Leasehold and Freehold Reform Bill (Eighth sitting)

Matthew Pennycook Excerpts

Committee stage
Thursday 25th January 2024 Public Bill Committees

[Lee Rowley]

The amendment is consequential on Government new clause 6, which introduces a requirement for landlords to provide a future demand notice under section 20B of the Landlord and Tenant Act 1985 if the landlord has incurred costs and cannot issue a demand for those costs within 18 months. The new clause makes it clear that a future demand notice applies only in respect of variable service charges; as a result, there is no longer a need to include the reference to section 20B(2) in clause 26, which otherwise seeks to provide clarity on what measures apply to all service charges and what measures apply only to variable service charges. I commend the new clause to the Committee.

I turn to clause 26. It is important that all leaseholders have access to appropriate information on what they are paying for and the condition of their building. That will help them to determine whether their landlord is providing an adequate service or whether they are being overcharged. Many landlords already provide a good service; however, some do not, and that must change. The existing regime is geared up to protect leaseholders who pay variable service charges. There are some leaseholders who pay fixed service charges, and those leaseholders do not enjoy the same protections. Leaseholders who pay fixed charges have a right to receive a good-quality service, which means having a better understanding of how their funds are being used, as well as having access to key information on matters that are important to them, as we discussed before we adjourned.

Clause 26 extends part of the regulatory framework on the provision of information to cover leaseholders who pay fixed service charges. Subsection (2) amends section 18 of the Landlord and Tenant Act 1985 to create separate definitions of “service charge” and “variable service charge”. That enables the Government to provide clarity on which provisions in the 1985 Act apply only to variable service charges. Subsections (3) and (4) amend the 1985 Act to ensure that parts of the regulatory regime continue to apply only to leaseholders who pay variable service charges—that includes, for example, the ability to challenge the reasonableness of the service charge under section 19 of the Act. The measure will ensure that leaseholders paying fixed service charges are entitled to receive information of relevance to them. I commend the clause to the Committee.

I return to Government new clause 6. When section 20 major works are undertaken, landlords may require a leaseholder to pay for costs up front or pass on costs to the leaseholder once the work has been carried out. Where leaseholders are charged after work is completed, the leaseholder must be issued with a demand for payment within 18 months of the costs having been incurred or, alternatively, be notified in writing within the 18-month period that they will be liable to pay the costs in the future. Failure to meet one of those two conditions will mean that leaseholders are not liable.

There is no prescribed form or content of a notice under section 20B(2) of the Landlord and Tenant Act 1985, which has led to confusion regarding the meaning and effect of the section, and much case law has followed. It has also left leaseholders with uncertainty on whether they will be required to contribute, the amount of their contribution and when the demand for payment could be served; the new clause seeks to provide clarity on all of those. New clause 6 introduces new subsections (3) to (9) into section 20B of the 1985 Act, which will require landlords to specify the amount of costs incurred, the leaseholder’s expected contribution and the date by which the demand will be served. The intention is to give leaseholders certainty on costs that have been incurred by the landlord, their own individual liability and when they are likely to receive the demand.

The changes to subsections (2) and (3) require landlords to issue a future demand notice when they will be passing costs through the service charge more than 18 months after the costs have been incurred. Subsection (3) defines “future demand notice” as a notice in writing that relevant costs have been incurred, and that the leaseholder is required to contribute towards the cost by payment of a variable service charge. Subsection (4) sets out that the Secretary of State and Welsh Ministers can, by regulations, specify the form of the notice, the information to be included in it and the manner in which the future demand notice must be given to the leaseholder. Subsection (5) details that regulations by the Secretary of State and Welsh Ministers may specify that information to be included in the future demand notice should include an estimate of the costs incurred; an amount that the leaseholder is expected to contribute to those costs; and a date on or before which it is expected that the service charge will be demanded. We will work with landlords, managing agents and leaseholders to set out what a future demand notice may contain, to ensure that regulations require the right level of information.

Subsection (6) sets out that regulations may provide for a relevant rule to apply where the leaseholder has been given a future demand notice and the demand for payment is served more than 18 months after costs were incurred. Subsection (7) sets out the relevant rules and the leaseholder’s liability to pay the service charge where a future demand notice contains estimated costs, an expected contribution or an expected demand date. Subsection (8) also allows the landlord to extend the expected demand date in cases specified by regulations. That might be because of unexpected delays in completing the work, for example. The measures seek to provide leaseholders with more certainty on costs. I commend the new clause to the Committee.

Amendment 46 agreed to.

Clause 26, as amended, ordered to stand part of the Bill.

Clause 27

Service Charge Demands

[Matthew Pennycook (Greenwich and Woolwich) (Lab)]

I beg to move amendment 11, in clause 27, page 43, leave out line 12.

This amendment would remove provision for the appropriate authority to exempt certain categories of landlord from the requirements relating to service charge demands set out in subsection (1) of the clause.

Clause 27 replaces provisions in the 1985 Act with a new provision that imposes a simple requirement on landlords to demand payment of a service charge using a specified form, rather than, as is presently the case, in accordance with the terms under the lease in question—or, in the absence of any such provisions, in any manner that suits them. We very much welcome the clause, which should ensure that service charge demands and annual reports are provided to leaseholders in a standardised format. If it works well, the clause is likely to have the most widespread practical impact of any provision in the Bill, given that many hundreds of thousands of service charge demands each year will have to be in a prescribed form.

The clause will also ensure, by means of inserting proposed new section 21C into the 1985 Act, that where the demand for service charge payments is not in the specified form, containing the specified information and provided to the leaseholder in the specified manner, the lease provisions relating to late or non-payment do not apply to the charge in question, and there is no obligation to pay until they are met. There is also a new sanction for non-compliance, which we will consider in due course. The effectiveness of the provisions in the clause will ultimately rely on enforcement, but new section 21C should ensure that the majority of freeholders and managing agents comply with the requirement to issue a service charge in the standardised form.

We do, however, have two concerns about aspects of the clause. Amendment 11 addresses the first of those concerns, which relates to exemptions from the requirements being introduced. New section 21C(3) confers powers, by regulations subject to the negative procedure, on the appropriate authority to exempt certain landlords. We have reservations about the inclusion of such powers, because they could be used to exempt entire categories of landlords from the requirements set out in subsection (1), and thereby deny large numbers of leaseholders the benefits that they would otherwise secure as a result of their application. Amendment 11 simply deletes subsection (3)(a) to remove the power to provide exemptions from subsection (1) for certain types of landlords. We hope the Minister will consider accepting it. If not, we would be grateful for some clarity on what kind of landlords the Government believe might need to be legitimately exempted from the relevant requirements, and some reassurance that the power will be used sparingly and in an extremely limited manner.

[Lee Rowley]

I thank the shadow Minister for his amendment. We will resist it for reasons that I will give, and I hope I can reassure him to the extent that he does not seek to push it to a vote. I am happy to give at least one instance of a good reason for exempting landlords now or in future: there are cases where it may be too costly or disproportionate to expect a landlord to provide this degree of information, or where doing so is unnecessary. An example that I was not aware of before I was told is a freeholder of two flats who resides in one of them; that is known as a Tyneside or criss-cross lease, which became common in the north-east of England in the 19th century. Given the limited number of people who live in there, and the reason for that structure, we would deem it unnecessary to provide this form, hence the ability to exempt.

However, to address the hon. Gentleman’s key point, notwithstanding individual exemptions, I am happy to place on record that once we have consulted, understood people’s views, taken on the broad range of views about this, and potentially found other things like criss-cross leases, we would expect any list to be very small indeed. We share the clear hope that the power will be used only where it is absolutely necessary, and certainly not to the extent that the hon. Gentleman fears. I hope that, on that basis, he may consider withdrawing his amendment.

