in that regard. To save time, the same logic applies from our perspective to amendments 13 and 14, and I hope that at least in part reassures him—I will wait to hear his comments, but I encourage him to withdraw his amendment if it does.
Barry Gardiner
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Matthew Pennycook
Mr Efford, may I respond to the Minister’s comments on amendment 13?
Lee Rowley
I thank my hon. Friend for her question. Yes, that is my understanding, and, as part of the response in writing, we will clarify that.
To conclude, new section 21E places an obligation on landlords to provide an annual report in respect of service charges and other matters likely to be of interest to the leaseholder arising in that period.
Barry Gardiner
Could the Minister clarify a point for me? Obviously, there are different forms of accounts, such as short-form accounts and audited accounts. In what he is proposing, as I understand it, there is no compulsion to have an audit of the service charges shown in those accounts. The certified accounts happened in blocks already, but they are pretty meaningless because the freeholder appoints the accountants and tells them what form they want them in. Surely the key is having not just the accounts but the service charges audited as proper.
Lee Rowley
I am going to include that in my written response, too, because I know that the specifics of the definition of audit are quite different from other aspects of this question. My understanding is that we will prescribe in secondary legislation what needs to be provided. Given that an accountant will be a part of that, they will have to ensure that the audit conforms to their usual codes of practice. I will write on the specifics to ensure that I have given sufficient information.
Lee Rowley
I am grateful to the hon. Gentleman for moving amendment 16. He does not deny that landlords will incur a cost for answering information requests. The level of cost will vary, depending on the volume of information, the complexity, the period, the timeline and a number of other factors. There may be difficulties in obtaining all that information. Landlords may also incur a cost in chasing other people who hold the information required to answer a leaseholder’s request, notwithstanding our earlier conversations about the reasonableness of the costs for talking to other parties.
Given the variety of different scenarios, we start from a place in which it is very difficult to set a cap that would not create another unintended consequence somewhere else. None the less, I note the hon. Gentleman’s concern and am happy to confirm that we are listening very carefully on this matter, but I hope he might consider withdrawing the amendment.
Barry Gardiner
Amendments 132 and 133 would prevent a landlord from recovering the cost of complying with a requirement to provide information imposed by new sections 21F and 21G of the 1985 Act, which is very much in line with what my hon. Friend the Member for Greenwich and Woolwich said.
Given that the Government are rightly focusing on reducing costs to leaseholders, these amendments would ensure that a landlord cannot charge leaseholders for giving them information about their home and their charges. We do not charge voters or taxpayers for complying with freedom of information requests, so I am not clear why there should be a distinction here. Many requests and information transfers will now be made electronically. The days when people had to go to the office to pull out hordes of receipts are, I hope, a thing of the past. These requests and transfers should not involve a great deal of expense.
Again, I do not want the Minister to think I am a cynical chap, because I am not, but I know what will happen. There will be the same hierarchies that we talked about earlier. Landlords will create arm’s length companies to hold this information in tiers and categories, and they will charge for providing information at each level. That is what they do. We have to understand that it is not a mistake or one bad apple. Many landlords adopt this practice as a way of securing revenue. Painful though it is to admit that our fellow citizens do this sort of thing to each other, they do. We are passing this legislation to try to protect people.
Lee Rowley
I will not detain the Committee, because my response will be similar to the one I gave to the hon. Member for Greenwich and Woolwich.
We accept the broad point made by the hon. Member for Brent North but, for the reasons I outlined previously, we think it would be difficult to do this. There is at least an argument that proportionality has to be considered. However, I am happy to confirm that we are listening very carefully. On that basis, I hope the hon. Member for Greenwich and Woolwich may be willing to withdraw amendment 16.
Barry Gardiner
Mr Efford, it is the definition of insanity to do the same thing over and over again, expecting a different result. Therefore I am happy not to press amendments 132 and 133.
Lee Rowley
As best as I understand it, the situation is exactly as my hon. Friend describes. The threshold is lower, and therefore the provisions are more proportionate, and evidence of financial loss is not required. On that basis, I hope that the hon. Member for Greenwich and Woolwich will withdraw the amendment. I will come to amendment 134 in due course.
Barry Gardiner
Amendment 134 would enable a tribunal to order the remedy of a breach in respect of, and damages to be paid to, a leaseholder affected by a breach revealed by an application to the tribunal, even if the leaseholder is not party to the application. Let me explain why that is appropriate. In an estate in my constituency, Chamberlayne Avenue and Edison Drive, FirstPort was the estate manager. It failed in the case that went to the leasehold tribunal, which was brought by one member of the estate. The tribunal quite correctly found in favour of the leaseholders. However, everybody else on the estate was equally affected, and they are now all having to bring a separate tribunal case against FirstPort in order to receive the same benefits and relief. It seems to me that where that is the case, it would make sense for the tribunal to be able to instruct the landlord that where there has been a failure affecting all the leaseholders, they should remedy that breach to all the leaseholders, not just the one who brought the case, if there are damages.
I was heartily gratified by the explanation that the Minister and the hon. Member for North East Bedfordshire gave about “damages” not being the legalistic sense of damages, because I was beginning to worry that the second part of my amendment might fall foul of exactly what my hon. Friend the Member for Greenwich and Woolwich said. However, if we want to free up and speed up the tribunal system, that would be one way of doing so that would afford great relief to the very many people trapped in that situation.
Lee Rowley
I thank the hon. Gentleman for his amendment, which he has just outlined. The Government are sympathetic to the intention of the amendment. It is not that we do not understand the point that he has made or the point that he articulated in relation to Chamberlayne Avenue; where freeholders behave badly, it should apply across the board, and that is the kernel of the point he makes. The challenge—and I am sorry to be difficult about it—is that, as I know the hon. Gentleman will appreciate, there is a potential ramification to asking a tribunal to make a read-across from one case to every other one. Even though it is highly likely that it will apply to all or almost all of those cases, there is the difficulty of creating the link that makes the assumption that it must apply. For that reason, we do not think we can accept the amendment, although I am sympathetic to the point made by the hon. Gentleman.
Barry Gardiner
I am grateful to the Minister, because it is really good to know that he will consider those points further. Let me therefore make a suggestion: if the tribunal were given powers through secondary legislation on estate cases where the matter is remedying something about the estate that applies equally to everybody, it should be obvious to the tribunal that anybody living on that estate is equally affected.
Let me give an example. If the managing agent, FirstPort, says that it has mended a fence, and it has charged everybody for mending that fence, but it is found that it did not mend the fence and it was not its fence to mend—this is the actual case. Everybody on the estate received those charges, and everybody on that estate was due therefore to be compensated for them. That will happen in some cases, but I accept what the Minister says. Would it make sense to consider giving the tribunal the power to instruct the managing agent to remedy the breach for any of those similarly affected, such that, if they did not, there was an additional penalty when that case was brought to the subsequent tribunal to prove that they were affected?
Lee Rowley
I am happy to ask the Department to look into that in further detail. I have no personal understanding of whether that would be possible or reasonable and proportionate and not have a series of other consequences, but it is reasonable to look into it further.
Lee Rowley
They are two separate challenges. If a challenge goes to the tribunal and it is deemed that a penalty should apply, for whatever reason or whatever poor behaviour, and a penalty of up to £5,000 is apportioned, and then another person makes the same claim about exactly the same instance, one would logically expect the tribunal to allocate the same penalty. Multiple challenges get multiple fines.
Barry Gardiner
Could the Minister elaborate on something? Where a group of leaseholders brings the challenge—let us say that 30 leaseholders in the block all club together and bring the challenge—is it one challenge that pays one set of £5,000, or is it 30 challenges that pay £5,000 each? Otherwise, we risk leaseholders bringing one challenge and then everybody thinking, “Okay, if I’ve got to, I will now do it,” and making the same challenge over and over again, clogging up the tribunals. That is not what we want. If they all come together and make that application, surely they should all get the damages that the tribunal feels is proportionate.
Lee Rowley
The hon. Gentleman is making a number of important points. As it is currently structured, one challenge of n people gets up to £5,000; if it is multiple challenges of one person or n people within challenge 2, challenge 3 or challenge 4, that would be £5,000. As it is structured at the moment, one challenge equals £5,000, irrespective of the number of people within that challenge.
Barry Gardiner
Does the Minister appreciate that that could lead to a situation in which we are multiplying challenges unnecessarily?
Lee Rowley
I absolutely appreciate the point that has been made. There is a balance to be struck here. Obviously we will need to go through the justice impact test, or whatever it is called, to check the volume of challenges that would potentially come into the tribunals system as a result of the changes in the Bill. Again, it is about trying to balance those very challenging concepts, making sure that there is a penalty—it is important to recognise that the penalty is doubling—but also that people have the ability to choose to do things or not do things. I know that members of this Committee will have different views about how to structure that balance.
Matthew Pennycook
I take the point, and I understand what the hon. Gentleman is driving at: there is the very real risk of clogging up the system with multiple challenges if leaseholders are sophisticated enough to understand the provisions of the clause and work out that the best thing they can do is submit multiple challenges. I do not think that most will. There is therefore a detrimental impact on the incentives for leaseholders to try to dispute these matters.
Coming back to the fundamental point of whether this will change the behaviour of landlords when it comes to compliance, though, I think the hon. Gentleman is right: the figure of £5,000 is too low. I have had this debate so many times with Government Ministers. We had it on the Renters (Reform) Bill: the maximum that local authorities can charge for certain breaches of that Bill is £5,000. Most landlords will take that as a risk of doing business.
