Co-operative Housing

Jonathan Reynolds Excerpts

Wednesday 11th July 2012 Westminster Hall

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

It is a pleasure to serve under your chairmanship, Mr Weir, and to debate the potential effects of the Berrisford v. Mexfield Housing Co-operative Ltd Supreme Court judgment on the future of co-operative housing in the UK. Many of us who believe that the co-operative model has a significant part to play in the UK’s current shortfall in affordable housing think that this case has raised some important issues. I am grateful to have the opportunity to discuss them today.

The court case, which I will refer to as Mexfield, or Berrisford and Mexfield, has had a profound effect on the tenancies issued by many housing co-operatives. Among other things, it has reinforced the need for a new legal framework to define the relationship between a housing co-operative and its members. Instead of applying feudal landlord and tenant law to co-operative housing projects, we would have a law that recognises the right of occupancy as a result of membership of that co-operative, as defined in the members’ agreement.

I made that argument last year when I introduced a ten-minute rule Bill that would have recognised co-operative housing tenure in UK law for the first time. Before I continue, I should say that I am grateful to the Minister for Housing and Local Government, who cannot be here today. He took time after that ten-minute rule Bill to meet me to discuss the matter further. I appreciate his interest in these matters.

The ruling of the Supreme Court in the Berrisford and Mexfield case highlighted the problems caused by the absence of this specific provision for housing co-operatives in law. I hope we can explore the implications of the court case and the actions that need to be taken in the short and long term to deal with them.

Before examining the specifics of the court ruling, I will turn to housing co-operatives more generally. I see here several colleagues from the Co-operative party, who will be well aware of the merits of housing co-operative schemes. For others less familiar with them, let me explain how they work. Like any co-operative organisation or business, fully co-operative housing projects are owned and controlled by the people who use their services, in this case, the residents.

The co-operative model gives residents democratic control of the property in which they live, giving them a greater say over the management and maintenance than they would otherwise have as tenants. Residents also decide codes of conduct and rules of membership. In brief, the co-operative model is based on a combination of rights with responsibilities and a respect for mutualism. I believe it is a model that builds strong communities, with the potential to increase the supply of affordable housing, and I would like to see it flourish.

[Tom Greatrex (Rutherglen and Hamilton West) (Lab/Co-op)]

I congratulate my hon. Friend on securing the debate and on his ten-minute rule Bill on housing co-operatives, which I was proud to support. Does he agree that, in addition to the points he just outlined, co-operative housing can be an important way to help some people obtain their first home?

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[Jonathan Reynolds]

I am grateful for my hon. Friend’s intervention; I see that as a major benefit and will say more on that later. There are already a number of housing schemes across the country that are run to varying degrees in accordance with the co-operative model. Because UK property law acknowledges only the legal states of freehold, ownership and tenancy, co-operative housing schemes do not have full legal recognition. A definition of fully mutual housing co-operatives does exist and slightly different legal rules apply. For instance, under the Housing Act 1988, fully mutual housing co-operatives are not permitted to grant either secure or assured tenancies. Instead, co-operatives grant non-statutory contractual tenancies. The case involving Ms Berrisford and the Mexfield Housing Co-operative shows that the currently available tenancy agreements are not wholly appropriate for co-operative housing organisations. In fact, although I appreciate that this sounds like a very technical point, the issue of contractual tenancies is crucial to understanding why this case has caused concern.

Currently, the majority of the members of a co-operative housing scheme are issued with what is known as a periodic tenancy. A periodic tenancy is regularly renewed at a specific point; it is usually granted from week to week, or from month to month. It can be brought to an end unilaterally, by the tenant or landlord.