[Matthew Pennycook]

I thank the Minister for that response. I was also unaware of criss-cross or Tyneside leases, although the Opposition Whip, my hon. Friend the Member for North Tyneside, indicated to me during the Minister’s remarks that she used to live in one, so she will have some familiarity with them. On the basis of the Minister’s response, and given the reassurances that he has provided, I am happy to withdraw the amendment. It is our hope that the measure will apply to very limited categories of landlord, and I think that the Minister indicated as much, so very few leaseholds will be exempt from the requirements. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Lee Rowley]

I beg to move amendment 47, in clause 27, page 43, line 24, after “1987” insert “(‘the LTA 1987’)”

This amendment and Amendment 54 align references to the Landlord and Tenant Act 1987 with other references to Acts.

[Lee Rowley]

Amendments 47 and 54 are required because of new clause 9, which amends the Landlord and Tenant Act 1987. They ensure that references to the Landlord and Tenant Act 1987 are aligned with other references to Acts, by adopting the abbreviated reference. Amendment 124 is consequential on amendments 47 and 54; it aligns references to the Landlord and Tenant Act 1987 with other references to Acts in the Bill. I commend these amendments to the Committee.

Amendment 47 agreed to.

[Matthew Pennycook]

I beg to move amendment 12, in clause 27, page 43, line 38, at end insert—

“(c) in section 48 (notification by landlord of address for service of notices), after subsection (3) insert—

‘(3A) Subsections (2) and (3) do not apply in relation to a written demand for payment of a service charge if section 21C of the Landlord and Tenant Act 1985 requires the demand to include information which subsection (1) also requires to be provided to the tenant.’”

This amendment would ensure consistency between the information requirements provided for by Clause 27 and specific contractual requirements set out in leases.

Amendment 12 addresses our second concern with clause 27, which relates to consistency between it and existing contractual requirements. This issue came to our attention purely as a result of written evidence—actually, to be precise, I think it was as a result of a blog post—from Mark Loveday of Tanfield Chambers. He drew attention to the fact that the amended provisions in this clause are likely to supplement, rather than replace, contractual requirements in some existing leases about the form of demands for payment. There is therefore potentially a risk of confusion and duplication. Mr Loveday also highlighted the overlap between provisions in the 1987 Act relating to the information to be furnished to tenants, and the fact that clause 23(4) does not disapply the information requirements of section 48 of the 1987 Act.

I throw my hands up: this is far from my most elegantly drafted amendment. It is simply an attempt to probe the Government on the consistency between the information requirements provided for by this clause and provisions in 1987 Act relating to specific contractual requirements set out in leases. I look forward to hearing the Minister’s thoughts on the amendment, and on the general need to ensure complete consistency between the measures being introduced by clauses 26 to 30 and those in the 1985 and 1987 Acts that set out the main limitations on variable service charges in residential leases.

[Lee Rowley]

I thank the hon. Gentleman for his amendment. The advice that I have received is that the amendment is unnecessary. Sections 47 and 48 of the 1987 Act already prescribe that landlords must give details of their name, and an address in England or Wales where they can be served with notices, when making a demand for rent or other sums, including service charges. Clause 27(4) provides clarity on the fact that if there is an overlap between information required under proposed new section 21C of the LTA 1985 and the obligations under the 1987 Act, proposed new section 21C takes precedence. For example, if the new standardised service charge demand form requires a landlord to give the same information as is provided under sections 47 and 48 of the 1987 Act, proposed new section 21C would take precedence, and failure to provide the information would be dealt with by the provisions of the proposed new section.

Critically, the new standardised demand form will not restrict the amount of information that must be provided with a demand. Landlords will be able to provide additional information on the demand form if they wish. That may include any information set out in the lease. Unless we have missed something, we believe that, for that reason, the amendment is unnecessary, and request that it be withdrawn.

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[Lee Rowley]

I recognise that in some instance it is an incredibly frustrating process to go through. As I know the hon. Gentleman will appreciate, this is a pretty technical element of policy. The assurances that I have received from officials and experts involved is that the legislation should cover those bases. There will always be challenges around finding people and going through operational processes. There will be challenges in finding people who do not want to be found easily, but ultimately the law is clear that they need to be found. From that perspective, I think that the law is sufficient. We do not think anything has been missed, but if something has, we will happily receive further correspondence and consider it.

[Matthew Pennycook]

I will be brief. My hon. Friend the Member for Brent North raises an interesting point. Can the Minister—if not now, then perhaps in writing—expand on whether, where a landlord has not complied with the relevant requirements, proposed new section 21C means that the provisions relating to late or non-payment do not apply? Does it provide that level of protection? The hope is that it does.

On the general point, I welcome the clarification and assurances that the Minister has provided. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause, as amended, stand part of the Bill.

[Lee Rowley]

Service charge demands are one of the most important ways in which leaseholders receive information from their landlord, as we have been discussing. Under current arrangements, landlords are required to issue any service charge demand in accordance with the terms of the lease, or otherwise in a manner that suits them. That has led to variable practice in the sector, which has often been to the detriment of the leaseholder, who then gets confused about what they are paying for and has to spend time chasing the landlord for more information.

Proposed new section 21C enables the Secretary of State and Welsh Ministers to prescribe a standard form and the information that it should contain. We will work closely with leaseholders, landlords and managing agents to ensure that we prescribe both the right information and the right level of detail. Proposed new section 21C(2) makes it clear that a failure to provide information in the new standard format will mean that the leaseholder does not have to pay the charge until the failure is remedied, and any provisions in the lease for non-payment will not apply. The Secretary of State will also have the power to create any exemptions if our work with stakeholders demonstrates that there is a good case for any landlord being excluded, either now or in the future.

Clause 27(2) omits existing legislation relating to obtaining information on a summary of costs, as well as other unimplemented legislation surrounding service charge demands. Those measures will be superseded by the provisions we are implementing in part 3 of the Bill, so it is not necessary to retain them. That measure, alongside others, should ensure that landlords provide relevant information to leaseholders, and I commend the clause to the Committee.

Question put and agreed to.

Clause 27, as amended, accordingly ordered to stand part of the Bill.

Clause 28

Accounts and annual reports

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[Barry Gardiner]

Amendment 131 would enable leaseholders to withhold service charge payments where the landlord has failed to comply with their obligation to provide a written statement of account in the specified form and manner within the six-month period from the end of the financial year that is specified in the legislation. Arguably, it is more important for leaseholders that the accounts are presented in time than that they are presented in a specific form. I welcome what the Government have done to make sure that accounts are presented in a specific form, but the real crux of the matter is: are they presented in time? The amendment would enable leaseholders to have redress if they were not.

We heard in the evidence sessions of that huge imbalance of power in the leasehold system. Given that the Government already accept the principle of leaseholders withholding service charge moneys where they have not been demanded by a landlord in the right way, surely we should rebalance that imbalance of power in the landlord-tenant relationship in leasehold by permitting them to withhold service charges when they are not forthcoming within that allotted time. I believe that policy was also in the 2002 Act, but again, as with the provisions on sinking funds, it was not brought into force.

I also welcome amendments 13 and 14. Certainly, the former achieves something similar—maybe even better. If the Minister were able to give me an assurance that he were willing to accept amendment 13, tabled by my hon. Friend the Member for Greenwich and Woolwich, I might even be persuaded to withdraw amendment 131.

[Matthew Pennycook]

I rise to speak to speak to amendments 13 and 14. As I think my hon. Friend the Member for Brent North just touched upon, clause 28 inserts new sections 21D and 21E into the 1985 Act to create a new requirement for a written statement of account to be provided by landlords within six months of the end of the 12-month accounting period for which variable service charges apply. It also places an obligation on landlords to provide an annual report to leaseholders. We welcome the clause, as did my hon. Friend the Member for Brent North, for the reasons discussed in the evidence sessions last week. The 2002 attempt to mandate a form of regular service charge accounts and statements was ultimately unsuccessful, with the replacement section 21 of the 1985 Act never brought into force. As a result, service charge processes remain unstandardised.