Matthew Pennycook
It is operational. It can be absorbed on the rare occasion that it will be charged, so we think that amount should be higher. Ultimately, as the hon. Member for North East Bedfordshire said, we have to make clear that we are very serious about the sanctions in this new section biting appropriately. For that reason, although I am not going to push the amendment to a vote at this stage, it is a matter that we might have to come back to. It applies to part 4 of the Bill—to residential freeholders—equally, and it is important that we get it right and convince the Government to look at this matter again. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Barry Gardiner
I beg to move amendment 151, in clause 31, page 50, line 32, leave out from beginning to end of line 32 and insert—
“(a) exceed the net rate charged by the insurance underwriter for the insurance cover, and”
This amendment would define an excluded insurance cost as any cost in excess of the actual charge made by the underwriter for placing the risk, where such cost is not a permitted insurance payment.
The Chair
With this it will be convenient to discuss the following:
Amendment 135, in clause 31, page 50, line 34, at end insert—
“(2A) Costs for insurance are also ‘excluded insurance costs’ where—
(a) a recognised tenants’ association has not been provided in advance with three quotations from reputable insurance companies or brokers, or
(b) the recognised tenants’ association has not had the opportunity to submit a further quotation (in addition to the quotations required by paragraph (a)), which the landlord must consider prior to placing the insurance.”
This amendment would require a landlord to provide a recognised tenants’ association with three insurance quotes before placing the insurance, and provide an opportunity for a recognised tenants’ association to submit an alternative quotation.
Amendment 152, in clause 31, page 50, line 35, leave out from beginning to end of line 6 on page 51.
This amendment, to leave out subsection (3) of the proposed new section 20G of the Landlord and Tenant Act 1985, is consequential on Amendment 151.
Amendment 153, in clause 31, page 51, line 18, at end insert—
“(5A) The regulations must specify a broker’s reasonable remuneration at market rates as a permitted insurance payment.
(5B) The regulations must exclude any payment which arises, directly or indirectly, from any breach of trust, fiduciary obligation or failure to act in the best interests of the tenant.”
This amendment would require “permitted insurance payment” to include payment of a reasonable sum to a broker at market rates for placing the cover, and to exclude any payments which have arisen from wrongdoing.
Amendment 137, in clause 31, page 52, line 24, leave out third “the” and insert “a reasonable”.
This amendment would ensure that the costs which a landlord can recover from tenants in making “permitted insurance payments” are reasonable.
Clause stand part.
Amendment 154, in clause 32, page 51, line 3, leave out “Sub-paragraph (2) applies” and insert
“Sub-paragraphs (1A) and (2) apply”.
This is a paving amendment for Amendment 155.
Amendment 155, in clause 32, page 53, line 5, at end insert—
“(1A) Within six weeks of the insurance being effected, the insurer, or, where the insurance has been arranged by a broker, the broker, must provide all tenants with a written copy of the contract of insurance.”
This amendment would ensure that tenants are provided with the contract of insurance which covers their building.
Amendment 136, in clause 32, page 53, line 12, at end insert—
“(2A) Regulations under sub-paragraph (2) must specify the contract of insurance containing the full extent of the protection afforded by the insurance, and the associated costs.”
This amendment would require a landlord to provide a tenant with the contract of insurance containing the full extent of the protection afforded by the insurance, and the associated costs.
Amendment 156, in clause 32, page 53, line 22, leave out from beginning to the end of line 23.
This amendment, to remove sub-paragraph (7) of new paragraph 1A of the Schedule to the LTA 1985, would remove the landlord’s right to charge tenants for providing them with information about insurance.
Amendment 157, in clause 32, page 54, line 20, leave out from beginning to the end of line 21.
This amendment, to remove sub-paragraph (7) of new paragraph 1B of the Schedule to the LTA 1985, would remove the right of a person required to provide information about insurance from charging for providing that information.
Amendment 138, in clause 32, page 54, line 21, after “the” insert “reasonable”.
This amendment would ensure that the costs payable by a landlord for information requested by him from another person, under paragraph 1A(2)(a), are reasonable.
Clause 32 stand part.
New clause 41—Building insurance and section 39 of the Financial Services and Markets Act 2000—
“A landlord may not manage or arrange insurance for their building under the protections of section 39 of the Financial Services and Markets Act 2000.”
This new clause precludes a landlord from operating as an appointed representative under the licence of Broker, where the landlord has no such licence themselves.
Barry Gardiner
Gosh, that is quite a mouthful of a group! I draw the attention of the Committee in the first instance to amendments 151 to 153. I welcome the fact that the intention behind the Bill is to improve the situation with regard to insurance charges; I make it clear to the Minister that I do recognise that. Together, however, those amendments would prevent the Bill from excluding different descriptions of the type of costs that are excluded. Amendment 151 would change the definition of the actual cost that is permitted to a much tighter one, namely that which the underwriter has charged. Amendment 153 would add that the reasonable brokerage that the broker is charging the client, who is the landlord, is recoverable at prevailing market rates.
There is also the issue of fiduciary duty. Fiduciary duty and breach of trust are important, because the leaseholder on whose behalf the insurance is being arranged by the landlord has an insurable interest in the property. That means that the landlord, in affecting the insurance, is doing so not only on his own behalf but on behalf of the leaseholders; otherwise, the leaseholders would not be paying for it. The landlord is technically an agent of the leaseholder, and the law of agency in common law is specific about the duties of an agent to their principal. In particular, they may not do anything against their principal’s interest, as that would be a breach of trust. That means that should a landlord do anything improper to increase his own revenues against the leaseholder’s interest, he would be guilty of a breach of trust, and the leaseholder would and should be able to recover under common law and have a remedy for it.
Together, the amendments would provide a tight circumscription of what should be permitted as the recoverable costs when placing insurance, but of course I have left wiggle room for the Secretary of State, who is still able to specify in the secondary legislation anything that he or she thinks reasonable, so it is not a straitjacket. I hope that the Minister will understand that this gives much greater clarity to the notion of permissible insurance costs and much greater clarity, which I think is what he seeks in the Bill, to that which properly ought to be excluded. I have not constrained it so greatly that secondary legislation could not come into force to make something else permissible.
Amendment 135 would require a landlord to provide a recognised tenants association with three insurance quotations before placing the insurance, and to provide an opportunity for a recognised tenants association to submit an alternative quotation. In its multi-occupancy buildings insurance investigation, the Financial Conduct Authority found evidence of at least £80 million in insurance kickbacks going to landlords and their managing agents paid for by leaseholders. The amendment would bolster the rights of a recognised tenants association, which successive Governments have supported and sought to protect. Although it would not give the RTAs the power to place the insurance policy, it would help them to close the informational asymmetry with the landlord and pressure them to get a competitive deal by submitting their own quote.
I point out to the Minister that where capital works are being done under a section 20, that is exactly the procedure that would be in operation. The landlord would provide quotations, and the RTA would have the opportunity to submit its own quotation for the work to be done. It seems to me that introducing that same procedure for insurance would be extremely helpful.
Amendment 137 would ensure that the costs that a landlord can now recover from tenants in making permitted insurance payments are reasonable. Although the reasonableness of the cost of buildings insurance can be difficult to prove, especially in a market where brokers are often loth to quote to anyone who cannot place the insurance, the reasonableness test for service charges is the last line of defence for many. I do not think that the insurance scheme in the Bill can fail to make reference to the reasonableness of the permitted insurance payments. The Minister may well say that that will be prescribed in secondary legislation, but I seek to probe him on the point.
Amendment 136 is an important amendment that would require the landlord to provide a tenant with a contract of insurance containing the full extent of the protections afforded by the assurance and the associated costs. In the Bill, we have gone to great lengths to ensure that the leaseholder, as the assured, is able to access information from the landlord, but we heard in the evidence submitted to us by the witnesses in the evidence sessions that there should be a shortcut. The FCA rules already state that, if approached, an insurance company has to provide the information, although we then found out that the landlord did not have to tell leaseholders who the insurance company was; and we know about the difficulties in securing information from a landlord.
Would it not make sense to the Minister to have amendment 136 on the face of the Bill? This information is in the schedule of insurance. The underwriters want to know, “What is it I’m insuring?” They know exactly which units are in that block and exactly what is going on in that block. Therefore, they have the information to do it directly. It seems to me that the amendment would be a far more efficacious way of achieving the objective that the Minister has rightly set out in giving powers to acquire the information from the landlord; it would be far easier and far cheaper simply to say that the insurer has to do it.
Amendment 138 would ensure that the costs payable by a landlord for information requested by him from another person are reasonable. I am sorry that that was a lot, but it is a big grouping. Absolutely at the heart of the issue are amendments 151 to 153 and, ultimately, new clause 41, but we do not get to that until later, I understand.
Barry Gardiner
Fine. In that case, let me speak to new clause 41, which
“precludes a landlord from operating as an appointed representative under the licence of broker, where the landlord has no such licence themselves.”
The whole point of this new clause, which goes to that issue of fiduciary duty and agency, is that at the moment, landlords can operate under the licence of a broker to provide brokerage services. If we were to take away that capacity from them by passing new clause 41, we would then have circumscribed the way in which a landlord would be able to game the system, because they would not be able to operate under the protections that the Financial Services and Markets Act 2000 affords them, operating under somebody’s licence when they themselves do not have those qualifications.
I am unsure whether this is a proper interest to declare, but I am an associate of the Chartered Insurance Institute. That was many, many years ago; I am not practising now, but I have mentioned it just in case. I think that landlords are getting away with murder by operating in this way, and it would be good to close that loophole to bring it all very tightly together. I appreciate that amendments 151 to 153 and new clause 41 have to be seen as a unit, but they really do give the Minister the opportunity to do what I think he is attempting to do through the Bill, but in a tighter and more effective way.
