Lord Geddes
Main Page: Lord Geddes (Conservative - Excepted Hereditary)
Baroness Gardner of Parkes
My Lords, I have declared my interest in the register as a long-standing leaseholder. Having always seen the leasehold situation from a personal point of view and how I have been affected by changes, I had not appreciated that it is a vast subject which affects over 2 million people in the UK—half a million in the capital alone pay more than half a billion pounds annually in service charges. This March, the London Assembly produced Highly Charged, an 80-page report on residential leasehold service charges in London. The foreword states,
“the complexity of the service charges regime comes as a shock”,
and looks, in particular,
“at the way the transparency of service charges can be improved and leaseholders can be given greater control over the way services to their homes are provided”.
I urge your Lordships to study this report and the Lords Library briefing pack, most capably prepared by our Library staff, in detail.
There are many different issues in leasehold. Here is a brief list of some of the key ones: simplification of the law—a consolidation Act; regulation of managing bodies; transparency—complaints processes; closing loopholes—protecting leaseholders’ rights; easier change to commonhold; right to manage—tenants’ associations; standard of services—value for money; exit or transfer fees; and financing home ownership.
Regarding simplification of the law, many people who buy leasehold property have no idea what is involved. They are looking for somewhere they can afford to live and, generally, their focus is on buying the flat. They look at the service charge for that year but many will not be looking at this going up or at large capital outlay in the future for block repairs—these are often nasty surprises. They expect to be able to rely on managing agents—normally appointed by the freeholder or some other tier of landlord—to act fairly on their behalf. The leaseholder is always at the bottom of the pile.
As Act after Act has constantly altered sections in earlier Acts, ordinary leaseholders—and even lawyers—find it difficult to navigate through the morass of legislation covering leasehold in England and Wales. There is real need for a Consolidation Act and I support the views of the Federation of Private Residents’ Associations as set out in their paper Forgotten Leaseholders.
There is a strong call for regulation of managing bodies. I am ambivalent on the point as the necessary changes in the law are far greater and a Consolidation Act which could clarify and simplify would be better. Regulation may be a helpful first step. The Government do not seem to have sufficient data on the working of leasehold law. For instance, in 2009, the British Property Federation wrote to the then Government stating that it fully supported better regulation, yet it is often quoted by Ministers as opposing regulation. Sections 152 and 154 of the 2002 Act were due to be in force by now but the Government have not implemented these protective clauses. Residential tenants’ deposits are protected by the law but the much larger amount, the leaseholders’ money held by managing agents, has no protection.
Transparency, a major news topic in recent weeks, is vital in the matter of service charges, works and repairs. Leaseholders are entitled to know how their money is spent and to be confident that they are getting what they have paid for. Shocking cases of massive overcharging have appeared in the press. In 2011, the Daily Telegraph on 3 December and the Mail on Sunday on 11 December published reports. There was a September case settled almost on the doorstep of the leasehold valuation tribunal where residents of St George Wharf, opposite Parliament, had received a refund of £1 million after a battle that went on for some years.
In the Charter Quay case against the same landlord, Mr Tchenguiz, in December, the leasehold valuation tribunal found that many interconnected companies were entering into contracts with other Tchenguiz family-owned companies and in that case received an excessive commission of 23.5 per cent for insurance. The chairman said:
“The result of entering these contracts has been extremely damaging financially, because the break clauses are so onerous”.
Peverel, the management company owned until recently by the Tchenguiz family, had a very poor record of dealings with its leaseholders.
There are too many cases where intermediate landlords or management responsible for arranging services such as insurance have agreed contracts which mean that they are pocketing money themselves to the detriment of their tenants. Transparency is necessary to reveal these situations and stop this abuse. The organisation Leasehold Knowledge Partnership is actively working to ensure good practice.
Easier change to commonhold was included in the 2002 Act and it is sad that so little commonhold has been developed since. It is so clearly in the interest of the resident. It gives people real ownership of the home in which they live. It should become government policy to facilitate commonhold. The 2002 Act allows leaseholders to convert to commonhold, but only if they are 100 per cent in agreement on the matter. That is an almost impossible percentage—just one flat can thwart it. Reduction to a simple majority would make a great difference. When residents see the benefits, as I have myself in my homeland, they would appreciate the great advantages of such a system. I support the views in favour of commonhold held by CARL, the Campaign for the Abolition of Residential Leasehold.