A staggering range of different procedures are being used across the country. Some leases specify the form that annual budgets and accounts must take, while others do not. Some require certification by the freeholder, managing agent, management company, accountant or auditor, while others do not. Some prescribe deadlines by which budgets or accounts must be produced and make adherence to those conditions a precedent to liability to pay a service charge, while others do not.

Clause 28 clearly seeks to overhaul this fragmented patchwork of arrangements by introducing the new section 21D, making annual accounts and certification by a qualified accountant a mandatory requirement and, through new section 21E, introducing a statutory duty to provide leaseholders with an annual report about their service charges. By introducing the mandatory requirements that it does, new section 21D(2) implies a term into leases of dwellings with variable service charge provisions.

In our view, the decision to imply terms raises a number of questions and concerns. First, do the implied terms of new section 21D replace any equivalent existing provisions in the lease? If not, landlords and managers will potentially be forced to prepare two sets of accounts: one under the existing terms of the lease and the other under the new implied terms in section 21D. Secondly, why are no express sanctions for non-compliance included in new section 21D? That point was raised by Amanda Gourlay in the Committee evidence sessions.

Given that the implied terms are not covered by the enforcement provisions in new section 25A—provided for by clause 30—surely it is not the Government’s intention to require leaseholders to apply for specific performance through the courts when it comes to this matter. Thirdly, despite the clause including no right to recover implied costs, there is a risk that some landlords will nevertheless seek to recover the extra costs of complying with these requirements through service charges. Can we be sure that leaseholders will not find themselves picking up the bill for complying with the new mandatory requirements? I would welcome the Minister’s response to each of those questions and concerns, in writing if he is not able to address each in detail today—they are very specific and technical.

Perhaps the more significant question that arises from the decision to imply terms by means of new section 21D is whether the landlord’s compliance with those terms will be treated by the courts and the tribunal as a condition precedent to the lessee’s obligation to pay their service charges. We believe it is important that it is made clear in the Bill that compliance with the implied terms in question is a condition precedent to the lessee’s obligation to pay their service charges and that, by implication, leaseholders are not required to pay if the landlord does not comply with the implied terms. Amendments 13 and 14 would have that effect, with the same desired outcomes as the welcome amendment 131, in the name of my hon. Friend the Member for Brent North, but without the tribunal potentially having to arrive at a judgment on the state of mind of the leaseholder who is withholding their charge. I hope the Minister will accept those amendments as a means of providing the necessary clarification.

[Lee Rowley]

I thank the hon. Members for Brent North and for Greenwich and Woolwich for their amendments.

Amendment 131, in the name of the hon. Member for Brent North, seeks to enable leaseholders to withhold payment of their service charges when accounts are not provided within six months. I absolutely agree with the sentiment that information must be provided in a timely manner, and that there have to be consequences for not doing so. However, the question is whether withholding the service charge is a proportionate and effective means of doing so; the effective question is whether the risk of doing so creates unintended consequences. For example, were a leaseholder to withhold payments in circumstances where it is found that section 21D had been complied with, that may render the leaseholder liable to pay their landlord’s litigation costs, depending on the terms of the lease. Withholding payments also creates consequences for other leaseholders and may eventually mean that works are not carried out. I recognise that that is not the intention or the point that the hon. Gentleman is making, but in the portion that we are looking at, it is important that we consider all potential unintended consequences.

Services of certified accounts will, for most landlords, be a necessary step for a landlord to identify whether they have spent more than estimated during the accounting period and, where the costs incurred during that period are more than was estimated, the landlord will wish to serve a further demand to recover the shortfall. It is in the landlord’s interest to do that, but I recognise that not all landlords act in a completely rational way or a way that necessarily follows logic. Should a landlord, however, fail to issue a demand for costs within 18 months of those costs having been incurred, then through new clause 6, the leaseholder would not be liable to contribute towards those costs at all.

I realise that that answer will probably not address every part of the concern expressed by the hon. Member for Brent North; it is the same as when I applied that logic to the amendment in the name of the hon. Member for Greenwich and Woolwich. However, I hope it demonstrates both that we are clear that it should be done—that there is a logic, an incentive and a rationale for it to be done—and that there is ultimately a cliff at the end of it, a cut-off point in the event that they do not do it. I hope that provides some assurances; I will see whether that is enough to tempt the hon. Member for Brent North to withdraw his amendment.

--- Later in debate ---

[Barry Gardiner]

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Matthew Pennycook]

Mr Efford, may I respond to the Minister’s comments on amendment 13?

[The Chair]

No, you have missed that chance, I am afraid. We are in the votes.

[Matthew Pennycook]

In that case, I will press the amendment to a vote without justifying it.

Amendment proposed: 13, in clause 28, page 45, line 4, at end insert—

“(8) Where a landlord of any such premises fails to comply with the terms implied into a lease by subsection (2), any rent, service charge or administration charge otherwise due from the tenant to the landlord shall be treated for all purposes as not being due from the tenant to the landlord at any time before the landlord does comply with those subsections.”—(Matthew Pennycook.)

This amendment would require courts and tribunals to treat the landlord’s compliance with the implied term requirement for annual accounts and certification as a condition precedent to the lessee’s obligation to pay their service charges.

Question put, That the amendment be made.

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[Lee Rowley]

We have already talked about this, but in summary, most landlords are required under the terms of the lease to provide leaseholders with a written statement of accounts. Where leaseholders feel they have not been provided with sufficient information, they may ask for a written summary of costs for the past accounting period or, if the accounts have not been made up, for the period of 12 months ending with the date of the request.

We know that the current arrangements, as we have just discussed, do not provide adequate statutory protection. Although many landlords provide their leaseholders with sufficient information, others fail to do so. Subsection (2) of clause 28 introduces two new measures to address that. Proposed new section 21D of the 1987 Act implies into leases a new requirement for landlords who charge variable service charges and manage blocks of four or more dwellings. The threshold reflects existing arrangements for the preparation of a summary of costs. We are placing an obligation on such landlords to provide a written statement of account to leaseholders within six months of the end of the 12-month accounting period. This statement must be certified by a qualified accountant.

[Matthew Pennycook]

The Minister provides me with the opportunity to get my justification in, but, without going through it, he can answer the question that underpinned amendments 13 and 14 by simply telling me whether the decision to imply terms, as new section 21D does, means that a landlord’s compliance with them is to be treated as a condition precedent to the lessee’s obligation to pay their service charges.

[Lee Rowley]

I am grateful to the shadow Minister for his question, and, because of its specifical legal and technical nature, I will write to him. I know that members of the Committee may wish to seek assurances about the word “arising”, which was referenced in evidence last week. I am happy to give the assurance that we will consult accountants on to how to present these service charge accounts, which I hope will mean that there is a process to ensure that any necessary clarification of particular terminology will be clear to those who operate within it.

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[Lee Rowley]

My hon. Friend is absolutely right. One of the reasons why I want to write is that I want to ensure that the specific elements and substantive parts of the concept of audit are represented to the Committee in the most accurate way. We have to strike a balance by ensuring that sufficient information is made available for decisions to be made, but equally we cannot create a process that is so involved, for what I am sure are very good reasons, that it would be disproportionate, and then create a whole heap of new consequences on the other side, which is what we are trying to avoid.

To conclude, new section 21E places an obligation on landlords to provide an annual report. For service charges, that report must be provided within one month of starting a 12-month accounting period, although it can be provided earlier if it is expedient to do so. Both new sections allow the Secretary of State, as we have already discussed, and Welsh Ministers to prescribe the detailed content in secondary legislation. We will work closely with interested parties when we come to do that. Subsections (3) and (4) make consequential changes to the definition of “qualified accountant” under sections 28 and 39 of the 1985 Act to reflect these new sections. I commend the clause to the Committee.

Question put and agreed to.

Clause 28 accordingly ordered to stand part of the Bill.