Barry Gardiner
I am grateful to the Minister for the way in which he is engaging with the issue and for the points he has made. Given that it would be possible to relay the insurance contract electronically, will it be possible for secondary legislation to stipulate that any additional layers of complexity would be outwith the permitted costs? The Minister will see that I keep coming back to that theme, because unfortunately landlords add additional layers of complexity. We need to be sure that, where it is possible to do something simply, it is not permissible to recover the cost of doing it not simply, if I can put it that way.
Lee Rowley
The hon. Gentleman raises an important point. I will not try to solutionise in Committee, given the inherent dangers doing so from the Government Front Bench. We have committed to consulting, and there will be lots of experts and interested parties who will want to engage in that. As the hon. Gentleman suggests, transfers of data in an electronic form do not necessarily involve a substantial amount of time or effort, albeit that the provision and creation of the data in the first place may do. Those are exactly the kinds of things that we will want to talk about as part of the consultation, as and when it comes. On that basis, I hope that the hon. Member will consider not pressing amendments 156 and 157.
Amendment 138 seeks to require that charges made of parties where they request information from the landlord are reasonable, and I agree with the sentiment. Reasonableness is already required through section 19 of the Landlord and Tenant Act 1985. As I indicated in relation to amendment 137, reasonableness is not in itself a guarantee that costs will be constrained and proportionate, especially where the test is reliant on the assessment of normal behaviour across the sector. The Government would seek to deal with this area in secondary legislation, to ensure that the priorities of transparency and proportionality are in place. On that basis, I hope that the hon. Member will consider not pressing his amendment.
Before I conclude, I have two further points. Clause 32 confirms the importance of the intention of transparency, which is behind the Bill. The clause places a duty on landlords and managing agents that compels them to proactively provide information on building insurance to leaseholders. That should help leaseholders to better understand what they are paying for, and give them information they need to scrutinise that and take appropriate action, should that be necessary. The required information will be specified in the regulations, but it is anticipated that it should detail the insurance policy that is purchased, including a summary of the cover such as the risks insured, excess costs, premium costs and any remuneration received by the insurance broker. We also anticipate that it will include details of all alternative quotes obtained from the market and any possible conflicts of interest that arose during the procurement process.
Subsection (2) will insert new paragraph 1A into the schedule to the 1985 Act to allow leaseholders to request further information from landlords or managing agents. This could include full contractual documentation and policy wording, as well as the declaration of technical information that may have shaped the eventual premium price. We hope that giving leaseholders this improved information will allow them to challenge the reasonableness of their policy costs, if required. We expect that it will change landlord behaviour by making sure they are more price conscious, as it will be clearer that their movements are being watched. This will ensure that they do not try to pull a fast one on their leaseholders when it comes to insurance.
New paragraph 1B imposes a duty on third parties to provide landlords with any specified information requested within the specified period. Under paragraph 1A landlords will be obliged to provide information that is in their possession, and under paragraph 1B, where a landlord needs to ask another person for that information, that other person will also be required to provide the information within the specified timescales. Again, those timescales will be detailed in secondary legislation.
Clause 32 places requirements on landlords for how the handling fee that will replace insurance commissions will be disclosed to leaseholders. Again, this seeks to ensure greater transparency and allow more scrutiny where the charges are unreasonable.
Under paragraph 1C of the schedule to the 1985 Act, a leaseholder may make an application to the appropriate tribunal if their landlord fails to comply with the requirements under paragraphs 1A and 1B. I commend the clause to the Committee.
Finally, new clause 41 would preclude landlords from undertaking regulated insurance activity on behalf of a broker. Although I understand the sentiment behind this new clause, I hope the hon. Member for Brent North will recognise that the underlying point behind clauses 31 and 32, on which I hope we all agree, is transparency and fairness. These clauses will require the disclosure of fees charged for any work, as I have just indicated. We will prescribe what is a permitted cost that can be collected through the service charge, which should ensure that commissions that bear no connection to the work undertaken will not be permitted. It should also ensure that key documentation is provided.
Barry Gardiner
The Minister said that all the costs of the broker will have to be disclosed, which is absolutely right. However, where the landlord is operating under the provisions of the Financial Services and Markets Act 2000, he or she would be indistinguishable from that brokerage company and, therefore, the leaseholder will not be able to ascertain what was done by the broker and what was done by the landlord operating under the licence of the broker. What will be revealed is simply “the brokerage.” Unless we can unravel that, we will never get to the issue of kickbacks. As we saw with the Canary Riverside case before Christmas, those kickbacks can be frighteningly large—£1.6 million for one block. The disaggregation of what is the landlord qua broker and what is the broker qua broker is really important.
Lee Rowley
I will try to reassure the hon. Gentleman. I think we both agree on the intention behind full transparency and clarity, so that things are not being hidden in the “value chain,” to use a terrible expression from my previous life.
The secondary legislation for clause 31 will seek to define the permitted insurance costs, and we will consult specifically on issues around regulated insurance activity. I hope that secondary legislation will cover some of the hon. Gentleman’s points and allow him, and others with concerns, to make their case. We can then determine how best to approach it.
With that, I hope the hon. Gentleman will consider withdrawing his amendment.
Barry Gardiner
There is good news and bad news, Mr Efford. The good news is that I am content to withdraw amendments 135, 137, 154, 155, 136, 156, 157 and 138, but I wish to press amendments 151, 152, 153 and 157 to a vote.
Question put, That the amendment be made.
Leasehold and Freehold Reform Bill (Fifth sitting)
Barry Gardiner ExcerptsTuesday 23rd January 2024
(10 months ago)
Public Bill CommitteesRead Full debate Leasehold and Freehold Reform Act 2024 View all Leasehold and Freehold Reform Act 2024 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 23 January 2024 - (23 Jan 2024)
Barry Gardiner (Brent North) (Lab)
I rise to support amendment 1. My hon. Friend the Member for Greenwich and Woolwich made an excellent speech in favour of it, and he is right to distinguish between this clause, dealing with enfranchisement, and later clauses on which we will look at the issues from the point of view of right to manage. Given the amount of reference to the Secretary of State in the Bill and that so much is left to him to decide afterwards, it is reasonable to ask the Minister why that has not been applied to this clause—otherwise, it looks as if the Government have considered the matter and ruled out any change in this area, which, as my hon. Friend suggests, is reasonable.
Mike Amesbury (Weaver Vale) (Lab)
I, too, rise to support this very generous amendment from my hon. Friend the shadow Minister. It is pragmatic, and it would power up the Secretary of State, whoever that might be, to ensure that leaseholders are able to take control in hopefully larger numbers through extended enfranchisement. I hope the Minister will give the amendment very strong consideration.
Matthew Pennycook
First, on the Minister’s response, I am slightly reassured but not wholly convinced. I would like the opportunity to go away, look carefully at his remarks and consider whether we need to come back to this, and I reserve that right, Mr Efford.
On amendment 1, I am frankly not convinced by the arguments made by the Minister and the hon. Member for Walsall North. We well understand the concerns that they have both drawn attention to. As I have said, it is an inherently subjective decision as to where that threshold is drawn. We also accept that, when it comes to existing buildings, the number of leaseholders who are potentially excluded will be small in number. But we want to avoid a situation where our constituents are coming to us in buildings with a 51% or 52% rate and saying, “We can’t collectively enfranchise as you intended. We are frustrated by the powers in the Bill.” On the basis of the Minister’s argument, we will have to say to them, “You have to wait a good few years for another leasehold Bill—maybe many years based on the history of leasehold reform—for such a change to come forward.” It is a continuum; this a substantial change, and we are trying to build some flexibility into that change.
Barry Gardiner
Does my hon. Friend agree that this will probably affect the little people a lot more than the big, because of the likelihood of achieving 50% commercial within a leasehold block? Many of our town and city centres have buildings with commercial below and very few flats above. Therefore, it is much more likely that it will be a group of people—yes, a small group—living in that situation, rather than in the Shard, coming to us complaining.
Matthew Pennycook
My hon. Friend makes a good point: it is not just the number but the type of leaseholder who we are potentially excluding. All we are saying, as I argued in great detail, is that Ministers should have flexibility to change, if there is sufficient evidence to suggest that large numbers are being excluded or—I refer to the gaming point—we see developers building with a 51% area just to escape the threshold. We do not propose that the 50% change; we think it is an appropriate and fair starting point, but surely the Government need some flexibility in this area.
I must say to the Minister that this is the first time I have heard a Government Minister say no to Henry VIII powers, but I am afraid that his argument for saying no to them was, from my point of view, entirely expedient and not particularly well justified. I urge the Government to think again. I am minded, purely because of the way in which the Minister has responded, to push the amendment to a vote. If the Government are flatly refusing to look at the issue, we must make clear that we feel strongly about it.
Matthew Pennycook
I rise briefly to speak to these four Government amendments and to make a wider comment on them and the other 116 amendments that have been tabled in the Minister’s name over recent days.
Having scrutinised these amendments as carefully as we could in the time available, we are as confident as we can be that none is problematic. Indeed, we very much welcomed the exemption provided for community-led housing.
As confirmed to the Committee by Professor Nick Hopkins, 18 of the 120 Government amendments tabled in Committee implement Law Commission policy that was not in the Bill as introduced and on which Law Commission staff have been involved in instructing parliamentary counsel. The vast majority of the other 102 amendments are merely technical in nature. Providing that the Minister sets out clearly their effect and rationale, as he just has in relation to this group of amendments, we do not intend to detain the Committee over the coming sessions by exploring the finer points of each.
However, I feel I must put on record our intense frustration at the fact that so many detailed Government amendments were tabled just days before commencement of line-by-line scrutiny began. The practice of significantly amending Bills as they progress through the House has become common practice for this Government and in our view it is not acceptable. Other Governments have done it, but it has become the norm under this Government. It impedes hon. Members in effectively scrutinising legislation and increases the likelihood that Acts of Parliament contain errors that subsequently need to be remedied, as happened with the Building Safety Act 2022; as the Minister will know, we have had to pass a number of regulations making technical corrections to that Act.