As co-operatives are not legally capable of granting secure or assured tenancies, the rights of the landlord and the tenant are defined by the tenancy agreement. So, instead of statutory security, co-operatives ensure that tenants have security through the decision-making practices and policies, of which the tenants are a part. In addition, they usually give tenants an additional degree of security by inserting a clause in the tenancy agreement specifying the circumstances in which they would end the tenancy, such as non-payment of rent. The tenancy can still be ended if either the tenant serves notice or the co-operative issues a notice to quit, but the clause in the agreement specifies that the co-operative can serve notice to quit only in certain specific circumstances, such as non-payment of rent, which I have already mentioned, or antisocial behaviour or some other pre-defined breach of the tenancy. By and large, that system has operated effectively for co-operative housing projects in the UK for some time.

However, the Supreme Court’s Berrisford and Mexford ruling has thrown that practice into doubt. Ironically, the ruling has stemmed from the clauses in the agreements that are designed to offer greater security to tenants. The Supreme Court ruled that the clauses in the co-operatives’ tenancy agreements that specified particular circumstances in which the tenancy could be brought to an end actually created an uncertain term, and as no tenancy can be for an uncertain term, the Supreme Court ruled that it should instead be considered as a tenancy for life. That means that, instead of a periodic tenancy that was routinely renewed at regular intervals, the Supreme Court said that the tenancy should be considered as a form of tenure that is more commonly associated with home owners, because under the Law of Property Act 1925 a tenancy for life lasts 90 years or for the lifetime of the resident.

Again, that decision might sound technical, but it potentially has very wide-ranging implications for housing co-operatives, bringing in a wide range of legal provisions that are primarily aimed at home owners and that are therefore inappropriate for co-operatives. First, that is because, unlike periodic tenancies, fixed-term tenancies such as the ones I have mentioned cannot be ended with a notice to quit. Instead, they must be ended through mutual agreement or, where there has been a breach of tenancy, a legal process that is again usually associated with home owners. I understand there has already been a case in which a co-operative member has successfully argued a “Mexfield defence” against possession proceedings, arguing that in effect, he had a 90-year fixed-term tenancy that could not be ended with a notice to quit.

There are concerns that this ruling could open the door to potentially complex and costly legal processes. Determining whether co-operative tenancy agreements are periodic or fixed-term tenancies is not easy, and co-operatives across the UK are waiting to see how the county courts interpret the Supreme Court’s ruling on possession orders. They are scrutinising their tenancy agreements to consider what they can do to eradicate any uncertainty, while avoiding costly legal disputes. They know that currently, the only real way to determine the status of these tenancy agreements may be through the courts.

I have already outlined the impact this ruling might have on housing co-operatives in the unfortunate circumstances where possession proceedings are needed, but its implications could also impact on the day-to-day running of housing co-operatives for residents. For example, I understand that residents will no longer be able to rely on the so-called “right to repair” outlined in section 11 of the Landlord and Tenant Act 1985, because that only applies to tenants with a short tenancy.

[Gavin Shuker (Luton South) (Lab/Co-op)]

I congratulate my hon. Friend on raising this very important issue. I was very pleased to be one of the people helping him out on his ten-minute rule Bill. When I speak to housing co-operatives, it strikes me that one of the issues they are concerned about is the implications of this ruling for housing benefit. Can he say a few words about that?

[Jonathan Reynolds]

Absolutely, and I too am aware that this issue is causing significant concern. The concern stems from the understanding that co-operative tenants would be entitled to claim housing benefit only if clarification was sought. As I understand it, housing benefit is not usually payable to people with leases over 21 years, so this ruling would cause a significant problem to those people. Can the Government confirm as a matter of urgency whether co-operative tenants, like other tenants, would still be eligible to claim housing benefit?

When making the judgment, Supreme Court Justice Baroness Hale highlighted the fact that the rule about certainty was invented long before periodic tenancies. Others, including the retired Law Lord, Lord Browne-Wilkinson—back in the early 1990s, I believe—have acknowledged that this area of the law is not in a satisfactory state. I understand that CDS Co-operatives, the largest co-operative housing service agency in England, is already seeking to bring a test case before the Supreme Court. That case will ask the Court to consider whether the principle that a tenancy cannot be for an uncertain term can be overturned. However, that process will be long and costly, and even if CDS Co-operatives succeeds, the Supreme Court may rule that it is the role of this House and Parliament, not the Court, to change precedent derived from an interpretation of centuries of feudal law.

