Lord McKenzie of Luton
Main Page: Lord McKenzie of Luton (Labour - Life peer)
Lord McKenzie of Luton (Lab)
My Lords, I should draw attention to my interests, as recorded in the register, as the owner of a leasehold property.
I begin by congratulating the noble Baroness, Lady Maddock, on securing this debate, if not the usual channels on its timing. We might have been advantaged if we had enjoyed the benefit of the seminar kindly organised for next week by the noble Lord, Lord Best, although we should thank him for circulating the related information from Which?.
We should also congratulate the noble Baroness, Lady Gardner, on her continuing display of expertise and persistence in this area, and indeed on educating noble Lords, including me, over the months and years.
One of the recent questions posed to the Minister at the other end and reiterated today by the noble Baroness, Lady Gardner, was whether the Government have any plans to consolidate the current legislation relating to leasehold and commonhold interests. Given the plethora of legislation touching on these issues, this does not seem an unreasonable request. Of course, we have added to that legislation recently but in a helpful way through the Leasehold Reform (Amendment) Act, which has made easier the processes of collective enfranchisement and leasehold extension. Consolidation would not just be a matter of legislative tidiness; it could contribute to addressing one of the oft-cited bugbears about the sector, which is that it is complex—it has been described as quasi-feudal today by the noble Baroness, Lady Maddock—and is not always fully understood by those who engage in it or, seemingly, by their advisers.
We have also added to the body of law via the Enterprise and Regulatory Reform Act, mentioned by other noble Lords, concerning access to redress schemes relating to letting agencies and managing agents. This was successfully campaigned for by my noble friend Lady Hayter and others, and eventually accepted by the Government. Like other participants in this debate, perhaps I may ask the Minister to give us an update on where these matters currently lie. The redress schemes are not a substitute for proper comprehensive regulation but are a step along the way.
Our deliberations are also taking place in advance of the outcome of the OFT market study into residential property management services, including, I understand, circumstances where the freeholder is a local authority or a housing association. We support this market study and await its outcome later this year, but our preference would have been for a wider study to encompass letting agents and indeed an assessment of the legal framework which underpins freehold and leasehold arrangements in England and Wales. It is this legal framework and the intermediaries that it can engender which are the source of the problems that are oft-cited and have been referred to in our brief debate today.
The typical arrangements are familiar to us all. Leaseholders have the right to occupy and use a flat, including subletting, for the term of the lease. They would generally be responsible for everything within the four walls of the property. The structure, land and communal parts will be owned by the freeholder, who will typically meet the related maintenance and repair obligations and other services via a managing agent, with recharges to the leaseholders by way of a service charge. As we have heard, the managing agent has no legal responsibility to the leaseholders. These flows and relationships are at the heart of the debate that we are having today.
Of course, there are variations on these arrangements, with leaseholders collectively owning the freehold through a collective enfranchisement arrangement. Do the Government consider that there are any residual barriers to these rights being used effectively?
There is also commonhold, which has also been referred to—a system of ownership which allows individuals to own properties with common ownership in perpetuity and collectively to control their management. However, as Which? points out, this has not taken hold as a form of ownership. It muses that this may be because developers have an interest in both developing and then managing leasehold property. The 100% requirement for converting existing leasehold properties to this basis would seem unduly restrictive in practice. We support Which?’s desire for this issue to be covered by the market study.
Whatever the precise formulation, we know that the residential leasehold market is huge. The Association of Residential Managing Agents—ARMA—estimates that there are between 1.6 million and 1.8 million flats in England and Wales. Some estimates put that figure considerably higher: 5 million was the figure referred to before. Given the inexorable growth of the private rented sector and the buy-to-let market, those numbers look bound to increase. We have heard that currently leaseholders might spend in the region of £2.5 billion a year in service charges. In terms of market concentration, ARMA claims over 300 corporate members that, between them, manage around 900,000 flats. About a dozen members are national companies with major portfolios of between 20,000 and 100,000 units. These numbers illustrate why the market study is appropriate.
The scope of the study is about determining: whether managing agents and freeholders have the same interests as leaseholders in keeping down maintenance costs and buildings insurance, and how best value can be achieved; whether leaseholders can sufficiently influence the appointment of managing agents or the extent of their services; whether the market for managing agents is competitive and whether there are practical barriers to switching providers; whether the choice of contractors to provide services is influenced by financial commissions—with insurance in particular—and associated company agreements; and whether there are barriers to leaseholders exercising their right to manage their own property. It touches on a number of the key issues and effectively considers the extent to which the lack of statutory regulation can exacerbate market deficiencies.
A number of other important issues have been highlighted but are not covered. There is the broad issue of the advice that consumers get about owning leasehold property, especially around the length of the lease, the ground rent, restrictive covenants and how service charges are determined. Again, as Which? pointed out, it would be helpful if the market study covered the effectiveness of the leasehold valuation tribunal and the government-funded leasehold advisory service, particularly in circumstances where the number of cases before the tribunal has increased dramatically. Obviously, one clear way to improve standards in the sector—a matter we were working on before the last general election—is a regulatory regime for managing agents. At present, anyone can set up as a managing agent without any relevant qualifications or experience.
Perhaps the Minister could say why the Government consider that a satisfactory state of affairs. What are the problems for government in requiring all managing agents to meet minimum standards of competency and professionalism, to have to declare all commissions received and to follow a code of conduct, particularly on the issue of transparency, which has been raised? Would the Minister accept that that would be an effective way of tackling inflated service charges and challenge connected company exploitation? We should applaud the efforts of ARMA in introducing a voluntary scheme as a step along the way to statutory regulation.
The focus of my presentation so far has been on the relationship between leaseholders and freeholders and their responsibilities and obligations—effectively the leaseholder as the customer. It is impossible to consider comprehensively the issue of leasehold reform without reflecting on the private rented sector more generally where the tenant might be seen as the customer. These relationships will sometimes be between tenant and freeholder, and sometimes between tenant and leaseholder, and thereby governed to an extent by the lease. As the Government acknowledge, the private rented sector comprise some 16.5% of all households, amounting to some 3.8 million homes in England, including some 1.1 million families with children. It is bound to grow and play an important role in meeting housing need.
We want to see a private rented sector that provides decent, safe, and secure homes at a price that people can afford. However, at present too many landlords prey on vulnerable tenants and too much of the private rented stock is non-decent. This undermines the work of the majority of landlords who strive to do the right thing. That is why we wish to develop a national register of private landlords—it is good that we have common cause with the Liberal Democrats, at least on that—designed to assist local authorities in their work, as well as helping HMRC, for example, push back against tax evasion in this sector.
We know that the leasehold/freehold divide has been a source of tension over many years. It is true that legislation over the decades has improved statutory rights for lessees but there remain serious practical issues which regulation can and should address.