When it comes to this Bill, the Government have had the Law Commission’s recommendations for almost four years and access to Law Commission staff to aid parliamentary counsel with drafting. There really is no excuse for eleventh-hour amendments introducing Law Commission policy or technical amendments designed to clarify, correct mistakes, or ensure consistency across provisions.
Barry Gardiner
Is my hon. Friend as surprised as I was to find that a 133-page Bill has a 102-page amendment paper? As he says, this came late. It is not just Opposition Members who mind; it is hon. Members of all parties who want to adequately scrutinise the Bill. It makes life very difficult to go through detailed amendments, often amending previous legislation—therefore, we have to get that legislation and see what the impact of the changes is—and it impedes the work of Parliament in that respect. The Minister should explain why many of these amendments were tabled so late in the day.
Matthew Pennycook
I completely agree with my hon. Friend. I think I am justified in saying that it is frankly laughable that this has happened. We have an amendment paper that is almost—and may be, in due course—larger than the Bill itself. It reeks of a Government in disarray. Though I know that the Minister has picked up this Bill part-way through its development, I urge him not only to do what he can to ensure that when the Government publish any Bill it is broadly in the format they wish it to proceed in and see passed, but also to table any further amendments to this Bill in good time so that we can give them the level of scrutiny that leaseholders across the country rightfully expect.
Lee Rowley
My response is short. I will happily write to the hon. Gentleman and to the Committee in due course on the technicalities to ensure that is correct.
Question put and agreed to.
Clause 5 accordingly ordered to stand part of the Bill.
Clause 6
Right to require leaseback by freeholder after collective enfranchisement
Barry Gardiner
I beg to move amendment 127, in clause 6, page 9, line 42, at end insert—
“(3A) Any lease granted to the freeholder under paragraph 7A must contain a provision that any sub-lease created by the freeholder under their leaseback must contain a provision requiring the sub-lessee to contribute to the service charges reasonably incurred by the managing agent directly or indirectly appointed by the nominee purchaser.
(3B) The provision mentioned in subsection (3A) is implied into all pre-existing subordinate leases to a leaseback granted to a freeholder under paragraph 7A.”
Barry Gardiner
It is helpful to the Committee that we had the evidence session, because Liam Spender, the lawyer from Velitor Law, spoke directly about this matter.
We welcome leaseback because it is an important part of enabling tenants in commercial, or partly commercial, buildings to enfranchise. However, imagine that a person has just newly enfranchised, and some of the residents in that block have not participated in the enfranchisement process. It has been quite an acrimonious job debating and arguing with the landlord to get the enfranchisement to happen, but they finally have it. However, the landlord, or the former landlord, may not be happy about it. His capacity, now as the tenant, to cause problems is enhanced by the existing lease that those who have not enfranchised have with him. The moneys that need to be collected for the new landlord’s service charge do not come directly to them.
The whole point of the clause is to minimise those problems. There should be a condition in the leaseback to make it clear that any sub-lease that the former landlord gives, or retains, must contain a provision to say that the service charge is payable to the new landlord. Otherwise, we have a very torturous process in which those sums, which are required for the servicing of the building, may be delayed by a former landlord who feels aggrieved that he has lost control.
Barry Gardiner
I am grateful to the Minister for his remarks. It is clear that the Government do not feel that the amendment is necessary and that there will not be a problem with the newly enfranchised freeholder being able to obtain the service charge from all the leaseholders. If that is the case, I will be happy to withdraw the amendment.
I would, however, like the Minister to set out in writing to me and the Committee precisely why he believes that there is not a problem. If we still disagree, we can then bring the amendment back on Report and discuss it further. It would be really helpful to be clear about why the Government are confident that problems will not arise. We have made legislation on the basis of optimism before, and unfortunately our experience is that freeholders can often be quite vindictive.
Lee Rowley
I am happy to give the hon. Gentleman that assurance, and I will be happy to write to him.
Barry Gardiner
On that basis, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 6 ordered to stand part of the Bill.
Clause 7
Longer lease extensions
Question proposed, That the clause stand part of the Bill.
Rachel Maclean
I rise briefly to add my support for some of the comments and, most importantly, for the ability of leaseholders to extend their leases. As we know, this is one of the most egregious features of the current system: people buy properties that they then find have short leases, after which they are whacked with massive charges coming out of the blue; they do not understand how those charges are calculated, and they end up having to pay them because they have no choice. They are completely over a barrel. I know that leaseholders will massively welcome this change, which is one of the most important parts of the whole Bill.
Having said that, it is vital that we understand when we will see the Government’s response on the ground rent consultation, as my hon. Friend the Member for North East Bedfordshire and the shadow spokesperson, the hon. Member for Greenwich and Woolwich, have said. It will, of course, affect the calculations.
I also want to raise with the Committee the number of people who have sat in front of me and asked, “When will you bring this forward? I don’t know whether to extend my lease now or wait another year or for another consultation”. It is a huge number of people. I want to make this point to everybody: if we get this right, it will affect a lot of people very beneficially.
Barry Gardiner
I am glad that co-operation is breaking out across the aisle. It seems that this change is one of the really big issues of the Bill. Looking through the Bill, yes, there was disappointment that it does not go far enough and there is no commonhold, but this is a real change. It is something that Members on both sides of the Committee have welcomed, and we heard evidence from our witnesses about just how important it is. It is strange, therefore, that we do not now see the meat of it in the Bill. I will not go so far as to say that it is more than strange, as my hon. Friend the Member for Greenwich and Woolwich suggested, but we do need it.
This provision will liberate a whole group of people who fear what we call the ground rent grazers. They are the ones—the freeholders—who have created a rentier structure over the past 15 years. It did not even exist 25 years ago. What people used to do 25 years ago, when the ground rent was payable, was write a cheque to the freeholder, and the freeholder would bin it. Then, three weeks later, the freeholder would send a lawyer’s letter to the tenant, saying that because they had not paid their ground rent on time, they were now being charged £625 for their legal fees in having to chase it, including the £25 ground rent. That is a bad practice that has evolved and the Government need to clamp down on it and get it sorted.
Lee Rowley
I thank hon. Members for their questions and comments, which I will try to address. There is obviously a desire to understand the interaction of the two clauses with the outcome of the consultation that closed last week. We saw to some extent in our deliberations last week, on the first two days in Committee, when we took evidence, that this is a contested area. As a result and notwithstanding the fact that by convention in this place we have the ability to speak freely, I hope the Committee will understand that I will limit my remarks.
I understand the eagerness, enthusiasm and legitimate desire of the Committee to understand the position that we will seek to provide. We will provide that to the Committee, and publicly, as soon as possible. It will not be possible for me to answer all the questions that were asked today. I accept the point made by my hon. Friend the Member for North East Bedfordshire that there is a difference between process and decision, but some elements of the process could be impacted by the decision and it will therefore be difficult to engage in hypotheticals at this stage. However, we will respond to the legitimate points that the Committee has made as soon as we are able to do so.
I agree with the points made by the hon. Member for Greenwich and Woolwich and by my hon. Friend the Member for Redditch about the importance of clarifying how quickly the provisions will come into force. Again, that is a difficult one to answer because we need to get through this process. We have no idea what the other place might or might not do or how quickly the process will go. Although we are all grateful for the confirmation from my Labour colleagues that we are seeking to move this as quickly as possible, it is difficult to be able to answer the question at this stage, but I hope to say more in due course.
On the fourth question posed by the hon. Member for Greenwich and Woolwich, about the competent landlord, my understanding is that we are not changing the law in that regard.
Lee Rowley
I absolutely accept the potential significance of the quantum involved, which is why we all seek to be as clear as we can at the earliest opportunity.
Barry Gardiner
I am conscious that we are talking about the transfer of value as if it were neutral, but leaseholders have been telling us for a long time that this value has been unjustly acquired from them in the first place. The Government seek simply to remediate the position that the law has got itself into. When we consider this, we must understand the injustice that has been perpetrated on people who live in leasehold houses, and have been paying ground rents that have been racked up in an unconscionable way for far too long.
Lee Rowley
The hon. Gentleman is articulating his argument with passion, as he did last week on a similar point in some of the witness sessions. I reconfirm to the Committee that we seek to process the outcome of that consultation as quickly as we are able, and to provide hon. Members and the public with clarity at the earliest opportunity. None the less, while recognising the important interaction of clauses 7 and 8 with the consultation, I hope that underneath there is general consent for clauses 7 and 8. I hope I have covered most of the questions asked. I will write to the Committee in response to the question from the hon. Member for Greenwich and Woolwich about redevelopment, because I need to obtain clarity on that.
Leasehold and Freehold Reform Bill (Fourth sitting)
Barry Gardiner ExcerptsThursday 18th January 2024
(10 months, 1 week ago)
Public Bill CommitteesRead Full debate Leasehold and Freehold Reform Act 2024 View all Leasehold and Freehold Reform Act 2024 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 18 January 2024 - (18 Jan 2024)
The Chair
Thank you. A very quick question with a very quick answer, please. Barry Gardiner.
Barry Gardiner (Brent North) (Lab)
Q
“It is a real concern that homeowners who have entered into a lease are captive consumers with very little influence over the costs incurred by landlords or their managing agents that will in due course be passed on to them.”
Do you believe that the Bill will give them control or simply greater transparency and access to understand their own exploitation, and has the CMA come across any comparable part of the economy where those paying the bills have no control over the bill or the standard of service?