Clause 29

Right to obtain information on request

[Matthew Pennycook]

I beg to move amendment 15, in clause 29, page 46, line 19, at end insert—

“(3) Information specified for the purposes of section (1) must include accruals and prepayments and digital copies of service charge accounts.”

This amendment would ensure that regulations made by the appropriate authority must provide tenants with the right to accruals and prepayments and digital copies of service charge accounts.

As things stand, leaseholders only enjoy the right to request a summary of relevant costs and inspect supporting documentation in relation to such a summary. Barring a disclosure order made during tribunal proceedings, there are few direct means for leaseholders to secure relevant information. Clause 29 makes a series of changes to the 1985 Act to provide for a new stand-alone right for leaseholders to request information from their landlord, and we welcome it.

Precisely what such a right will entail will largely be set out in regulations that will presumably not only specify the relevant categories of information that can be requested and obtained, but the relevant timelines for compliance. We take no issue in principle with the detail being brought forward by statutory instrument—for obvious reasons—but we have tabled amendment 15 to ensure that the information that ultimately can be lawfully requested by leaseholders under clause 29 includes accruals and prepayments, as well as digital copies of service charge accounts.

We feel that statutory access to accruals and prepayments is vital because they are prepared on a true and fair basis and are necessary to understand most service charge accounts. The case for ensuring that service charge account information can be accessed by leaseholders in a digital format is, we hope, self-evident. I hope the Minister will consider accepting the amendment or, if he feels that he cannot, will at least provide the Committee with robust assurances that the relevant regulations will in due course specifically include accruals and prepayments and digital copies of accounts in the categories of information that can be requested.

[Lee Rowley]

I do not seek to detain the Committee, and I hope the hon. Gentleman will accept my short response. I am not disregarding the substantive points of the amendment, but some of them we have discussed before. I accept that this is an important area and we have to get it right. We must make sure that the information prescribed in the process works and is comprehensive enough for people to get a true understanding of what is going on and proportionate enough to make it meaningful and not incur unnecessary costs. I agree with the hon. Member that leaseholders should have access to the relevant financial information and that that information should be clearly understood and articulated so that people can derive decisions and comfort from it.

The Government prefer that the detail is prescribed in secondary legislation and are committed to consulting. It is fair to say that the details will be key parts of a discussion about the feasibility of inclusion in the final decision when it is made.

[Matthew Pennycook]

I welcome that response from the Minister. On that basis, I am happy to beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Matthew Pennycook]

I beg to move amendment 16, in clause 29, page 48, leave out lines 1 to 8 and insert—

“(4) P may not charge R any sum in excess of the prescribed amount in respect of the costs incurred by P in doing anything required under section 21F or this section.

(5) The prescribed amount means an amount specified in regulations by the appropriate authority; and such regulations may prescribe different amounts for different activities.

(6) If P is a landlord, P may not charge the tenant for the costs of allowing the tenant access to premises to inspect information (but may charge for the making of copies).”

This amendment would make the appropriate authority (i.e. the Secretary of State or the Welsh Ministers) responsible for setting a prescribed amount for the costs of providing information to leaseholders. That prescribed amount would be the maximum amount that freeholders and managing agents employed by them could seek to recover through a service charge.

[The Chair]

With this it will be convenient to discuss the following:

Amendment 132, in clause 29, page 48, leave out lines 1 and 2.

This amendment would prevent a landlord from recovering the costs of complying with the requirements to provide information imposed by new sections 21F and 21G.

Amendment 133, in clause 29, page 48, line 3, leave out “But,”.

This amendment is consequential on Amendment 132.

[Matthew Pennycook]

Arguably of more importance in ensuring that clause 29 is beneficial to leaseholders than the type of information that they will henceforth have the right to request and what form it is shared in is the need to protect them from excessive charges levied for providing that information. As it stands, subsection (4) of new section 21G of the Landlord and Tenant Act 1985 would allow person P to charge person R for the costs of doing anything required under new section 21F or this new section, while subsection (6) renders those costs relevant for the purposes of a variable service charge. In other words, new section 21F includes an implied right for landlords to recover the costs of supplying the relevant categories of information to leaseholders through the service charges, with penalties for non-compliance under clause 30.

We obviously do not take issue with the right to recover reasonable costs of complying with the mandatory requirements introduced by the clause, but there is an obvious risk, given everything we know about how some landlords in the market operate, that some will charge excessive fees for supplying that information. We have tabled amendment 16 to give the Secretary of State the power, just as the Bill provides for in other respects, to set prescribed amounts with a view to ensuring that leaseholders are not subject to unreasonable costs should they feel they need to request certain categories of information. I hope the Minister can understand the very simple point that the amendment is driving at and will consider accepting it.

[Lee Rowley]

I am grateful to the hon. Gentleman for moving amendment 16. He does not deny that landlords will incur a cost for answering information requests. The level of cost will vary, depending on the volume of information, the complexity, the period, the timeline and a number of other factors. There may be difficulties in obtaining all that information. Landlords may also incur a cost in chasing other people who hold the information required to answer a leaseholder’s request, notwithstanding our earlier conversations about the reasonableness of the costs for talking to other parties.

Given the variety of different scenarios, we start from a place in which it is very difficult to set a cap that would not create another unintended consequence somewhere else. None the less, I note the hon. Gentleman’s concern and am happy to confirm that we are listening very carefully on this matter, but I hope he might consider withdrawing the amendment.

[Lee Rowley]

I will not detain the Committee, because my response will be similar to the one I gave to the hon. Member for Greenwich and Woolwich.

We accept the broad point made by the hon. Member for Brent North but, for the reasons I outlined previously, we think it would be difficult to do this. There is at least an argument that proportionality has to be considered. However, I am happy to confirm that we are listening very carefully. On that basis, I hope the hon. Member for Greenwich and Woolwich may be willing to withdraw amendment 16.

[Matthew Pennycook]

I appreciate what the Minister has said, both about the variety of circumstances that need to be covered and about the difficulties with imposing a flat cap. I take on board what he said about the Government listening carefully.

I am minded to press the amendment to a vote purely to indicate how strongly we feel about this issue. The thrust of the five provisions is, “Let’s increase transparency and let’s increase the enforcement measures,” all ultimately to ensure that leaseholders have a better ability to bear down on unreasonable costs, and it is of great concern to us that while we are trying to do that, we are opening up other routes whereby unscrupulous landlords can start to introduce unreasonable costs in relation to the very things that we are trying to clamp down on. We will press the amendment to a vote simply to put on the record our concern in respect of leaseholders needing some protection—even if it is not a flat cap—from unreasonable costs being passed on through this mechanism.

Question put, That the amendment be made.

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[Lee Rowley]

As I outlined in relation to clause 28, the Government accept that the current arrangements do not provide adequate statutory protection. In addition to the measures set out in clauses 26 to 28 to drive up transparency, clause 29 introduces new provisions to enable leaseholders to request information from their landlord or a third party who holds relevant information. Subsection (2) introduces proposed new section 21F of the Landlord and Tenant Act 1985, which sets out provisions that enable leaseholders to receive information on request. That information may relate to

“service charges, or…services, repairs, maintenance, improvements, insurance, or management of dwellings.”

One example might be a stock condition report for the building. Landlords will be obliged to provide information that they have in their possession, and where they need to ask another person for it, that person is required to do the same.

Proposed new section 21G provides further details on information requests under section 21F. It allows a leaseholder to request that they inspect a document and make and remove a copy of the information. Section 21G also provides that landlords may not charge the leaseholder for providing facilities for access, although they can charge for the making of copies. Alternatively, the landlord can pass the reasonable costs of any inspection through the service charge. This section allows the Secretary of State and Welsh Ministers to specify the time period for providing such information, circumstances in which that period may be extended and how the information is to be provided.

Proposed new section 21H provides that where the lease is assigned, the obligation to provide the information requested under section 21F must still be complied with. However, the person obliged to provide the information is not required to provide the same information in respect of the same dwelling more than once.

Question put and agreed to.