The Supreme Court ruling has raised serious questions for the co-operative housing sector. It would be wrong to leave the sector to deal with that fallout alone, so today I ask the Minister whether he can offer urgent assistance to housing co-operatives as they try to navigate their way through the implications of the judgment. However, I still firmly believe that Parliament needs to change the law in this area.

As my hon. Friends the Members for Luton South (Gavin Shuker) and for Rutherglen and Hamilton West (Tom Greatrex) said, last year I introduced a private Member’s Bill that would have acknowledged co-operative housing in law for the first time. I argued that existing landlord and tenant law assumes a fundamental conflict of interest between landlord and tenant and that that was inappropriate for the co-operative model. I suggested that the new form of tenure would open the way for the expansion of co-operative housing schemes at a time when the UK faces a significant housing crisis. The change in the law would formally have acknowledged the nature of housing co-operatives for the first time, but it would also have had the potential to increase access to affordable housing and would have enabled members of housing co-operatives to build up financial equity at a time when people are finding it harder than ever to take their first step on the housing ladder. That point is in response to what my hon. Friend the Member for Luton South said, because if that Bill had become law, it would for the first time give people a real option between ownership and renting. By virtue of being a member of the co-operative, they could pay an amount of money appropriate to their income, giving them an equity stake that would grow. They would not face the financial hurdles of buying for the first time, but they would have a greater stake than if they were simply renting.

In many countries, co-operative housing tenure is already recognised as a distinct way for members to acquire the right to occupy their homes. For example, in Sweden, where 18% of the population live in housing co-operatives, that has been part of the law since the 1920s. I am delighted that, in Wales, the housing White Paper, “Homes for Wales”, gives due prominence to the need to support co-operative schemes through legislation, committing to create co-operative housing tenure in Welsh housing law. I congratulate the Welsh Labour Administration, the Welsh co-operative movement and the Minister for Housing, Regeneration and Heritage, Huw Lewis AM, on Wales being the first part of the UK to do so.

The importance of the issues highlighted by the Berrisford v. Mexfield ruling is inextricably linked with the seriousness of the growing housing crisis in the UK. I am sure that I need not remind hon. Members here today that in the private rented sector, rents are increasing more quickly than wages, and at a time when living standards for working families are being squeezed and people are under huge pressure. Local authorities and housing associations own 1 million fewer homes now than in the late 1970s. Families can no longer rely on social housing. With the average price of a property in the UK in excess of £165,000, it is now harder than ever for first-time buyers to step on to the housing ladder.

We urgently need to find solutions to the problem. Co-operative housing schemes do provide an alternative solution. They can offer affordable, quality accommodation to residents, while empowering them to play a key role in the decisions that relate to their property. What is more, they have the potential to attract new investment into the provision of much-needed housing. We should be doing all we can to support the growth of the co-operative housing sector. We need to do more and we should start today by supporting existing co-operatives in the wake of the Berrisford v. Mexfield judgment.

[The Parliamentary Under-Secretary of State for Communities and Local Government (Andrew Stunell)]

It is a pleasure to speak under your chairmanship, Mr Weir. I congratulate the hon. Member for Stalybridge and Hyde (Jonathan Reynolds) on bringing this matter to the attention of the House today. I want to establish my own credentials in two ways—first, by geography in saying that he and I have adjacent constituencies, which have some common problems and issues. I also want to establish my credentials in relation to the co-operative movement. My first paid job was with the co-operative movement in Manchester, and it seems to have stood me in good stead as a foundation for my career, such as it is.