George Lusty: It is worth saying at the outset that we approached our leasehold investigation primarily from the framework of consumer protection law, looking at instances of mis-selling and unfair contract terms. We cannot use consumer law—
Barry Gardiner
Q
Simon Jones: You are absolutely right. We think the captive consumer problem is a real problem. We spoke to a lot of people about what the solution might be. There was not an obvious solution, but we did think that if there were better redress mechanisms, that would at least help.
Barry Gardiner
Q
Simon Jones: You have choice about the property you buy, but if you buy a leasehold property—
The Chair
Order. I do apologise, but that brings us to the end of the time allotted for the Committee to ask questions. I thank our witnesses very much on behalf of the Committee.
Examination of Witness
James Vitali gave evidence.
Andy Carter
Could you expand on that?
James Vitali: Of course. There are a couple of things in particular. One has been raised already by Mr Gardiner in the evidence sessions and concerns mixed-use buildings. I think it is great that the threshold is being increased to 50%. That will bring a lot of leaseholders into the scope of potential enfranchisement. But as it stands, there is a provision in the Leasehold Reform, Housing and Urban Development Act 1993 concerning structural dependency rules—shared plant rooms and things like that.
Effectively, as it stands, the provisions in that Act disqualify people who get to the threshold but share service and plant rooms with a commercial unit in the building. That section in the 1993 Act should just be removed. There is already a framework for co-operation between commercial units and residential units in mixed buildings when it comes to services. It should be relatively straightforward to create a framework for co-operation with the Bill.
Barry Gardiner
Q
James Vitali: Yes, I quite agree. One of the cases I make in the paper I mentioned is that not only is ownership becoming more concentrated in a narrow stratum of society, but the type of ownership we are offering the aspirant is being thinned out. You were just listening to the suggestion that leasehold is almost mis-sold to consumers. I think aspirant property owners are being mis-sold when it comes to leasehold. They think they are buying into a genuine form of property ownership, but in many ways, as I said at the start, they lack the rights and responsibilities that should come with an ownership tenure, so I completely agree.
Barry Gardiner
Q
James Vitali: Yes, charges should be connected to the provision of a service, so I think ground rents should be reduced to a peppercorn. Charges should be made through this new and very sensible regime that is being proposed in the Bill for how charges are requested and demanded.
Barry Gardiner
Q
James Vitali: I think the key here is whether the leaseholder has a choice in who is providing the service and what service they are providing. Any functioning free market is based on strong property rights and competition. The key here is giving existing leaseholders greater choice over who is managing their building and how it is being maintained, and increasingly giving them the chance to take on those responsibilities themselves.
Barry Gardiner
Thank you very much. In order to preserve both our reputations, I will not say that you agreed with me and I trust that you will not say that I agreed with you.
Richard Fuller
Q
James Vitali: I think a lot of the reforms proposed in this Bill are an attempt to reflect better the fact that when the leaseholder purchases the leasehold, they are acquiring the majority value of the asset. In market terms, sure, I suppose marriage value is significant and substantive, but as it stands it seems to me that a leaseholder acquires the majority of the value of an asset when they acquire the leasehold, and that is slowly eroded. I think that is the thing that is wrong in the process.
Barry Gardiner
Q
James Vitali indicated assent.
Barry Gardiner
Q
James Vitali: I will deflect and answer a slightly different question. It is interesting that the leaseholder enfranchisement process is kind of redolent of and similar to right to buy, in that it is a no-fault compulsory purchase of an asset. The difference with right to buy is that compensating the state is a different consideration from private citizens who have property rights. All I would say is I think it is important that the compensation mechanisms in the Bill are such that it does not feel like the things we are trying to spread more equitably—property rights—are being diluted by the state.
Andy Carter
Q
James Vitali: Delighted to. That is probably the thing that I have been thinking about the most in terms of the implications of the Bill. I understand that there is an intention for a ban on leasehold houses to come forward on Report. One thing that I am really worried about is that what will effectively be created is a two-tier system of housing or tenure types in this country, between the countryside and our cities. It is very possible, if we deal with houses and not the tenures for flats, that we will create secure, authentic property rights outside of our urban areas and create in our urban areas a slightly more precarious, maybe outdated type of tenure.
As it stands, that has not been given enough consideration, because it also does not conform with the Government’s wider strategy on housing, which, broadly speaking, is to densify our urban areas and increase housing supply in our cities. There are political considerations around why they are doing that—it is a lot more deliverable to focus on the densification of cities—but there are very good economic reasons for that too: the agglomeration effects of building housing supply in a city are greater than elsewhere. We need to incentivise people living in flats in dense cities, and if we deal with leasehold as it pertains to houses, not flats, it will work against the Government’s quite legitimate and justified broader housing strategy.
Barry Gardiner
Q
James Vitali: I have not given that too much thought, I must say; 50% seems absolutely reasonable. I think there are some practical issues in getting to that 50% threshold in itself. I have heard stories about the process by which leaseholders whip around the building trying to get together enough—
Barry Gardiner
Q
James Vitali: I must say that I have not given that a lot of thought. I think increasing it to 50% will have a significant effect itself, but you may wish to go further.
The Chair
Order. I am afraid that brings us to the end of the time allotted for the Committee to ask questions. I thank the witness very much on the Committee’s behalf.
Examination of Witnesses
Philip Freedman CBE KC (Hon) and Philip Rainey KC gave evidence.
Richard Fuller
You are a lawyer.
Philip Rainey: Yes, and one tends to avoid the philosophical points. Clearly, from a legal perspective the Bill interferes in an extremely significant way with property rights. Whether that is the right thing to do is a value judgment.
One thing that is sometimes overlooked—I am not defending the leasehold system; I am on record as being in favour of commonhold, which is inherently a more satisfactory system for holding flats—is that a lot of people will be disappointed when commonhold comes in. They will still find that they are not allowed to remove the supporting walls in their flat or to have a noisy party on a Friday night, because their neighbours do not want that. A lot of the things you find in leases and the restrictions when living in flats are because, if you live communally in a block of flats, you owe duties to your neighbours. There are responsibilities, in communal living, that do not apply if you live in a small house in a field, 500 yards from your neighbours. The restrictions in the leasehold system are not as unique to leasehold as you might think; I would suggest otherwise. To go back to your basic point, clearly the Bill alters property rights. It is a value judgment as to whether that is the right thing to do.
Philip Freedman: I have heard a number of cases where the property industry is concerned about the transfer of value that will be effected by capping ground rents, removing marriage value and so on, in relation not just to the benefit to leaseholders but to the burden on those landlords that are pension funds and other organisations that will find that they are deprived of rental income that they have banked on and have thought will be reliable income over many years. They bought leases that were perfectly lawful, were not, so far as one can tell, entered into under any mis-selling, and the provisions for the ground rent are not necessarily unconscionable; the ground rents were invested in in good faith.
We must not lose sight of the fact that if there are winners, there are always losers. Some provisions of the Bill, which are fine, are to say that if the tenants are enfranchising, they do not have to buy the commercial bits of the building. Those can be left with the landlord under a leaseback, and therefore the value remains with the landlord. Both parties win: the landlord keeps the value and the tenants do not have to pay as much money. But where you are transferring value, there is always a loser, and there are lots of investors who appear to have bought in good faith and were not expecting retrospective legislation. Lawyers always do not like retrospective legislation. It is up to Parliament to decide whether the social benefit is sufficient to outweigh the concern about pension funds, and so on, that have invested in ground rents. The Law Society does not take sides between landlords and tenants, or different types of clients. We just want to make sure that Parliament focuses on the issue and makes the decision in the public interest.
Barry Gardiner
Q
Philip Rainey: Yes. In a sense, that is the downside. It is possible to create what you might call commonhold-lite. It is a leasehold system—it is so encrusted with restrictions and requirements, although you own the freehold, that it is very similar. It would be only a staging post, because one of the problems with the current system is that it creates a “them and us” situation. You see it even when tenants own the freehold. Somehow they still think, “Well, it’s ‘my’ lease and it’s ‘them’”, which is them under another hat as the freeholder. Commonhold should eliminate that.
Barry Gardiner
Q
Philip Rainey: If you go to Australia and look at the websites, you find “I hate my strata” websites. Neighbours will be neighbours.
Barry Gardiner
Unfortunately, legislation cannot make your neighbours more considerate. I often wish it could.
Philip Rainey: I think I would be inclined to agree that it would be a reasonable step forward to say that there should be a share of freehold with—
Barry Gardiner
Any new build.
Philip Rainey: With new build. You would have to have rules.
Barry Gardiner
Q
That is something that I hope we very much want to protect, because these leaseholders really require the protection of a court-appointed manager. However, the Building Safety Act 2022 bars the court-appointed manager from being an accountable person and from taking full responsibility for the necessary safety remediation works. That responsibility under the BSA ’22 regulations is now being given, in effect, to the one person whose track record shows that they are incapable and not to be trusted to perform the obligations of managing that building—namely, the freeholder who let it go to rack and ruin in the first place. The leaseholders, whom the courts sort to protect, will have that former, negligent freeholder back in charge. I do not know, but I am looking to you to tell us, how one might draft an amendment to the Bill to preserve the protection for leaseholders who find themselves in an incredibly invidious position.
Philip Rainey: The first thing to say is that—as you may know—there is an ongoing piece of litigation, in which I am involved, where that question of whether a manager can be an accountable person is yet to be finally decided. The current position is that the first-tier tribunal has decided that the manager cannot be an accountable person. I therefore cannot comment on that outcome.
Barry Gardiner
I was aware that you were involved in the case, but I did not want to drag you into the specific—I wanted to keep you at the general.
Philip Rainey: If, hypothetically speaking, the law is that a manager cannot be an accountable person; if, hypothetically speaking, that restricts what a manager can do; and if you, as Parliament, wished to alter that position, then you would amend the definition of a relevant repairing obligation in section 72 of the Building Safety Act 2022. That amendment would make it clear that a relevant repairing obligation includes an obligation under a manager order under section 24 of the Landlord and Tenant Act 1987.
