First-tier Tribunals and Freeholders

Debate between Jim Fitzpatrick and Chi Onwurah

Tuesday 24th July 2018 Commons Chamber

[Jim Fitzpatrick]

The hon. Gentleman makes a good point. He is quite correct that these tribunals are supposed to be an informal means of dispute resolution, although it is thought appropriate for people to have some legal advice if they need it. However, we now regularly see highly specialist barristers and even QCs appearing for landlords before what are often part-time solicitor judges in what are meant to be our lowest form of court. Cases often go on for days, with landlords’ counsel ponderously reviewing the most basic elements of a lease and the simplest issues of law. In some cases, tribunals seem to allow counsel to pontificate on the rights supposedly provided to leaseholders, which can be either uneconomic or impossible to apply. It may be true to say that the tribunal procedure rules are less formal than the civil procedure rules in the main courts, but this often seems to work to the benefit of well-represented landlords rather than leaseholders. Landlords are often able to ignore tribunal procedure rules with impunity.

There is a total costs imbalance at the tribunal. What was meant to be a low-cost forum has now become a costs regime that benefits only one side, and that side is the landlord. It is a one-sided arms race. In almost all cases, the landlord now arrives at the tribunal knowing full well that they will probably have a right to their costs under the terms of the lease. The tribunal has some powers to limit costs, but those powers are often ineffectual and may not be applied, even if the leaseholders win. Conversely, the leaseholder arrives at the tribunal knowing that they have no right to recover their costs under almost all circumstances.

Let us take a hypothetical situation in which a landlord overcharges 1,000 leaseholders £250 each. If the individual leaseholders want to dispute those charges, a single letter from their solicitor will probably cost them more than they could ever recover, but the landlord can afford to invest a substantial amount of the £250,000 that they may have overcharged to defend their position.

[Chi Onwurah (Newcastle upon Tyne Central) (Lab)]

My hon. Friend is raising an important point in his very important speech. Does he agree that this disparity of resources and funds is particularly iniquitous when the landlord is a charity and is using the funds not to give the leasehold to their tenants? That is the case with the St Mary Magdalene and Holy Jesus Trust in Newcastle.

[Jim Fitzpatrick]

My hon. Friend makes an interesting point. It is very dispiriting to see charities and other institutions that one imagines would be on the side of morality and fairness being caught up with offshore tax evaders and individuals who are unscrupulously taking money from leaseholders hand over fist and not actually looking after the building. Some institutions and individual organisations that are freeholders and landlords aid and abet developers to make this an unlevel playing field, and that is most dispiriting.

Let me go back to the point that I was making. If leaseholders want to take joint action, and that is if they can actually find each other—in multiple developments, there are investors who own the properties and people who sublet the properties, so it is not always easy to find them—someone will have to take on the burden of the work, knowing that they will never be paid for their time and effort. Almost inevitably, the leaseholders will recover only part of the £250,000, given that the test of reasonableness for costs at the tribunal has no concept of “good value”, let alone “best value”. Even if the leaseholders win, and the tribunal limits the landlord from passing on costs, it may not happen. With many developments, leaseholders have found that it is heads the landlord wins, and tails the leaseholders lose.

Under the Landlord and Tenant Act 1987, a badly managed development can apply to the first-tier tribunal for the appointment of a manager independent of the landlord who has mismanaged the site. This is known as a section 24 appointment. Removing a landlord’s management can be difficult. It can take more than one attempt, and each time costs are awarded against the leaseholders. Those costs can run to several hundreds of thousands of pounds—more like Supreme Court costs than those of first-tier tribunals. Freeholders can try to obstruct the court-appointed manager from doing his or her job. Some have been known to try to block residents from forming their own association to represent them. I have residents who have successfully resorted to the tribunal system to force the freeholder to recognise them. In one instance, the landlord appointed a Queen’s Counsel to fight their case, and they compared residents’ associations to 1970s militant trade unions—in this instance, the leaseholders were City professionals. Incidentally, as a 1970s trade union member myself, I feel a bit insulted that that was said as some kind of disparaging comment. Despite losing, the freeholder and landlord sought costs for a half-day hearing totalling £74,560, which the leaseholders had to pay. It is surreal.