The hon. Gentleman has been a very assiduous supporter of the co-operative movement. This debate, coming in the international year of the co-operative and following his private Member’s Bill, is relevant and timely.

The hon. Gentleman also referred to the fact that after the demise of his Bill—at least at its first attempt—he met my right hon. Friend the Minister for Housing and Local Government to discuss in some detail his proposals and how they might move ahead. The Government have no hesitation in agreeing with the hon. Gentleman about the importance of the co-operative principle. It is certainly in tune with the Government’s thinking about decentralisation and democratic engagement and with our view that powers should be returned to local communities, local neighbourhoods and local tenants’ associations. Tenant empowerment is a notable feature of the Localism Act 2011, which came into law earlier this year.

Overall, we aim to rebalance power from central Government to local authorities and local people and to deliver the housing that communities want and need and that, as the hon. Gentleman made clear, is certainly urgently required. We are doing a lot to achieve that and to create new models to deliver additional housing. I am sure that he recognises that co-operative models of delivery and development would be welcome in that pattern; I do not think that they could ever be an exclusive, or probably even a substantial part of the sector. It is important to distinguish some of the fundamental differences between the history of the housing market in Scandinavia and in this country. We are all prisoners of our own history and models of development. Nevertheless, co-operative models can make an important contribution.

I am sure that the hon. Gentleman will also recognise that this Government, in investing £4.5 billion in developing social and affordable homes, are responding strongly and positively to the need for low-cost housing. We will deliver 170,000 new social and affordable homes by 2015. I must say for the record that that is somewhat in contrast to the outgoing Administration, which in 13 years reduced the stock of social rented homes by more than 400,000. We are turning back that figure.

[Jonathan Reynolds]

Just for the record, the Minister mentioned our neighbouring constituencies. I know that he knows my area well, as I know his. When the Government give statistics like that, it does not reflect schemes such as one that he will be aware of that was pursued in Hattersley in my constituency. It fundamentally turned around the housing market in that area. Yes, it reduced some of the stock, but it resurrected the market and invested a great deal. That must be reflected. It is not just about housing; it is about homes and quality of life for the people who live in those homes.

[Andrew Stunell]

Indeed. I can look over my constituency boundary at Hattersley. I fully understand the work being done on regeneration there. We have continued it with investment that will deliver 150,000 additional decent social homes in this spending review period. The hon. Gentleman and I have some shared objectives, but I thought that it was important to put on record what has been achieved so far and what our aims are.

I turn to some of the hon. Gentleman’s specific points. The Government believe that getting people involved is the key to making healthy, strong communities and places to live. That is encapsulated in the empowerment White Paper, which the Government recently published. We recognise that members of housing co-operatives are more likely to be active members of the community and engage in other areas of governance in the community. For instance, they are school governors, and so on. In other words, people in co-operatives and with co-operative tenancies are often the joiners and doers of a lively community.

[Andrew Stunell]

Indeed, I shall come to that shortly.

The Government, working with the Homes and Communities Agency, is engaged with the Confederation of Co-operative Housing as the lead member of the Mutual Housing Group, which is considering how we can develop an investment fund to support the co-operative sector. I understand that a meeting this autumn will take that forward. I hope that that shows the Government’s earnest intent to ensure that the sector is not left out of the investment and development that we have in mind.

I recognise the uncertainty that the judgment may have created for housing co-operatives and welcome the Confederation of Co-operative Housing’s issuing guidance to its members. I am sure that Opposition Members will know that that guidance makes it clear that co-operatives need to think carefully about how they word their tenancy agreements in future. However, if they get that right, co-operatives should still be able to end tenancies in a straightforward way, through service of a notice to quit. Even if a lifetime tenancy is deemed to subsist, a co-operative landlord can still rely on a breach of a term of the tenancy, for example, failure to pay rent, to obtain possession. That is broadly the same position pertaining to most other social tenants.