Barry Gardiner
Q
Philip Rainey: The obvious answer is that you are Parliament—you can change any law.
Barry Gardiner
Q
Philip Rainey: I could, if asked. As I say, you can amend section 72 to change a particular definition. Arguably at least, subject to the regulations, it is not actually necessary for Parliament to do it, because section 72 has a power for the Secretary of State to amend it—it is a Henry VIII clause, which I am not very much in favour of, but that probably could be done by secondary legislation.
Barry Gardiner
I have no doubt that the Secretary of State could do that, but I always feel more comfortable if things are on the face of the Bill.
Philip Rainey: I respectfully agree.
Barry Gardiner
Q
Philip Rainey: The just and convenient test is effectively an equitable test. It is a very flexible test intended to allow the first-tier tribunal to take into account all of the circumstances and, in layman’s terms, to decide whether something is just, fair, convenient and going to work—the rights and wrongs and the practicalities of it. Because of the ongoing case, I do not think I can answer the second part of the question, as to how the Building Safety Act 2022 might have affected that.
Barry Gardiner
I am sure hon. Members can ponder on your words and work it out from there. Thank you; that is really helpful.
Eddie Hughes (Walsall North) (Con)
Q
Philip Freedman: I am afraid that I cannot give you the answer to that. because I am not directly acting for those particular clients. I am afraid I know no more—
Barry Gardiner
Q
Jack Spearman: Yes, I know where that came from.
Barry Gardiner
Well, it came from the Pensions and Lifetime Savings Association.
Jack Spearman: I would advise you to go and ask them again, because the pension funds we are talking about have made representations directly to the Government.
Barry Gardiner
Q
“We do not think it is fair that many leaseholders face unregulated ground rents for no guaranteed service in return.”
So the idea that you seemed to put out—“My goodness, the housing market was going to collapse because pension funds were not going to invest in property any more because they weren’t going to be able to extract the ground rents”—is a nonsense, is it not? You talked about £100 ground rent, but you know what is being done here. Your members are not limiting to £25 or £100 ground rents or peppercorn rents. Over the past 15 years, they have created a rentier structure wherein they can extract revenues from the ground rent that are exorbitant—in some cases, £8,000 a year for no service. Is that not true?
Jack Spearman: You make a couple of points there. First, you seem to be suggesting that it is okay to steal the chocolate bar from the shop because it is only 1% or 2% of the stock—it is still not okay. The second thing I would say is that—
Barry Gardiner
Q
Jack Spearman: I can come on to the service provided. Ground rent is a consideration as part of the lease and the premium. You are right to say that, technically—legally—the ground rent does not afford service. But we would say that, through our members, a huge amount of work gets done as a result of that ground rent and as a result of pension funds having invested in it. Take the Building Safety Act 2022, for example—remediation, fire safety audits and building safety audits are all undertaken at no cost.
Barry Gardiner
Q
Jack Spearman: I disagree with that.
Barry Gardiner
Q
Richard Fuller
On a point of order, Dame Caroline. I am wondering whether my colleague, Mr Gardiner, is getting to a question rather than just expressing a view.
The Chair
We do have very limited time, Barry, and other people want to ask questions, so can you bring it to a question swiftly?
Barry Gardiner
Indeed. Mr Spearman, you have misled people in the polling surveys and the conclusions you have drawn from them, have you not? Your own members—Consensus Business, Long Harbour and Wallace Estates—did surveying in which they found that 67% of residential leaseholders said that they would wish to take control of their building and get out from under you, but you suppressed that, did you not?
Jack Spearman: We have never said that people are incapable of managing their building—absolutely not. The desire to do so diminishes with the complexity of the building. I am sure you have seen the Government’s own survey on living in shared buildings. You heard from Professor Steven this morning in Scotland about the issues with the system in Scotland—
Barry Gardiner
A manager who works for a freeholder can be no different from a manager who works for an enfranchised set of leaseholders, can it? So the idea that the complexity is beyond the leaseholders is simply not a fair comparison.
The Chair
Order. We have time for only one more question, Barry. Can I move on to Richard Fuller, please?
Matthew Pennycook
Q
Mike and I tabled new clauses 27 and 28 to address some of the “in principle” issues we have been pushing for a long time on—qualifying and non-qualifying leaseholders and building height. Specifically, in terms of what the Government might feasibly bring forward, what is your experience from cases across the country of the operational elements of the Building Safety Act that are not working effectively? I am just trying to get from you a more realistic sense of what you might expect the Government to bring forward, in terms of extending this Bill to ensure the Building Safety Act operates as intended. What tweaks to the Building Safety Act are required, in as much detail as you can in the time you have?
Giles Grover: One of the major tweaks is on an issue we were first made aware of in November 2022 due to the residents of a building in Greater Manchester being forced to pay for interim measures. The council is now paying for those interim measures but it has been told that it cannot recover them through the Building Safety Act because the legislation is not in place. That is a simple one that could help.
You could ensure that resident management companies and right to manage companies can raise the legal costs where they might be needed in respect of building safety and relevant defects. There are some wider elements that are already in the Bill, in terms of stopping freeholders re-charging their legal fees. Our concern is whether that will protect non-qualifying leaseholders who are still being forced to pay fees.
This is where I can get into the specifics. I am no lawyer as such—you have had a lot of very intelligent people on before me—but I say this from the campaigning aspect of it. We need to see a fair bit more detail about exactly what happens when a freeholder is avoiding their liabilities and not giving a landlord certificate within the stated time period. The Government may tell us, “Oh, don’t worry. That means they can’t pass the costs on,” but theoretically I cannot sell my flat without that certificate because the conveyancer is asking for it, so why not have an express duty for them to provide it? To be completely frank, the whole landlord certificate/leaseholder certificate process is an absolute quagmire and a nightmare on the ground. I would personally prefer it if the Government did away with that.
There are lots of issues like that. There are points about court-appointed managers, which cannot be the accountable person, which seems quite strange to me. We have been told that there is another route through the Building Safety Regulator, but that would require the special measures manager legislation to be enforced. There are issues with shared owners in complex tenures where you have a housing association as the head leaseholder. Will they be protected from all costs? Will they have the same rights as all leaseholders?
Philosophically, the simplistic approach should be that you have the full protection. New clauses 27 and 28 would be a massive relief. It is then a case of whether legislation is needed or whether you can use the current measures. With the developer scheme, where it is for over 11-metre buildings—could that be extended to under 11-metre buildings? The cladding safety scheme is now for mid-rise buildings; could that be extended for low-rise buildings? Could the cladding safety scheme be extended to become a building safety scheme?
For a lot of this the pushback will be, “There is not enough money,” but there is money out there. There is money that can be got from industry. There are further parties, such as construction product manufacturers and providers, and the Secretary of State said they would make them pay two years ago; they have not paid yet. There are a lot more parties that could be brought into the pool. So operationally there is more they could do by saying, “We’ve got seven different funding schemes;” —or however many it is—“where is the oversight of all of them? Who is talking to each other? Are these regulators? How does DLUHC talk to the recovery strategy unit? Are they talking to the Building Safety Regulator? Is Homes England involved? The local regulators now have new money to take action; are they taking action?”
So, arguably, a lot of it is already in place; but what is needed is the comprehensive oversight and the proper grip to say, “Right: all these buildings—10,000 of them—are going to get fixed. This is how—this is where the money is coming from. Cladding costs are here. Non-cladding costs will come from there.” What you really need to do is put the money up front, recover it. The Government say that their leaseholder protections mean that the majority of leaseholders won’t have to pay. If they have got the confidence in their legislation then they can take over the burden from leaseholders.
Barry Gardiner
Q
You raised the issue, in response to Matthew Pennycook’s questions, of section 24 of the Landlord and Tenant Act 1987 and applying for an officer of the court to be installed to do the works and turn around a building. Clearly, it would be something much to be wished, for many people who found themselves involved a building safety issue, if they were able to do that. Related to that, I know you are aware of the Building Safety Act 2022 ban on section 24 managers being the accountable person.
This is a matter we have discussed with a number of witnesses such as yourself. Are you aware that at one development, the management control regarding safety and remediation was given back to a freeholder who was the one who took, the tribunal found, £1.6 million in insurance commissions unreasonably? They will now be handed £20 million because of that BSA anomaly, by the Government. So the very people who could not be trusted with money are now being given £20 million to remedy the defects that they were responsible for in that building.
Giles Grover: I am very aware of it. I have watched some of the sessions, and I was made aware of it last year by one of the leaseholders at that building. I have looked into this. I have had various conversations with various lawyers. It still just seems bizarre that the manager who has been appointed by the court cannot be the accountable person. I am just a simple man: I do not understand why that cannot happen—why the Government, or the judge, based upon the legislation that is out there, think it is a reasonable or positive outcome for that money to go back to that rogue landlord, shall we say. I do not get it, to be honest.
Barry Gardiner
Q
Giles Grover: Yes. I only have 20 minutes, so I will try to be brief. I could spend all day talking about that. I have had personal experience of that in my building. Our developer sold the freehold out from under us to an offshore freeholder who, one year before the building safety crisis took effect, said they did not want to sell the freehold because they were long-term investors. A year or so later they said, “Okay. We are transferring it to another company. Do you want to buy the freehold off us?” Because they saw—
The Chair
Order. I am afraid that brings us to the end of the allotted time for the Committee to ask questions, and indeed for this afternoon’s sitting. I do apologise to the witness, but I thank him very much on behalf of the Committee. The Committee will meet again on Tuesday to begin line-by-line scrutiny of the Bill.
Ordered, That further consideration be now adjourned. —(Mr Mohindra.)