Clause 29 accordingly ordered to stand part of the Bill.

Clause 30

Enforcement of duties relating to service charges

[Matthew Pennycook]

I beg to move amendment 19, in clause 30, page 49, line 15, leave out “damages” and insert “penalties”.

This amendment, together with Amendments 20 to 25, would make clear that the sum to be paid to the tenant in circumstances where a landlord failed to comply with duties relating to service charges is a punishment rather than a recompense for loss to the leaseholder thus ensuring it is not necessary to provide proof of financial loss. See also Amendments 17 and 18.

[The Chair]

With this it will be convenient to discuss the following:

Amendment 20, in clause 30, page 49, line 27, leave out “damages” and insert “penalties”.

See explanatory statement to Amendment 19.

Amendment 21, in clause 30, page 49, line 30, leave out “Damages” and insert “Penalties”.

See explanatory statement to Amendment 19.

Amendment 22, in clause 30, page 49, line 34, leave out “damages” and insert “penalties”.

See explanatory statement to Amendment 19.

Amendment 23, in clause 30, page 49, line 39, leave out “damages” and insert “penalties”.

See explanatory statement to Amendment 19.

Amendment 24, in clause 30, page 49, line 41, leave out “damages” and insert “penalties”.

See explanatory statement to Amendment 19.

Amendment 25, in clause 30, page 50, line 2, leave out “damages” and insert “penalties”.

See explanatory statement to Amendment 19.

Amendment 134, in clause 30, page 49, line 29, at end insert—

“(4A) An order under subsection (2)(c) or (4)(c) may include an order that the landlord remedy any breach revealed by the application in respect of any other leaseholder.

(4B) Where the tribunal makes on order under subsection (4A), the tribunal may make an order that the landlord, or (as the case may be) D, pay damages to any other leaseholder in respect of whom a breach revealed by the application must be remedied.”

This amendment would enable a tribunal to order the remedy of a breach in respect of, and damages to be paid to, a leaseholder affected by a breach revealed by the application to the tribunal, even if that leaseholder is not a party to the litigation.

[Matthew Pennycook]

Clause 30 substitutes existing section 25 of the 1985 Act, which includes penal provisions dealing with any failure to comply with the relevant provisions, with proposed new section 25A, which decriminalises the sanctions and applies a new enforcement regime. The new enforcement regime will allow a tenant to apply to the appropriate tribunal in instances in which their landlord did not demand a service charge payment in accordance with section 21C under clause 27, failed to provide a report in accordance with section 21E under clause 28, or failed to provide information in accordance with sections 21F and 21G under clause 29. The tribunal will have the power to issue an order that the landlord comply with the relevant provision within 14 days and that they pay a fine of up to £5,000 to the applicant, or other consequential orders.

We welcome the new enforcement regime, but we have three main concerns about how it will operate in practice. With amendments 19 to 25, we seek to address the first of those concerns, which is our fear that the use throughout clause 30 of the term “damages” may imply that leaseholders are required to provide proof of financial loss for the tribunal to order that the landlord pay a fine for failing to comply with one or more of the modified requirements introduced in clauses 27 to 29. The risk that the tribunal takes that view, and thus stipulates that proof of financial prejudice is required, is real, as we have seen with the reforms made to section 20 of the 1985 Act. We tabled this group of amendments to encourage the Government to consider replacing “damages” throughout the clause with “penalties” to make it explicit that an order for failing to comply with requirements under sections 21C, 21E, 21F or 21G of the 1985 Act requires no proof of financial loss on the part of leaseholders. I look forward to hearing the Minister’s thoughts.

[Lee Rowley]

I thank the hon. Gentleman for amendments 19 to 25, with which, as he indicated, he seeks to adds clarity that any sums paid to the leaseholder where there is a failure to comply are a punishment rather than a recompense for loss. As the Committee is aware, clause 30 will replace the existing and ineffective enforcement measures for failure to provide information with new, more effective and more proportionate measures. That includes allowing the leaseholder to make an application to the appropriate tribunal in cases where landlords have failed to provide the necessary service charge information.

It is the Government’s view that the tribunal is the appropriate body to handle such disputes and to determine whether the landlord has failed in their duties, and whether subsequently they are required to pay damages to the leaseholder. In reaching its decision and ordering that damages be paid, the tribunal need only be satisfied on the balance of probabilities that the landlord breached the relevant section. If a financial penalty were applied, the appropriate tribunal would need to be satisfied beyond reasonable doubt that the landlord had breached the relevant section.

While I understand the hon. Gentleman’s point on the use of the term “damages”, I am advised that its use does not mean that evidence of financial loss is required. Therefore, in aggregate, we consider that financially recompensing the affected leaseholder by way of the payment of damages is both a suitable incentive for the leaseholder to bring the application and a suitable deterrent for landlords, while aligning with the tribunal’s powers.

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[Lee Rowley]

I am happy to ask the Department to look into that in further detail. I have no personal understanding of whether that would be possible or reasonable and proportionate and not have a series of other consequences, but it is reasonable to look into it further.

[Matthew Pennycook]

Briefly, I welcome what the Minister said on the issue of damages versus penalties. It could be another word than “penalty”, but I hope the point that the amendment tried to make was understood. I am not certain, because I, like him, do not have expertise in the area, whether “damages” could be misinterpreted by a tribunal, notwithstanding what he said. I encourage the Minister to go away and ensure that the reassurance he has given—it is on the record and can be referred to, which is helpful—is understood and cannot be misinterpreted. I think we share the same end: this must be punishment rather than recompense, and leaseholders cannot be expected to provide proof of financial loss. If, as the Minister has indicated, that is the shared intention, I am happy to ask leave to withdraw the amendment, but I hope he will go away and reassure himself further that the tribunal can have no confusion on that point. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Matthew Pennycook]

I beg to move amendment 17, in clause 30, page 49, line 30, leave out “£5,000” and insert “£30,000”.

This amendment would raise the cap on penalties under this section (see explanatory statement to Amendment 19) for a failure to comply with duties relating to service charges to £30,000.

[The Chair]

With this it will be convenient to discuss the following:

Amendment 142, in clause 30, page 49, line 30, leave out “£5,000” and insert “£50,000”.

This amendment would increase from £5,000 to £50,000 the maximum amount of damages which may be awarded for a failure on the part of a landlord to comply with the obligations imposed by new sections 21C (service charge demands), 21E (annual reports), or 21F or 21G (right to obtain information on request) of the Landlord and Tenant Act 1985.

Amendment 18, in clause 30, page 49, line 30, at end insert—

“(6) Penalties under this section must be at least £1,000.”

This amendment would insert a floor on penalties under this section (see explanatory statement to Amendment 19) of £1,000.

[Matthew Pennycook]

Amendments 17 and 18 address our remaining main two concerns about the clause. The first concern, to which we will return when we consider penalties in relation to part 4 of the Bill, is that we are not convinced that a penalty cap of £5,000 is a sufficient deterrent against non-compliance with the requirements in question. For many—not all, but many—landlords, a penalty of £5,000 will be very easily absorbed. The degree to which the sanctions in proposed new section 25A to the Landlord and Tenant Act 1985 bite would obviously be improved if the penalty cap of £5,000 applied to all leaseholders partaking in any given application, rather than them having to share an amount up to £5,000 between them. My reading of proposed new section 25A(5) is that the fine would apply to each person making an application on grounds that the landlord has failed to comply with a relevant requirement, but I would be grateful if the Minister would clarify that point. Is it a single fine, or is it a fine that would apply to each leaseholder involved?

However, even if a fine of up to £5,000 could be awarded to multiple leaseholders, we still question whether it is sufficient—I think that is a point that is worthy of debate. Labour is minded to believe a more appropriate threshold for penalties paid under proposed new section 25A—I remind the Committee that penalties are awarded at the discretion of the tribunal, so they are not automatic—would be £30,000, thereby aligning penalties in the Bill with other leasehold law, such as financial penalties for breach of section 3(1) of the Leasehold Reform (Ground Rent) Act 2022. Amendment 17 proposes such a cap, although we would certainly consider an even higher limit, such as the £50,000 proposed by the hon. Member for North East Bedfordshire.

