Leaseholders’ Rights (Insurance)

Brandon Lewis Excerpts

Wednesday 22nd October 2014 Westminster Hall

[The Minister of State, Department for Communities and Local Government (Brandon Lewis)]

I congratulate the hon. Member for Walthamstow (Stella Creasy) on securing this debate. I know that this issue is one that she and others have campaigned on for some time and I also know that, as she outlined in her speech, she raised it during the debates on the Consumer Rights Bill back in March.

I will try to respond to the range of issues that the hon. Lady and my hon. Friend the Member for North Swindon (Justin Tomlinson) have raised. I will start by saying that the Government recognise the importance of the issue that the hon. Lady has raised, namely the rights of leaseholders to obtain details about the insurance policy they contribute towards by way of service charges, and indeed the rights of leaseholders to gain information about other service charges that are imposed upon them.

It is important to note that for some years now leaseholders contributing towards the costs of buildings insurance and service charges more generally have had the right to access and obtain copies of documents relating to the insurance they contribute towards, as well as those relating to other service charges. This includes a right to request in writing a copy of the insurance policy or to ask the landlord or managing agent to provide reasonable facilities to enable them to inspect the policy and other supporting documents. Also, the Competition and Markets Authority is looking at this issue at the moment. In particular, it is looking at the ability of tenants or leaseholders to be involved in the decisions that are taken in this area, and therefore at the possibility that landlords will need to test the market transparently and consult on these matters. We are waiting for a response from the CMA on that, which is due later this year.

[Stella Creasy]

One of the issues with the freehold management company that I have been discussing is that it has said it may give information to individual leaseholders but that, as the policy in this instance is a collective policy, it will not release information about it. That means that my constituents cannot assess whether or not they are being fairly charged across the piece. After all, terrorism is something that is likely to affect not just one property—if such a God-awful incident were to happen. Can the Minister therefore clarify whether the Government’s view is that companies such as this one, and insurance companies such as Zurich, should provide access to the whole detail of the policy, including the collective provision, and not just to detail about an individual property?

[Brandon Lewis]

I will have to look at this issue in more detail. However, if an individual wants to receive information about the detail of a policy and the costs attributed to them, there needs to be transparency from the company about how it apportions those costs. I would imagine that that is something the CMA will look at, but I am happy to have a look at it myself and I will come back to the hon. Lady about it.

The Government are generally aware of a number of concerns in the leaseholder sector and we welcome suggestions about how residential leaseholder protections can be improved. However, at this stage we are not persuaded of the need for wholesale reform, although that does not mean—particularly with the input later this year of the CMA itself—that we should not examine some individual issues, depending on what comes out in the CMA report.

That ability for a leaseholder is in addition to their ability to request a summary of service charges in general, which would include the costs of insurance, as the hon. Lady rightly says. Leaseholders have the right to ask to inspect invoices, receipts and any other supporting documents that relate to those costs, which comes back to the point about the overall policy position.

If a landlord, or a managing agent acting on their behalf, fails to comply with a request for information without providing reasonable justification, they are committing a summary offence that, on conviction, is subject to a fine of up to £2,500. Landlords and agents have to show the policy documents to leaseholders; not doing so, and withholding information about service charges, comes within sections 20 to 22 of the Landlord and Tenant Act 1985.

In addition, legislation requires that service charges, including the cost of insurance, must be reasonably incurred. As my hon. Friend the Member for North Swindon and the hon. Lady will be aware—indeed, she referred to it herself—leaseholders can apply to the property chamber of the first-tier tribunal for a determination about the reasonableness of the costs of insurance they contribute towards, as well as the reasonableness of other service charge payments. The grounds for making such a case could include, for example, that the type or level of insurance is not appropriate, in addition to the reasonableness of the premium.

Of course, it is in everybody’s interests to try and resolve concerns or disputes, either through discussion or alternative dispute resolution where possible, before resorting to the tribunal system. I am pleased to say that the situation for leaseholders has improved since the hon. Lady first raised this issue. There is now a requirement for letting and managing agents to belong to one of the three redress schemes that have been approved by the Government. That measure came into force on 1 October and it will enable leaseholders to follow up complaints. It will also be an effective way of driving up standards, while creating the lightest regulatory burden possible.

The existing protections for service charges are also supported by what are now two codes of practice that have been approved by the Secretary of State for Communities and Local Government, and published by the Royal Institution of Chartered Surveyors and the Association of Retirement Housing Managers. These codes of practice are also in the process of being reviewed, to ensure that they are sufficiently robust and reflect good practice.