Leasehold and Freehold Reform Bill (Third sitting)
Barry Gardiner ExcerptsThursday 18th January 2024
(10 months, 1 week ago)
Public Bill CommitteesRead Full debate Leasehold and Freehold Reform Act 2024 View all Leasehold and Freehold Reform Act 2024 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 18 January 2024 - (18 Jan 2024)
The Chair
Does anyone have anything to add? Do not feel that you have to; I am not putting you on the spot.
Ms Paula Higgins: There is one thing I would add. I am so pleased that Sue is here; she has done amazing work on shared ownership. I am not a legal expert, but I wonder whether you will be hearing from people from the retirement housing sector as well. That is a very complicated form of tenure, with exit fees and whatnot. Can they actually have the same rights to challenge fees and things like that? I am not sure if that is covered in some of your evidence sessions, but retirement housing is notoriously known for quite scandalous fees and charges.
Bob Smytherman: Certainly, we have seen a massive increase in shared ownership memberships coming to us for membership of residents’ associations. Obviously, we are helping them through that. In terms of quick wins, I really hope the Government will finally implement an independent statutory regulator for property managers. That would be a really quick win to help leaseholders. It is very disappointing that we have not got there yet, so I really hope there will be an independent regulator for these management companies that hold large amounts of leaseholders’ money.
Barry Gardiner (Brent North) (Lab)
Q
Sue Phillips: One of the things I would want from this Bill is for shared owners to have all the rights that other leaseholders have. Of course, as your question flags up, they face problems over and beyond the problems faced by leaseholders. The problem for shared owners is that if they—I will not speak to the specific technicalities of this—fall behind with payments, they are liable to possession with no reimbursement of the equity they have invested in their property. This is because they sit more as a tenant than as a homeowner. I would certainly like to see that addressed.
Barry Gardiner
Q
Sue Phillips: It is. Housing associations will say that they will do their utmost to prevent this scenario playing out, and that numbers are low. While that may be true, I do not think it is an argument against shared owners having the same protections in law as other leaseholders.
Barry Gardiner
Q
Sue Phillips: Shared owners should have the same right as other leaseholders and they should not be liable to lose their investment in their home due to a relatively small debt—absolutely.
I would add that it is a hugely important issue, but it is probably an issue that affects a fairly small minority of people at the moment and that there are other issues arising from this reform process that affect a great many more shared owners or all shared owners. It is an important issue, but I would not like for it to take up a disproportionate amount of time in this session.
Barry Gardiner
Q
Sue Phillips: My expertise does not lie so much with right-to-manage claims; what I would reiterate is that they should have the same rights as any other leaseholder.
What is more important—what is specific to shared owners—is that they are liable for 100% of the costs of repair and maintenance, and I think there are two separate issues within that. One is the issue relating to the model. In previous sessions—
Barry Gardiner
Sorry, I couldn’t hear what you said there.
Sue Phillips: Sorry. One is to do with the model and one is to do with the transparency around the model. On the model itself, in the previous sessions on Tuesday people talked about the unfairness of generating income streams from leaseholders after the profit made on the sale of the initial share, and I think that the 100% liability for service charges that shared owners have falls within those kinds of questions. It should certainly be looked at to see whether it is proportionate for shared owners to pay 100% of charges. Again, there is a great deal more that I could say, but I am aware of the limits on time.
The second issue is transparency. In evidence submitted to the Levelling Up, Housing and Communities Committee inquiry into shared ownership, one of the themes that has come out of the published responses from shared owners is that people do not seem to be aware at the point of sale of their liabilities in this respect. Therefore, if we cannot tackle that 100% liability in this Bill, given time constraints, at the very least regulators should pay more attention to the nature of marketing and whether it is fair, transparent and compliant with consumer protection regulations.
You asked me earlier for a quick fix. I certainly have a quick fix around transparency and it is that the relevant regulators should look more closely at transparency about the model as it stands, up until we have meaningful reform of the areas that are problematic.
Barry Gardiner
Q
Sue Phillips: I think it is essential, and this relates to the marketing that I have talked about. Shared owners come into shared ownership believing that they are a leaseholder like any other leaseholder; they have no reason to think differently. Often, there is a caveat emptor attitude and I think that is reprehensible, to be honest, when you are talking about provision of social housing to households that by definition are financially vulnerable compared with people who can afford to buy outright. It is not a failure of their due diligence; it is a failure of the Government, the housing sector and their agencies to spell out the difference between assured tenancy and leasehold.
There is a moral compass argument that they should have the statutory right to lease extension, because of the manner in which they have been sold those short leases. I think there are separate debates to be had about whether 99-year leases were mis-sold. A recent ruling by the Advertising Standards Authority outlined that it is likely to be misleading not to provide material information about the costs of lease extension. That suggests that there certainly is an argument that those short leases have been mis-sold.
We cannot change that. Most of those shared owners will be outside any scope of limitations for redress. The least we can do is ensure that lease extension is available not only to future buyers, but current shared owners, who have been left with a lease that does not actually give this right. Can they afford to take up the right? They should have a right to lease extension, but that right should be made affordable. If you are sitting there with a 50, 60 or 70-year lease, even if you have got that right to statutory lease extension, it might not be affordable to take up that right. So there is a basketful of issues to look at here, and I encourage collaboration with other regulators and with the Levelling Up, Housing and Communities Committee to resolve those other issues.
The Chair
Just one last question, Barry, because I want to get other people in. I might have the time to come back to you if you have more, but—
Andy Carter
Q
Ms Paula Higgins: I feel strongly about that. This is really going to be a missed opportunity. These types of Bills will come once every 20 years, so you must finish the job that you start. We saw that in the Commonhold and Leasehold Reform Act 2002, where we had the commonhold and it did not happen. If we cannot get commonhold sorted, why do we not have all flats being built having to be share of freehold—having to be sold share of freehold within five years—and have a sunset clause saying that there will be no new leasehold flats after a certain time? If you do not do it now, the next opportunity is not going to arise. I feel very strongly. We have lots of people who are waiting. We have people coming to us every day saying, “I am waiting for my lease extension. The Government are going to do something about it.” We have been waiting for years; we put out our report in 2017 showing that 43% of leaseholders did not even know how much time was left on their lease. They are not expected to be experts in this; they are buying a flat to live in. So it is a real missed opportunity if we do not do something on this and it will come back to bite us.
Richard Fuller
Q
Ms Paula Higgins: That is a really good point. I know the RoPA stuff—the regulation of property agents working group; in fact, we gave evidence to it. A tick box is probably not the right thing. Perhaps it is more about a proper single place for redress, but as I think Andrew Bulmer mentioned, that is the ambulance at the bottom, and what matters is what is at the top.
What we don’t want is people doing online qualifications and getting a tick, and then they can jump up as an estate agent and come back down again. So I appreciate the complexities and I look forward to seeing what your deliberations will be.
Sue Phillips: I do not have the expertise to speak directly to the regulation of property management, but I would like to pick up on a couple of related issues from a shared-ownership perspective. The first is that the evidence submitted to the Advertising Standards Authority’s inquiry into Black Friday marketing highlighted the fact that industry sector standards for the marketing of shared ownership are lower than other standards that are out there. For example, shared ownership is currently excluded from the New Homes Quality Board’s code of practice. That simultaneously reflects the complexity of shared ownership but also the fact that shared owners do not have access to the same level of protections as other homebuyers in relation to new build codes. That is slightly off to one side.
I also wanted to pick up on the matter of transparency of service charges. Transparency is clearly essential: people should know what they are paying for. However, shared owners and other leaseholders should not have to effectively take on an audit function where it falls upon them to scrutinise accounts. They should be able to place some degree of reliance on the accuracy and proportionality of the accounts that they receive. I cannot speak to how that will be achieved, but I think that the onus should be on the providers of services and service charge accounts to be better, rather than leaseholders and shared owners having more and more obligations to scrutinise and take whatever action is required if problems are identified in those accounts.
Barry Gardiner
Q
Ms Paula Higgins: I fully agree with that. It is a bit like the situation where, if you are getting building work done in your home and the building work is not completed or whatever, you withhold money. That happens in all of the construction industry. The stuff in relation to the forfeiture is very disproportionate, is it not?
Barry Gardiner
Q
In so far as new apartments are going to have a share of freehold, Mr Smytherman, you indicated that you felt that you had got the best of both worlds as a director of a freehold franchise company.
Bob Smytherman: Yes. Ours is a tripartite lease. A ground freeholder owns the land and there is a separate middle lease, which is the limited company—limited by shares—of which we are shareholders.
Barry Gardiner
Q
The Chair
A one-word answer, please, because I have to get to the end.
Bob Smytherman: That is difficult. It depends. If you have a difficult freeholder, then that would clearly be an advantageous thing to do. Then there is a scenario like ours, where you have a democratic limited company with shareholders.
Sorry, I cannot do a one-word answer.
The Chair
Q
Professor Steven: No, I agree with my colleague. From a Scottish perspective, I would be more in favour of commonhold.
Barry Gardiner
Professor Steven, my question is to you. Last week, in the House of Lords, the Government indicated that they were looking at the Scottish system of tenements. Could you perhaps explain that to the Committee? My understanding is that the Scottish Law Commission has been looking to review tenement structure and actually make it more like commonhold. Is it correct that there is a lack of standardisation and no ability to ensure those share costs are split proportionately under the tenement structure, and therefore that would not be a quick cut-and-paste for the Government if they are considering what to move forward to?
Professor Steven: Yes, I absolutely agree. The legislation in Scotland is the Tenements (Scotland) Act 2004, which is 20 years old and is fairly basic. It does not have owners associations, for example, so it is less sophisticated than the commonhold proposals that the Law Commission for England and Wales made. But we have problems in Scotland too. There are always problems, no matter what the law says.