Landlords in the social sector have also started to use highly expensive counsel. The Government could and should do something to stop this practice when the process should be about the facts of the case, rather than convoluted arguments about the law. I give as an example a social landlord in my constituency who also happened to be trying to stop a residents’ association from being recognised. The landlord went so far as to take a group of residents to the tribunal in three separate cases. The landlord presented a bundle of documents only on the day of the hearing in the second case, which was put down to “an internal reorganisation”, but also registered errors of fact from the original hearing. Only after a third hearing in the upper tribunal was the matter finally settled, with the residents gaining their formal recognition. Even though the leaseholders won in the second hearing, the landlord still sought to obtain not just a costs award, but a wasted costs order against the leaseholders. The net outcome of the case is that the social landlord will have less to spend on their buildings, their tenants and their residents, having spent large amounts on third-party lawyers.

That brings me to the main issue that I want to raise today: section 24 appointments. When the tribunal appoints a section 24 manager, that manager acts as an officer of the court. He or she is required to act impartially in the best interests of the building. In theory, they are meant to report to, and to be supported by, the tribunal that appointed them. The reality seems to be that, once appointed, the tribunal has little interest in supporting its manager, who may face challenges from the landlord. In one case in my constituency, the court-appointed manager sought advice from the tribunal. The tribunal has repeatedly declined to support its manager.

The purpose of a section 24 appointment is to replace the landlord’s failed management, and then effectively to set out the business plan for the management of the site. The tribunal has wide powers in drafting this order, which can go wider, giving the manager powers beyond those provided for in the lease. The first-tier tribunal has powers to move problem cases to the upper tribunal, but that does not seem to happen, and certainly not in the experience of a number of my constituents. Furthermore, there appear to be many in the legal profession who are only too happy to take advantage of a system that charges leaseholders costs whether they win or lose. That cannot be right and sounds like very unprofessional conduct. There are millionaires with fortunes to protect, and cash cows such as developments in my constituency that keep them rich.

My constituency has the second highest number of leasehold properties in the country. Some are owned by well-off City professionals who know their rights and will fight for them, no matter the intimidation and the pressure laid against them. Some of these leaseholders are young individuals, couples and families starting out who are compromised by service charge hikes, and unfair and expensive refurbishment costs post-Grenfell. They will defend their homes, but the law is against them. And some of these leaseholders are pensioners who exercised their right to buy, or subsequent buyers of right-to-buy flats and houses who are also at the mercy of a landlord who might be a housing association—a registered provider. The one thing that these people all have in common is that they will find that the first-tier tribunal disputes resolution procedure, which is supposed to be simple, inexpensive and informal, is no such thing.

The Government have recognised that leaseholders need better regulation and that their homes are undervalued and under-protected. Housing, Communities and Local Government Ministers have pronounced in recent months that they are looking at all aspects of tenure, including: spiralling ground rents; hikes in service charges; inflated refurbishment costs; overpriced insurance; outrageous event fees; forfeiture; difficulty securing lease extensions; non-recognition of residents associations; selling of houses as leasehold; and bullying and harassment. If that list was not bad enough, post-Grenfell there are the fire protection costs for the removal and replacement of defective cladding, interim arrangement costs and the rest. The first-tier tribunal is supposed to offer a simple, informal and inexpensive way forward—they wish! I look forward to hearing what the Minister has to say to explain or defend the procedure as it stands because, in the experience of my constituents, it stinks.

The Ministry is on record saying that it will review leasehold tenure and all its failings, and will be bringing forward legislative and regulatory proposals in due course. This has been echoed by the former Secretary of State, the present Secretary of State and the Prime Minister, and those comments are very welcome. Governments have been trying to fix leasehold for 30 years, but both Labour and Conservative Administrations have failed. I will be grateful for some reassurance from the Minister that her Department is signed up to the Government’s reforms and will improve the legal protection available to leaseholders through the first-tier tribunal system and section 24 powers. Indeed, I would be grateful if officers of the all-party parliamentary group on leasehold and commonhold reform met the Minister, at some point in the weeks and months ahead—at her convenience—to discuss these issues. I look forward to the Minister’s response.