Although I have highlighted the fact that a number of statutory rights are already available to leaseholders to give them access to information about payments required by the freeholder and that mechanisms are in place to ensure that charges are reasonable, we always welcome any contributions about how we can further improve the situation for leaseholders.

We are aware that concern has been raised by some leaseholders about the appropriateness of certain elements of the insurance that they pay towards through a service charge. If leaseholders believe that the cost of such insurance or the type of cover provided is unreasonable, and can otherwise resolve the matter with their landlord, then—as the hon. Lady said—they have the right to apply for determination through the property chamber of the first-tier tribunal.

As for the collective policy being released, details have to be released that relate to a tenant’s dwelling. As I said earlier, if a tenant wants to have details about a policy that affects them, that means they must have some understanding of how things are broken down from the bigger picture.

It is, of course, important that leaseholders make the best use of a wide range of existing rights. We are making efforts to raise awareness. For example, we continue to fund the Leasehold Advisory Service, which provides free initial legal advice to leaseholders and others in the residential leasehold sector, and we will certainly ensure that it is also aware of the situation.

[Stella Creasy]

I pay tribute to the work of the Warner Action Group in Walthamstow, which has been trying to bring residents together. From what the Minister has said, it appears they have a course of redress through the leasehold valuation tribunal; but as I have said, because they cannot get the information, asking them to pay potentially thousands of pounds for legal representation is a high bar to pass. The Minister mentioned a summary offence. Who would the Warner Action Group report freehold managers to for investigation of that offence if they continue to refuse to release this information?

[Brandon Lewis]

As I said, the Leasehold Advisory Service can also give that free initial legal advice, but I am very happy to come back to the hon. Lady and give her some further details about the specific issue she raises. As for the collective policy understanding, again, as there is a requirement for an individual to be able to understand what their policy charges are, they can only do that if they are part of a collective, by seeing that collective agreement. My view is that there should be a release of the details relating to the tenant’s dwelling, and if they are part of a collective, to understand that within a block, they need to understand what the block is. I would like to think we can help to facilitate that understanding for the leaseholders.

In conclusion, it is commendable that the hon. Lady has made such great efforts to raise awareness of this issue. As so often with these issues, quite a lot of the battle is about ensuring that the awareness is there: that people understand that there is a way to get redress and a way for them to take cases forward—as I say, there are statutory requirements in place. I am happy to raise those issues and take up anything further after this debate.

[Stella Creasy]

I thank the Minister for his generous response; I think that my constituents will be grateful for his help, as I am.

Can I just get him to clarify whether the Government have taken a view about whether residential properties should be insured for terrorism, and on what grounds, and whether there might be, for example, a paper on that in terms of the risk to residential property? After all, there are other residents in Walthamstow and, if Walthamstow has been designated as a place of likely terroristic opportunities, I think people would want to know. There is also the point I made about the central principle: that even if a third party has commissioned a product or service on someone’s behalf, they have the right in law to access the full information on that service or product. From what the Minister said, it is a summary offence under leasehold legislation not to provide that information. Will he clarify whether the Government believe that that is a central principle, so that they would in theory support making that explicit in the legislation? That would be a helpful guide for us on a number of issues to do with charges.

[Brandon Lewis]

I had finished, but I am happy to respond. There is a requirement for the information to be published, so if a tenant is paying a charge, whether for insurance or part of a service charge, they have the right to understand what that is made up of and, as I said, to see the documentation behind that. It does not seem to me that there should be a difference depending on where that information comes from or whether it is allocated by a third party; the landlord still has to present and publish it. That seems clear to me, but I am happy to look further at that and come back to the hon. Lady.

I do not think that I or the Government can directly comment on what is part of insurance, in the sense that it is for insurance companies, landlords and property owners to take a view on what the risk issues are for any property that they are insuring, whether in respect of flood protection, terrorism protection or any other type of risk protection. It is for them to make an assessment, take a market view and make a decision about what is right for them. That will be led by risk assessments, which will be made by underwriters and insurance companies giving advice and quotes.

[Stella Creasy]

If I can just clarify, there was a ruling on 11 June by the leasehold valuation tribunal that it was relevant—

--- Later in debate ---

[Hywel Williams (in the Chair)]

Order. Has the Minister concluded his remarks?

[Brandon Lewis]

I had concluded them the first time, Mr Williams.

[Stella Creasy]

Thank you, I—