There are two particular problems. The first is where money comes from to make repairs to flatted properties—we typically call them tenements in Scotland. The second, sadly, is apathy. I was watching the earlier session, and I saw how engaged your witness in Worthing was, but sadly in other cases the owners are not so engaged. Even if you have an owners association regime, which the Scottish Law Commission is now looking at, it still depends on people being engaged. There are no easy solutions. I favour commonhold, but it will not be a magic wand.
Barry Gardiner
Q
Professor Steven: As a former law commissioner in Scotland, I am reluctant to disagree with the Law Commission for England and Wales, given the amount of work it has done on this. It is clearly very complicated.
You said that we got rid of our feudal system in one fell swoop in 2004. That is broadly true, but in 1974—50 years ago—we banned new feudal payments, which are like ground rents. There was a system whereby the existing feudal payments had to be paid off when the property was sold, so by 2004 there was not much left. My impression is that in England there is quite a lot left, in terms of ground rents. Because there was not so much left in Scotland, the compensation issues and the European convention on human rights issues that Dr Maxwell spoke about on Tuesday were not so prominent. Although we had the feudal system till 2004, it was a shell of what it originally was. In a certain way, it would be much simpler just to change leasehold into commonhold, but I fear that it would lead to all sorts of unforeseen consequences.
Barry Gardiner
Q
Professor Hodges: Very briefly: modernise, because we are still living in the past; simplify, because we can easily do that on a comprehensive basis; and get it done so that people can plan, retrain and know what they have to do. You then get good behaviour throughout the system. I am very tempted to repeat facetiously the “Get it done” slogan, which crops up a lot.
Richard Fuller
Q
Professor Hodges: As far as the detail of the Bill is concerned, looking technically at what is in there without expressing a view as whether it is a good or a bad idea substantively, it seems to me to be fine. You asked a wider regulatory question earlier on—
Matthew Pennycook
Q
Professor Hodges: Everyone should be in and under the same regime—absolutely everyone in the system.
Professor Steven: I do not have a strong view on this.
Barry Gardiner
Q
“any financial gain for the landlord”—
or freeholder—
“will be at the expense of the leaseholder…Their interests are diametrically opposed, and consensus will be impossible to achieve.”
Professor Hodges: In any consumer or property—certainly social housing—dispute system, there is an obvious imbalance of power. People do not have the money to do things. I have chaired the Post Office Horizon compensation board advising Ministers in the past few weeks. The whole reason why Parliament needs to step in is to correct a massive imbalance of power. Private litigation did not work, or it only half worked. There have been many stories about people being traumatised, and not just unable to enforce their rights. That is why we have invented things like legal aid, Citizens Advice and an ombudsman, and we are still moving—we are still improving that one—because of the ongoing imbalance of power between the little people and larger organisations.
Barry Gardiner
Q
I want to ask you about introducing insurance commission. I do not know whether you heard what the witnesses said on Tuesday, but you may know of the Canary Riverside case, in which £1.6 million in commission was given to a freeholder by the insurer—in a kickback—which was deemed to be inadmissible, and that is what the tribunal, mercifully, found. Although the Bill is outlawing commission, it is introducing fees for insurance services. In the Canary Riverside case, that is precisely what that £1.6 million was called. Do you fear that the Bill appears to dispense with commission, but actually reintroduces it by the back door?
Professor Hodges: Possibly, but that is why you need regulation. That is an obvious example of an imbalance of power and lack of transparency, for which you need external people to get involved. Exactly what the final result ought to be, I would leave to a regulator—for them to say that so much commission is either allowable or not allowable, or indeed not at all. It depends on the circumstances.
The Chair
Can I just interject and ask whether Professor Steven has anything to add to what you have asked so far?
Professor Steven: Very briefly, insurance law is UK-wide, but in Scotland insurance of blocks would normally be handled by managing agents because we do not have the freeholder. Since 2011, we have had legislation in Scotland that regulates managing agents. I know that that is being considered in England as well, but that might be of interest.
Barry Gardiner
Q
Turning to the value of the building and property rights, we heard from an eminent lawyer on Tuesday about property rights in relation to ground rent. Looking at enfranchisement, I think it was the Residential Freehold Association, which is charged with guarding the property rights of freeholders, that said that their share in the value of the building was only 2.5%. The corollary of that, of course, is that the leaseholders’ share in the value of the building is 97.5%. Do you feel that the way in which the costs of enfranchisement look at the total value of the building is therefore unjust?
The Chair
We have less than a minute left.
Professor Hodges: I would need to know an awful lot more to be able to answer that question, as a non-property expert. It is a very interesting question, and my answer would be that it is one for Parliament and the regulatory system to engage with.
Barry Gardiner
Thank you very much. Professor Steven?
Professor Steven: I have nothing to add.
The Chair
I thank the two witnesses for taking the time to give evidence to us today. Thank you for beaming in, Professor Steven, and thank you for attending, Professor Hodges. We will now move to our next witness—Paul Broadhead, come on down.
Examination of Witness
Paul Broadhead gave evidence.
Matthew Pennycook
They can be far more punitive.
Paul Broadhead: They can be, absolutely, with where RPI is. It is really difficult to predict. Some ground rents can grow very rapidly, which puts people in financial difficulty. From the lenders’ perspective, when underwriting a mortgage, they need to consider whether the mortgage is affordable on the face of it not only today, but in the future, and to take account of any foreseeable increases in expenditure. That is one of the areas they will take into account.
In terms of the peppercorn ground rent, yes, I do believe that that will resolve this going forward. The important thing to consider is that there is still a separate consultation, which just closed yesterday, on capping ground rent for existing leaseholders. It is really important that that is brought forward to prevent this two-tier system from developing.
Barry Gardiner
Q
Paul Broadhead: You are absolutely right. We have been advocating for the reform of leasehold since 1984. As you kindly point out, it was not me that made that comment at the time.
Barry Gardiner
That elegant comment.
Paul Broadhead: Absolutely—I wish I could be as elegant, and I will try to be throughout this questioning. Our position is that leasehold does require reform. If you were going to design the property tenure today, it is not what you would come up with. However, there are 4 million-plus leasehold properties in this country. Undoing that and replacing it overnight with a new, perhaps more just, system will take time.
The first thing we need to concentrate on is reform, to make the system fair, predictable and equitable, so that people have the security of owner-occupation. In a sense, yes, they do not own the land on which their home sits, but they have the security of tenure that they would not have in other sectors. But it is important that we ensure that that is fair.
Barry Gardiner
Q
Paul Broadhead: Are you talking particularly about shared equity or shared ownership?
Barry Gardiner
Sorry, shared ownership—where you have shared ownership in the property.
Paul Broadhead: I have not got those figures to hand, but we can certainly send those through to the Committee. From speaking to our membership, I think it is fairly comparable. Our sector punches above its weight in shared ownership because it is very keen on affordable housing, and we have some big shared-ownership lenders. One thing I would say about shared ownership is that underwriting and managing those cases are slightly different from managing a traditional mortgage, because you have the housing association interest and some potential staircasing—although, of course, many do not. The arrears levels tend to be higher, but the default levels, I think, are comparable. We can confirm that in writing.
Barry Gardiner
Q
Paul Broadhead: There are two things. One is the housing association rent aspect. Affordability tends to be more stretched by people owning shared ownership properties in any event, as most people land in shared ownership as an intermediate tenure because they are not able to buy their whole home. That, therefore, means their incomes are often less predictable. They do not necessarily always understand—
Barry Gardiner
Or that property prices are too high, of course.
Paul Broadhead: Well, property prices are too high irrespective of tenure, even if you are buying as a freeholder.
Barry Gardiner
Their income may be stable and reasonable—being in shared ownership does not mean that your income is unstable in any way.
Paul Broadhead: No, not at all.
Andy Carter
Q
Paul Broadhead: Certainly. The first thing to remember is that mortgage lenders are experts in mortgage lending, not in property law—it is down to the conveyancer to advise the borrower of the requirements of the lease and the purchase of the property they are buying. The way I would describe it is that the conveyancer and the surveyor, to an extent, are the lender’s eyes and ears on the ground to ensure all of that is clear to the borrower, and that they are entering into that transaction with their eyes open.
What we have seen from a mortgage lender’s perspective, particularly when the escalating ground rent issue started to come to a head, was lenders taking a much more proactive approach on new developments to understand the terms of some of those leases, and actually refusing to lend on those new developments. Of course, there are a whole range of mortgage lenders that will lend on a new development, but the fact is that a new development without some of those large lenders—because they will not lend against that leasehold—drives change. That is what we have seen. We have seen the effect of that with the escalating ground rent—with the reduction of that.
Lee Rowley
I am not sure that I would accept that, but I will take that up with you and your members separately.
Barry Gardiner
Q
Paul Broadhead: Parliamentary privilege notwithstanding, no, we do not have individual organisations I could point to. I certainly do not get reports from my members.
Barry Gardiner
Q
Paul Broadhead: In terms of coming back to me as an association, that is a level of detail that is about individual organisations. It is not really part of my role to represent that. That does not mean they ignore that, just to be clear.
Barry Gardiner
Q
Paul Broadhead: Our members will not advise; they will refuse that mortgage, because it does not meet with their policy. In terms of other service charges, they all have a panel of conveyancers that they approve to act for them, and that is for the consumer purchasing that property. The terms of those panels change as some of these practices have come to light, and they will be nipped in the bud at that point.
The Chair
Order. I am afraid that brings us to the end of the time allotted for the Committee to ask questions and, indeed, for this morning’s sitting. I thank all our witnesses on behalf of the Committee for their evidence. The Committee will meet again at 2 pm this afternoon here in the Boothroyd Room to continue taking oral evidence.