Secondly, Labour thinks that the functioning of the new enforcement regime would be improved by specifying a floor on penalties in the Bill. In making clear that non-compliance with the relevant requirements will always elicit a fine, landlords will be incentivised to comply. Amendment 18 proposes that penalties under this section must be at least £1,000, with the implication that the tribunal would determine what award to make between the range of £1,000 and £30,000 for each breach. I look forward to the Minister’s response to each amendment.

[Richard Fuller]

I am tempted to frame page 25 of today’s amendment paper, because it includes the shadow Minister’s amendment 17, which would increase the penalties from £5,000 to £30,000, and my amendment 142, which would increase them from £5,000 to £50,000. I thought it was usually the Conservative party that is pro-business and tries to keep costs on business low, but then I recalled that these penalties apply to people doing something wrong, and of course the Labour party is always soft on criminals.

Seriously, though, the shadow Minister and I have a clear intent, which I am sure is shared by the Minister. A lot of the measures in this part of the Bill are trying desperately to unpick complicated things and rebalance them in favour of people who own their own home but do not run a large business, or people with small financial interests, where there are 30 or 40 of them against one person with a significant financial interest that covers all those people. In trying to rebalance things here, we all want to ensure that these measures are as effective as possible and that there is enough encouragement to ensure that the good practice the Government want to see can be done effectively.

The concern that I share with the shadow Minister is that the current levels of penalties just look like a cost of doing business. [Interruption.] Indeed! The hon. Member for Brent North has just slapped himself on the wrist, which is probably how many businesses will see it.

Can I gird the Minister’s loins and encourage him to take up his shield and his sword of righteousness in defence of individual leaseholders and say, “This amount is too low. We shall change the legislation. This party and this Government stand to make the intent of what we will do to truly bite on those who are doing wrong”?

[Lee Rowley]

I am grateful to my hon. Friend the Member for North East Bedfordshire and the hon. Member for Greenwich and Woolwich for tabling their amendments. I share their basic conceptual desire, and that of other Committee members, for people or organisations that have done the wrong things to be held to account. There should be penalties that recognise that they have done the wrong thing. The challenge is always going to be where we draw the line.

I recognise that there are multiple parts of the menu on offer. Notwithstanding the very valid points that have been made, it is important not to lose sight of the fact that the Government are doubling the number from £2,500 to £5,000. Individual right hon. and hon. Members will take different views throughout this process and beyond on whether that is proportionate or whether it should be higher or lower. We think we have struck a proportionate balance.

I will add to the record, for consideration, the importance of the potential for unintended consequences. The response will quite rightly be that it will ultimately be for the tribunal to determine how much to apportion and how to use any changed option. There is a scenario in which the potential penalty on the freeholder, or the party being taken to the tribunal, becomes so great and the hazard becomes so visible that the freeholder starts to oppose it with even more objections, difficulties and the like.

I am making quite a nuanced argument, and Members may feel that I am overthinking this, but we have to be cautious not inadvertently to create a process that emboldens freeholders to fight even harder because of the potential hazard and because they feel that they may be exposed to a fine larger than would be reasonable and proportionate. However, I take the point about the challenge of setting the penalty in the right place. The Government’s view is that the increase from £2,500 to £5,000 is a step forward. That is what we are proposing to this Committee. As a result, we will resist the amendments.

[Matthew Pennycook]

To clarify whether my reading of proposed new section 25A(5) of the Landlord and Tenant Act 1985 is right, is the penalty a single amount that is shared, or an amount per challenge? This is important.

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[Matthew Pennycook]

The Minister’s response was quite disappointing. I think he has made it clear that it is per challenge per group, so what is the incentive for a large group of leaseholders to press the dispute if the potential amount of the share that they are going to get is £100, or even £50? It might be a low amount. [Interruption.] No, it could be. It is a share of the challenge; if there are 100 leaseholders in the challenge, they get a maximum of £5,000 to share between them unless they make multiple challenges. That is my reading of what the Minister has just said.

[Richard Fuller]

Bearing in mind that this is an intervention—

[Richard Fuller]

I think the shadow Minister is mixing two things up when he says that people get a share. The issue here is about changing the behaviour of the person who is doing wrong, not “I’m going to get this much money out of it.” The incentive is for the person who is doing wrong. Does the shadow Minister agree with the point made by the hon. Member for Brent North about clogging up the system: why would 150 people put one challenge in when they could put 150 challenges in?

[Matthew Pennycook]

I take the point, and I understand what the hon. Gentleman is driving at: there is the very real risk of clogging up the system with multiple challenges if leaseholders are sophisticated enough to understand the provisions of the clause and work out that the best thing they can do is submit multiple challenges. I do not think that most will. There is therefore a detrimental impact on the incentives for leaseholders to try to dispute these matters.

Coming back to the fundamental point of whether this will change the behaviour of landlords when it comes to compliance, though, I think the hon. Gentleman is right: the figure of £5,000 is too low. I have had this debate so many times with Government Ministers. We had it on the Renters (Reform) Bill: the maximum that local authorities can charge for certain breaches of that Bill is £5,000. Most landlords will take that as a risk of doing business.

[Barry Gardiner]

An operational cost.

[Matthew Pennycook]

It is operational. It can be absorbed on the rare occasion that it will be charged, so we think that amount should be higher. Ultimately, as the hon. Member for North East Bedfordshire said, we have to make clear that we are very serious about the sanctions in this new section biting appropriately. For that reason, although I am not going to push the amendment to a vote at this stage, it is a matter that we might have to come back to. It applies to part 4 of the Bill—to residential freeholders—equally, and it is important that we get it right and convince the Government to look at this matter again. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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[Matthew Pennycook]

I will be fairly brief, because my hon. Friend covered a lot of detail. He is right to do so, because these are important clauses. We welcome the intent behind them, and we think they have the potential to address a very serious problem that has plagued leaseholders across the country for many years. Not just those in buildings with fire safety defects who have seen their insurance premiums soar in the aftermath of the Grenfell fire, but across the board, we are seeing leaseholders face unreasonable and in many cases extortionate buildings insurance commissions that the property managing agent, landlords and freeholders have charged through the service charge. We discussed this in our evidence sessions last week. The Financial Conduct Authority’s report of September last year on the subject of insurance for multi-occupancy buildings found evidence of high commission rates and poor practice, which were “not consistent” with driving fair value to the customer.

The FCA also found—I put this question to one of the witnesses in our evidence sessions, because I find it quite staggering—that the mean absolute value of commissions more than doubled between 2016 and 2021 for managing agents and freeholders of buildings with fire safety defects. Put simply, in far too many instances, managing agents, landlords and freeholders have been gouging leaseholders in this area with impunity. In practice, the effectiveness of this clause will hinge almost entirely on whether the definition of “excluded insurance costs” is sufficiently tightly drawn, and how we define “permitted insurance payments” for the purposes of specifying what payments can be charged.

I appreciate fully that the Minister will be bringing the necessary detail forward through regulations and we will scrutinise them very carefully when that happens. My right hon. Friend—sorry, just hon. Friend, but it is only a matter of time—the Member for Brent North is right to try to strengthen the clauses, because although the permitted insurance payments must be attributable to a permitted insurance, there is nothing on the face of the Bill to ensure that they or the cost of providing information in relation to them is reasonable to the leaseholders. As far as we understand the clause, there is no guarantee that leaseholders will be able to transparently scrutinise quotes or the agreed contract. We fully support my hon. Friend’s amendments 151 to 153, 157, and particularly new clause 41, which attempt to address some of these omissions and deficiencies. I hope the Minister will give them due consideration.