It is important to recognise—I am sure that co-operatives do—that there is no standard model tenancy. Therefore the Mexfield judgment has to be taken as a case relating to a particular form of tenancy. I believe that the co-operative movement has received advice about different tenancy agreements in different areas, saying either that they are subject to the Mexfield judgment or, alternatively, that a particular version is not. It is certainly a fine legal point and I would not set myself up to judge that. In short, we do not need a new form of co-operative housing tenure. We need existing tenancy agreements to be in accordance with best practice—Mexfield avoidance compliant, if I can put it that way—to avoid any of the consequences that the hon. Member for Stalybridge and Hyde mentioned.

I am sure that the hon. Gentleman will have received the message from my right hon. Friend the Minister for Housing and Local Government about his proposed Bill. We are not clear what a new co-operative housing tenure would look like or what benefit it would bring in practice. His Bill might have the perverse effect of giving occupiers of co-operative housing fewer rights than tenants in social housing, local authority or housing association properties. I am sure that he would not want that to be the outcome.

[Jonathan Reynolds]

I understand how the advice that the Minister received may have come to that, but will he acknowledge, for the record, that the rights and obligations of the members of a co-operative are democratically determined by its membership? The Minister’s argument could be based on the fact that some tenants in social housing have statutory rights to defend them, but the whole point of a co-op is that decisions are made democratically by a co-op’s membership, so in practice they would not have fewer rights. They would probably have many more rights than people in equivalent forms of social housing.

[Andrew Stunell]

I would certainly hope that that is right. One would expect a high level of mutual respect between tenants who form the co-operative. However, as the current example shows, that is not always the case. The Mexfield case went to court because that fundamental appeal to common sense and common rights broke down and the individuals saw fit to challenge the basis on which the contract had been formed.

That makes a point that is highly relevant to the work that the House does when it considers legislation. Legislation is not primarily for the use of people who have common sense; it is to regulate people who have not got a great deal of common sense. In developing a new tenure system, one has to be very aware of any perverse consequences that might be brought to light. It is also quite—in fact, very—important to make it clear that, even if the hon. Gentleman’s Bill were suitably amended and then passed, it would not apply retrospectively. The measure cannot unilaterally and retrospectively change the terms of tenancy agreements already in force. It is therefore still important for co-operative associations that believe that they may have a kind of tenancy agreement that falls foul of the Mexfield judgment to take appropriate steps at their level to amend it and to seek to get their tenants and members of that co-operative to sign up to that.

There were perhaps a couple of other points that it is worth my mentioning to try to deal with the issues raised—although I want to make it clear that both I and the Department are more than ready to enter into a continued discussion with the hon. Gentleman and his supporting colleagues if they feel that more work still needs to be done.

The outstanding point related to the applicability—or eligibility—of a tenant who had been affected by the Mexfield judgment to apply for housing benefit. First, sensible and workable solutions are certainly available locally through the tenant and the co-operative agreeing to a suitable amendment to the tenancy to ensure that there is no room for doubt. As far as I can see—if I can make an appeal to common sense—that would overcome any difficulties that might theoretically arise in that circumstance. I take it for granted—as I hope Opposition Members do—that, from more or less the day of the Mexfield judgment onwards, all future tenancies let by co-operatives will avoid this rather strange detour in contract law as established by the High Court.

Co-operatives are keen to work with the community sector to attract private sector funding, which was a point made by the hon. Gentleman. I have already mentioned that the Homes and Communities Agency, which acts as the mediator of the Government’s social and affordable housing programme, is in discussion with the co-operative housing societies and I very much hope that a fruitful outcome will be produced in the months ahead. Again, I am more than happy to share with him the progress made, although he might well have his own sources of information on the other side of that discussion.

I hope that my response was full, but I know that the hon. Gentleman will be assiduous in telling me if it was not. The Department is more than happy to engage in further discussion, if appropriate.

Question put and agreed to.