The right to manage and tenants’ associations can each be very beneficial. The difficulty arises in getting sufficient leaseholders in a block to agree on any option. This is particularly difficult in cosmopolitan areas where many tenants live only part time or property is in foreign ownership. At least some residents have to be willing to take on the work of handling contact with the relevant landlord or managing agent and this takes time and effort. There is no right to manage available if more than 25 per cent of the building is in commercial use. Procedures and percentages merit reconsideration.
My housing experience in GLC days showed me that the number of people willing to take on such a role on a voluntary, unpaid basis is very small and the work can be very demanding. A reputable managing agent has sent me interesting views about the need to train leaseholders to improve their knowledge of the system and obtain certification for this. He favours advisory bodies, alternative dispute resolution and mediation. He states that,
“many disputes could be avoided through early consultation”.
In an ideal world, he would be right, but many leaseholders find that whatever attempts they make fail to produce any response or necessary action from their managing agents. Agents change but are no better. Where routine inspections and long-term maintenance planning used to be the norm, little, if anything, is done now.
As regards loopholes, there is evidently a defect in the leasehold Acts. Some process exists whereby a landlord can avoid the obligation of offering their interest to the leaseholders in a block, by setting up what I think is called a sister company. In my block this has produced a very bad result for leaseholders who would, I believe, have wanted to buy in that head lease. It is wrong that we did not have the opportunity.
Exit or transfer fees have a very adverse effect on older people who wish to move to a retirement village home and when the time comes to move, perhaps to a care home. They find themselves faced with quite a high charge. This is often money that they need. If they have died, their family find that the property might be almost impossible to sell because of the high charges. This certainly needs to be looked at. It has a doubly bad effect in housing terms. Older people living in a house too large for them and who are keen to move to a sheltered housing facility are deterred from doing so because they have such a financial disincentive. This means that a large property is underoccupied and unavailable for a family in need of that size of accommodation. I support the Campaign Against Retirement Leasehold Exploitation—CARLEX.
As to financing home ownership, bridging finance—so common years ago—was short-term money advanced by a bank or building society to enable you to secure the home you wished to move to, and to give you time to sell your present home. This enabled people to move up or down in accommodation size or location, and it worked well. Today, lenders are clear that no such type of finance is available at all.
After a recent housing debate, the noble Lord, Lord Best, told me that Hanover Housing Association, of which he is the chairman, offers an older person the right to move into appropriate accommodation and gives them two years within which to decide whether they are happy and want to buy and stay, or to return to their original home. I find this a marvellous system. It should be more available.
Recently, I was involved in trying to help someone who wanted to buy a flat in a high-rise former council block—
The Deputy Chairman of Committees (Lord Geddes)
With apologies to the noble Baroness, a Division has been called in the Chamber. The Grand Committee stands adjourned until 4.51 pm.
Lord McKenzie of Luton
My Lords, like other speakers, I thank the noble Baroness, Lady Gardner of Parkes, for the opportunity to reflect on a particular aspect of housing policy and I am grateful for the briefings that we have had. I start by declaring an interest because I am, jointly with my wife, a long leaseholder of a flat in London. This debate has, if nothing else, spurred me to be more diligent in reviewing the paperwork.
As others have said, issues of residential leaseholders touch on a particularly complex area of legislation. The noble Baroness has previously sought a view from the Government about whether they will consolidate landlord and tenant legislation and was told, back in November, that there were no plans to do so. However, that exchange at Question Time brought forward suggestions that the matter might be referred to the Law Commission. Has anything been taken forward in this respect? In the same exchange, the Minister indicated that a wide range of housing regulations were being looked at as part of the red tape challenge. How is that progressing, which particular regulations are being reviewed and what areas are being looked at? In a further exchange on 17 January, the noble Baroness, Lady Hanham, reaffirmed that there were no plans for a wide ranging review of leasehold law, but indicated that the Government were keeping a watching brief and would not rule out making changes. Have any changes currently been ruled in?