Specifically on my hon. Friend’s amendment 136, clause 32 introduces a new duty to provide specified insurance information to leaseholders. Again, it will be for regulations to fill out the detail about how the new duty will operate in practice, but I would like to briefly probe the Minister on it. During our evidence session with Matt Brewis of the Financial Conduct Authority, it became clear that although the FCA’s new rules mandate that a contract of insurance must be provided by an insurer or broker to the freeholder, and although the leaseholder will be able to write to the insurer to request a copy of the contract, there is nothing that we can see in either the FCA’s rules or the Bill as drafted that will permit a leaseholder to know who that insurer is in the first place. I would like to press the Minister, as my hon. Friend has, to confirm that the Government’s intentions when regulations are made under this clause is for the specified information to include a copy of the contract with the relevant insurer.

While we are considering these two clauses, I would like to take the opportunity to raise a separate concern, which I do not believe is covered by my hon. Friend’s amendments, in relation to proposed new section 20H of the Landlord and Tenant Act 1985, as provided by clause 31 of this Bill. This proposed new section would introduce a new right to claim where excluded insurance costs are charged. Again, this has the potential to provide leaseholders with effective means of redress, but its efficacy depends on how it is implemented. I would be grateful if the Minister could confirm that there is no specific requirement for any damages awarded under this proposed new section to credit the service charge accounts of leaseholders not party to the claim, or any service charge fund generally. It stands to reason that if one has been affected—and this follows from the debate we had on a previous clause—the rest of the leaseholders in the building will be too. If so, could the Minister look at how the regime operates to ensure that all leaseholders that have paid excluded costs are reimbursed in the same manner as the claimant?

[Lee Rowley]

I turn first to amendment 151, in the name of the hon. Member for Brent North. As someone who has held the building safety portfolio in my Department for the past 16 months, one of my greatest frustrations is that we have not yet made the progress that I would like to see, and that I am sure we would all like to see, with regards to insurance for buildings that have been affected by cladding, having made good progress on lending and other areas.

I think we have made some progress, and the willingness of a number of brokers to come together and voluntarily cap what they are willing to take is a step forward; I would like to see other brokers doing the same. I would also like to see an industry-led solution to be brought forward for those with the greatest exposures at the earliest possible opportunity. That is something I outline to the Association of British Insurers, and other insurers, on a very regular basis—with varying degrees of frustration and emphasis. I hope we will see movement on that in the very near future.

That is a broad discussion about a more specific issue—I will turn shortly to the amendments we are currently debating—although I hope that highlights my interest in this area and my desire to get this right not just for people with remediation and cladding issues, but for the broader community of leaseholders in general. On that basis, I hope that both the hon. Members for Brent North and for Greenwich and Woolwich will appreciate that we have similar ambitions in making sure that transparency in this area is as effective as it can possibly be, and that we ensure the appropriate outcome so as to improve things from where they are at the moment.

I turn to the amendments, specifically amendment 151. We believe that clause 31, which inserts proposed new section 20G into the Landlord and Tenant Act 1985, already achieves the intent behind the amendment by providing powers that allow the appropriate authority to specify the permitted insurance costs that can be passed through the service charge to leaseholders.

From discussions held with the insurance sector itself, and with the FCA, we know that the value chain is a complicated one. Some buildings rely heavily on the reinsurance market—we have seen that increasingly with remediation issues—using a broker for access, and some do not. Some place insurance with numerous insurers splitting the risk, whereas others only use one—the hon. Member for Brent North may know this from his previous engagement with the industry.

Clause 31 is designed to constrain unreasonable costs in all scenarios by defining a payment and allowing us to then separate these costs as either permitted or excluded. Although I understand the intent of the hon. Member for Brent North, the Government’s concern about amendment 151 is that in seeking to tighten the provisions, it may have pulled the strings a little too tightly and become too narrowly focused on certain elements. I hope the hon. Gentleman will consider withdrawing his amendment as a consequence.

Again, although I have great sympathy for the sentiment behind amendment 135, I hope the transparency provisions already in the Bill will help in this regard. Once implemented, they intend to enable leaseholders to have access to details of the policy and the total amount of remuneration being taken on their building's insurance placements. This can be used for a legal challenge if costs have not been reasonably incurred. Our concern with the amendment is the potential for delays in the placement of insurance, which could result in a lapse in cover to the material risks of the building. There also may be instances—although I hope it would be a minor number of cases—where three quotes cannot be obtained, as much as that is possibly unlikely to occur.

We seek to focus the legislation on ensuring that those buildings have insurance that works, with a balance that is appropriate and supported by regulatory changes brought in by the FCA. On the basis of that explanation, I hope the hon. Member for Brent North will withdraw his amendment.

I will address amendments 152 and 153 together. Again, we have are similar ambitions, aspirations and intent, but again, there is a question of narrowness through the amendments, and our view remains that clause 31 will allow full scrutiny of what is to be a permitted insurance payment. The intention is for that to be both through consultation and then subsequently set out in regulations through the affirmative procedure, which will allow hon. Members to debate measures and highlight if there is a better way of doing it. I hope that, with those reassurances, the hon. Member for Brent North may be willing to withdraw the amendments.

Amendment 137 seeks to introduce a reasonable test to permitted buildings insurance costs. At the heart of clause 31 is the need for any costs passed on to leaseholders relating to the placement or management of buildings insurance to be fair and transparent. That is the whole point of it. Section 19 of the Landlord and Tenant Act 1985 already requires for those costs to have been reasonably incurred and for a reasonable service to have been provided. We have obviously seen a whole heap of bad behaviour in this sector; I accept that that is the case. Within the sector, there is ubiquitous use of commissions with poor or no underlying connection to the work undertaken, and I hope that some of the progress made through the Bill will hopefully reduce that.

I do not believe that the amendment would sufficiently protect leaseholders. We seek very clear requirements in the secondary legislation for how permitted insurance fees will be calculated, and that their reasonableness be included in that. We will consult on the measures in due course, and I hope that, with those reassurances, the hon. Member for Brent North will withdraw his amendment.

I turn to clauses 31 and 32, which address insurance, before turning to some further Opposition amendments. Several actors in the procurement of buildings insurance each seek to make a profit in return for their role in supplying insurance, whether they be brokers, managing agents or landlords, who can all take commissions, and that all adds to the overall cost.

Currently, as we have discussed, leaseholders do not have to be made aware of these commissions, and that can hinder the ability of leaseholders to challenge unfair costs. Inflated premiums can be paid through the service charge because there is a lack of transparency and knowledge about what is happening. Clause 31 seeks to ban the placer of insurance on residential leasehold properties from receiving any form of commission that is passed on to leaseholders as a cost, and instead uses a transparent handling fee that must be proportionate to the value of the work done.

Proposed new section 20G provides that excluded insurance costs cannot be charged and enables the Secretary of State and Welsh Ministers to prescribe a permitted insurance payment, which will be the only payment that can be charged. The detail of calculating the fee is to be set out in affirmative secondary legislation, and we will work with stakeholders across the industry and in this place to support that.

Proposed new section 20H sets out what happens should the ban be breached. There is an ability to apply to the tribunal in England and the leasehold valuation tribunal in Wales. It also removes the presumption that leaseholders have to pay their landlord’s legal costs when challenging poor practices, as we talked about earlier. If the tribunal determines that the legislation has not been complied with, damages can be paid. That will be a minimum of the commission taken or the unlawful insurance handling fee, but it will not exceed three times the level of the commission or fee.

Proposed new section 20I outlines the right of the landlord to obtain a permitted insurance payment. The section clarifies how all costs for placing and managing insurance incurred by the landlord must then be charged to the leaseholder. Transparency reforms in the Bill will require the placer of insurance to disclose information about the decision-making processes when purchasing buildings insurance on behalf of leaseholders.

Amendments 154 and 155, tabled by the hon. Member for Brent North, seek to stipulate how the insurance contract is to be provided to leaseholders. We have been working already with the FCA on that area, and it has already produced a number of reports and changed its regulations. The changes allow leaseholders to receive their policy documents and information about the charges within their overall premium. Those changes are important to ensure that the relevant information is available, but they do not remove the necessity for the landlord to supply that information as the placer of the insurance. The amendments tabled by the hon. Member for Brent North remove the focus on the landlord’s responsibility to undertake that activity. Clause 32 is designed to complement the work of the FCA and to provide the powers necessary to ensure that landlords supply the information that will enable leaseholders to scrutinise. With those assurances, I hope that the hon. Member will not press the amendments to a vote.

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[Lee Rowley]

We know that there is currently a lack of transparency around administration charges and that leaseholders can face high administration charges. Administration charges must be reasonable, but this can be difficult to determine due to the lack of clarity surrounding them. As a result, leaseholders are often reluctant to challenge the reasonableness of administration charges at the appropriate tribunal.

Clause 33 inserts new paragraph 4A into schedule 11 to the Commonhold and Leasehold Reform Act 2002. It will require landlords to publish an administration charge schedule. A revised schedule must also be published if a landlord revises the administration charges. The Secretary of State and Welsh Ministers will be able to prescribe the form and content of the schedule, and how it is to be provided to a leaseholder, in regulations. If a landlord has not complied with the provision of publishing an administration charge schedule, a leaseholder may make an application to the appropriate tribunal. The tribunal may order that the landlord provide an administration schedule within 14 days and pay damages of up to £1,000 to the leaseholder. This measure seeks to increase transparency, and I commend the clause to the Committee.

[Matthew Pennycook]

As the Minister has just made clear, clause 33 amends the 2002 Act to create a new duty on landlords to publish administration charge schedules. We welcome it but, as with clauses 31 and 32, the effective functioning of the new requirement will depend on details such as the form and content of the schedule and how it should be published, all of which is to be set out in future regulations.

I have two specific questions for the Minister. The first largely mirrors my concern about the provisions in clause 31 relating to damages. If a tenant claims damages as a result of a breach of the requirements in new paragraph 4A of the 2002 Act, is it not likely that other tenants will have been similarly affected by the failure to publish an administration charge schedule? If it is the case that the damage provisions relate only to the claimant, will the Minister look at how the regime operates to ensure that all leaseholders who may have paid costs, other than in accordance with new paragraph 4A of the 2002 Act, are reimbursed in the same manner? It is a recurring theme, but it is worth putting on the record that it applies to clause 33 as well.

Secondly, along with other measures in the Bill that add new provisions for when a leaseholder is liable to pay a charge—in this instance, where an administration charge has been levied that has not appeared for the required period on a published administration charge schedule—how do the Government intend to make leaseholders aware of their new rights in this respect and in various other places throughout the Bill? Will he consider mandating that freeholders must furnish all leaseholders with an updated “how to lease” guide?

[Lee Rowley]

I am grateful to the hon. Gentleman for his questions. I will write to him on the answers or the process by which he can get them.

Question put and agreed to.

Clause 33 accordingly ordered to stand part of the Bill.

Clause 34

Limits on rights of landlords to claim litigation costs from tenants

Question proposed, That the clause stand part of the Bill.

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[Matthew Pennycook]

I must disappoint the Minister, because what he says does not reassure me. I rise to oppose clause 34 standing part of the Bill, and to argue in favour of new clause 3. As he has made clear, clause 34 amends the Landlord and Tenant Act 1985 and the Commonhold and Leasehold Reform Act 2002, with a view to limiting but not abolishing the right of landlords to claim litigation costs from tenants. Although the property chamber tribunal does not generally tend to shift the legal costs of the winning party on to the losing claimant, on various occasions landlords have been able to rely on contractual rights to recover costs against leasees. When that occurs, it is in essence a form of one-way cost shifting, and it is inherently unfair to the affected leasees. Previous attempts have been made expressly to limit these cost recovery provisions, notably by means of schedule 11 to the Commonhold and Leasehold Reform Act 2002, but despite those provisions, and the issue coming before the higher courts on several occasions, the ability of a landlord to recover costs incurred in litigating disputes persists.

We support the aim of scrapping the presumption that leaseholders will pay their freeholders’ legal costs when they have challenged poor practice, as outlined in the explanatory notes to the Bill, and we believe that, apart from in a limited number of circumstances, landlords should be prohibited from claiming litigation costs from leaseholders. As I have said, clause 34 does not prohibit landlords from claiming litigation costs from tenants; instead, it merely limits their ability to do so.

The clause allows landlords in certain, at present undefined, circumstances to apply to the relevant court or tribunal for an order to pass their legal costs on to leaseholders as an administration charge, or on to all leaseholders, irrespective of whether they participated in any given legal action, through the service charge. It may be that the matters that the relevant court or tribunal can take into account when determining whether to make an order on an application for costs will be defined in such a way as to protect the vast majority of leaseholders from unjust, one-way cost shifting, but to allow for cost recovery in circumstances where it is essential—for example, when the landlord is a company controlled by the leaseholders that needs to recover its reasonable legal costs via the service charge or risk going bust. However, as we consider the clause today, we have no certainty whatsoever about that, because the matters that the relevant court or tribunal can account for, as well as the application process, will be set out in regulations to come.

Even if we had certainty about what the Government will tell courts and tribunals that they can consider in determining whether to make an order, we fear that clause 34 is an invitation to litigate. Yes, regulations will prescribe the relevant matters that can be taken into account, but given the multiple Court of Appeal cases and numerous upper tribunal cases on what “in connection with” means, we will almost certainly see disputes arising about what costs are incurred “in connection with” legal proceedings, and whether they are compatible. The risk is that the outcomes of any such cases could erode the general presumption against leaseholders paying their freeholders’ legal costs that the clause attempts to enact.

We believe that it would be more prudent to implement, by means of the new clause, a general prohibition on landlords claiming litigation costs from leaseholders, and then clearly to identify a limited number of exceptions to that general rule through regulations. As I have said, such exceptions might include cases in which the landlord is a leasehold-owned company, or in which the costs are, in the opinion of the tribunal, reasonably incurred for the benefit of the leaseholders or the proper management of the building. That would cover the example that the Minister used. Amendment 8, which would simply delete clause 34, and new clause 3 would provide for that approach by leaving out clause 34 and replacing it with a new clause that provides for a general prohibition on claiming legal costs from tenants, and for a power to specify classes of landlord who will be exempted from it.

I appreciate that this is a complex argument about the best means to achieve an agreed end, but we think that clause 34 requires further thought, and urge the Government to give serious consideration to the issues raised by amendment 8 and new clause 3. As I said, the Government’s approach is a recipe for freeholder litigation, and it might mean far more leaseholders than we are comfortable with bearing the legal costs of their landlords.

[Rachel Maclean]

I place on record my concerns about the Government’s approach to this issue, based on my experience in the Minister’s role, and having listened carefully to representations made, particularly by members of the all-party parliamentary group on leasehold and commonhold reform and a gentleman called Liam Spender, who detailed his experiences at the hands of FirstPort. That was an absolutely horrific, heartbreaking and shocking abuse of a decent, honourable and hard-working person buying a flat. He described it as being treated like a “lab rat” in a laboratory maze. I will not forget the testimony that he and many others gave.

--- Later in debate ---

[Matthew Pennycook]

I thought that the Minister would provide a fuller response to our intention to remove the clause and introduce new clause 3. The hon. Member for Redditch is right to be concerned about the clause as drafted—I commend her for raising the issue. The spirit of the Committee has not been particularly party political, but I will give her the opportunity to break the Whip, because we feel strongly about the issue. Lots of leaseholders will find that they still bear legal costs because of the way in which the Government have approached this issue; it is a recipe for litigation. There is a much more sensible way to achieve the end that I think we all want: a general prohibition with a very limited number of exceptions, which could set out clearly in the Bill. We oppose the clause standing part, and will potentially move the new clause in due course.

Question put, That the clause stand part of the Bill.