Issues of leaseholders are just one part of the housing problems facing our country and, to be frank, are not the most pressing. House building has fallen by 11 per cent in the first 18 months of the coalition Government, private sector rents have risen and are unaffordable for too many and home ownership has declined as people struggle to get mortgages. We know that the Government have set their face against further regulation, scrapping Labour’s plans for a national register of landlords and regulation of letting and managing agents. This is at a time when some of the most vulnerable are having their housing benefit cut and are being directed to the cheaper and shabbier end of the private rented sector. Nevertheless, the issue raised by the noble Baroness is important and, as others have said, is likely to be of increasing significance if more blocks of flats are built, shared ownership schemes are promoted and—as the noble Baroness, Lady Maddock, mentioned—the Government attempt to reinvigorate the right-to-buy programme.
It is not just private sector freeholders and landlords who are involved with leaseholders. Some quite outdated ARMA data from 1998-99 suggests that 20 per cent of landlords are social landlords. The same survey suggested that less than half of leasehold flats were using a managing agent. Can the Minister update us on those data? I do not have time to cover it today, but there were issues about social landlords, leaseholders and the implications for decent home standards where a lot of money was being applied by local authorities to upgrade their stock and the implications of that for people who had bought a flat.
It must be acknowledged that this area is not entirely unregulated. The law requires consultation with leaseholders before works above a certain value can be carried out; demands for service charges must be in writing; there is an expectation under the law that service charges are reasonable and there is a right for landlords and leaseholders to seek a determination from a leasehold valuation tribunal. Leaseholders are entitled to a summary of service accounts and to inspect documents. Service charge funds are deemed to be held on trust but do not have to be held in separate trust accounts: thereby hangs a problem. However, as I understand it, where there is a residents’ management company or a right-to-manage company, service charge moneys are subject to a statutory trust.
Apart from the law, managing agents who are members of RICS or ARMA—the Association of Residential Managing Agents—are required to adhere to the RICS code of conduct on service charges for residential management. There is a separate code for retirement housing managers. New best practice guidance has been introduced by the RICS in co-operation with the accountancy bodies, in the face of the Government’s refusal to implement what was previously proposed. Is that considered fit for purpose, and will the Government reconsider giving it some statutory backing?
Despite the voluntary code, as we have heard and seen from our briefings, difficulties abound. Barriers to the managing agent industry are low; and not all managing agents belong to the RICS or ARMA schemes and are therefore not bound by the code. There are no ombudsman arrangements to which all managing agents are required to adhere, and the noble Lord, Lord Best, made a powerful argument to change that. It has been suggested that some of the difficulties arise from the essential imbalance of power between freeholders and landlords on the one hand and leaseholders on the other—the David and Goliath syndrome. Notwithstanding this, it would seem that some of the conflicts arise because insufficient attention is paid when a lease is entered into or required in the first place.
The London Assembly report suggests a requirement for more specific advice at the point of agreement. Estimates of service charges for the next five years, I think, were suggested in that case. It was interesting to hear the experience of the noble Baroness, Lady Miller, currently. The concerns around service charges are inflated prices, not having to achieve value for money, undisclosed commissions, awards of contracts to related companies of managing agents, and the lack of security for leaseholder moneys. The report prepared by the London Assembly also raised issues concerning the leasehold valuation tribunal, suggesting that the process was getting increasingly complex, with an impact on cost. There was difficulty in getting information from landlords, who were increasingly employing counsel, reflecting on-costs. What is the Government’s assessment of how the tribunal is currently working?
There is a case for more regulation—if not by government, by industry bodies—but this must be effective. We have a policy review under way, and in this connection the principles that we would deploy to address this issue require ensuring good practice is promoted, improving transparency, supporting a register of competitive tendering processes for services, and having systems, perhaps mandatory, for the resolution of disputes.
The Deputy Chairman (Lord Geddes)
The noble Lord times it quite beautifully. A Division has been called in the Chamber. The Grand Committee stands adjourned until 5.37 pm.