Leasehold and Freehold Reform Bill

Stephen Timms Excerpts

2nd reading
Monday 11th December 2023 Commons Chamber

[Michael Gove]

I believe it will. I must now make progress because I know a number of people want to contribute, so I will try to run through the other arguments about why we are taking the approach that we are.

I mentioned service charges, and one other example, to which the Father of the House has of course persistently drawn our attention, of where those who have been managing properties on behalf of the ultimate owners have abused their position is that of insurance commissions. We will be taking steps in the Bill to make sure that insurance charges are transparent and that fair handling fees are brought in. The fact that I can list all these examples just shows hon. Members the way in which freeholders have operated. Many who have got hold of such freeholds have been thinking, “Right, okay, we can jack up the ground rent, great! We can have service charges, keep them opaque and add something. Tell you what—insurance; let’s try to get more out of that.” It is a persistent pattern of behaviour that does require reform.

Another pattern of behaviour is the way that lease extensions and the whole question of enfranchisement have been going. If someone’s lease goes below 80 years and they want to enfranchise themselves, they have to pay what is called marriage value. That is the principle that, by bringing together the ownership of the freehold and the leasehold in one by enfranchising themselves—bringing those two together in a marriage—people are enriching themselves. Again, however, it has been used by freeholders to bilk leaseholders overall, which is why the approach we are taking will in effect eliminate marriage value. It is also why, when we talk about lease extension, instead of people having to extend and extend again generation after generation, we are saying that leases can be extended to 990 years. In effect, as I say, this will make sure that one of the approaches that freeholders have taken to extracting more cash from leaseholders will end.

[Sir Stephen Timms (East Ham) (Lab)]

I agree with the Secretary of State about the seriousness of the problem of excessive insurance premiums being charged to leaseholders, and I will give an example if I am able to contribute later. Does the Secretary of State agree that the solution requires risk-pooling among insurers? The initiative on that seems to have stalled; can he hold out the prospect of the delay being resolved?

--- Later in debate ---

[Sir Stephen Timms (East Ham) (Lab)]

I am pleased to follow the hon. Member for Redditch (Rachel Maclean), the former Housing Minister, and I congratulate her on her work in this regard. I was disappointed that she chose to adopt a rather partisan tone in some of her remarks—unnecessarily, I thought—but I was grateful for the more generous tone taken by the Secretary of State. I especially welcomed his generous and appropriate tribute to our former colleague, Jim Fitzpatrick, for his work in the all-party parliamentary group—I am glad that he was mentioned.

Let me begin by identifying a specific concern that the Bill has raised. I am aware of it because of the work that the Work and Pensions Committee has done on asbestos. Under the Control of Asbestos Regulations 2012, premises can be sold while containing asbestos; ownership can be transferred. Asbestos management is regulated in relation to workplaces, where it is the responsibility of the Health and Safety Executive, but not in domestic properties. In a lot of shared dwellings, such as flats and conversions, the landlord or freeholder has regulated duties under the existing regulations to manage asbestos in the shared areas in those developments. This legislation, as I understand it, may well give rise to the transfer of those obligations to domestic owners.

The existence and extent of asbestos in a building might not be known, leaving homeowners taking on these responsibilities with a hidden liability and, potentially, a life-threatening risk to handle as well. Homeowners are unlikely to have the wherewithal to manage asbestos in situ effectively, and this could leave a complex set of responsibilities and liabilities between owners in shared properties or where the nominal landlord no longer exists. At the moment, there is tax relief for businesses removing asbestos from a workplace—they can offset it against corporation tax—but there is no support for homeowners to remove or manage asbestos.

It has been suggested to me—this is something I am looking at—that there should be an amendment proposing that change in ownership of a property in the circumstances envisaged in the Bill, or a change in the extent of landlord control, should be a trigger for removing asbestos. Otherwise, more asbestos will move outside effective control under this legislation, meaning that nobody will be responsible for managing it and potentially creating a significant public health risk.

I will focus the rest of my remarks on part 3 of the Bill and draw attention to some particular instances that have arisen in my constituency. My right hon. Friend the Member for Ashton-under-Lyne (Angela Rayner), in opening the debate, rightly expressed the disappointment of many that the more radical ambitions for the Bill have been dropped, at least for the time being, but there are lots of practical problems for our constituents that need addressing and that the Bill can potentially help with.

The Minister for Housing, Planning and Building Safety, who is in his place, is aware of Barrier Point in my constituency, which comprises eight towers and 257 apartments. Tower 8, the largest of the towers, has 50 apartments and a flammable cladding problem. In 2017, buildings insurance for the whole of Barrier Point cost £104,000. Last year, Aviva, which insured the block previously, refused to quote, so this year residents have ended up paying £443,547 for insurance, and Tower 8 residents have shouldered that huge increase at a cost of between £6,000 and £12,000 each. I am grateful both to Aviva and to Barratt, which built the development, for meeting residents to try to find a way forward. I am also grateful to the Minister for the interest he has shown in this and for his agreeing to visit—I hope we will have a date for that soon.

I can see that the Bill could go some way towards tackling those problems. I particularly welcome clauses 27, 28 and 29, which increase transparency around service charges and give occupants the right to obtain information about service charges and costs on request. Clauses 30, 34 and 35 will help tenants to enforce those rights and rebalance the costs of litigation in their favour. The Financial Conduct Authority’s 2020 report on insurance for multi-occupancy buildings found that commission was often at least 30% on a transaction, and it found one case where it was over 60%. The FCA was worried that insurance commissions lacked transparency and it feared the conflict of interest that stemmed from brokers regularly sharing half their commission with the freeholder or managing agent. Replacing commission with transparent handling fees, as clauses 31 and 32 envisage, should certainly help.

[Barry Gardiner]

I appreciate everything that my right hon. Friend is saying. He will be aware, though, that many companies holding freeholds will also set up an arm’s-length company that is the broker, thus taking a double take in terms of the commission. It is not just that they get cut from the broker; they are the broker.

[Sir Stephen Timms]

My hon. Friend makes an important point and I welcome his work in this area over a long period.

The changes in the Bill are not likely to do much to help the residents of Barrier Point who have exercised their right to manage. The FCA has argued that

“the intervention most likely to reduce prices for the minority of multi-occupancy buildings with the most substantial price increases would be cross-industry risk pooling”.

I was pleased to hear from the Secretary of State, in answer to my intervention, that he will be meeting representatives of the Association of British Insurers this week. The ABI initiative on this issue appears, up to now, to have stalled. The FCA recommended that the ABI should work with it and with the Government to introduce a risk pooling scheme in 2022. The scheme was expected to come forward last summer, but we are still waiting. I am hoping that, as a result of the meeting this week that the Secretary of State has told us about, things will get moving.

I checked with the FCA last week about this. It said that the ABI plan is

“credible and capable of delivering savings to those worst affected buildings”,

but it went on to add that the plan is delayed with “no firm launch date” because the ABI is struggling to secure “the reinsurance capacity required”. That seems to be the obstacle. I very much hope that the Secretary of State can find a way to push this forward at his meeting. The ABI urged the Government to increase capacity by backing catastrophic losses in the scheme. It did that most recently in June. Can the Minister tell us whether that appeal has been considered by the Department and whether that might be taken forward at the meeting with the Secretary of State later this week? When does he think risk pooling will commence?

On remediation, there is a power imbalance between leaseholders and freeholders. That has been highlighted to me by Barrier Point residents. The Bill does not really address that. Section 72 of the Building Safety Act 2022 makes a right-to-manage company the “accountable person” for a high-risk multi-occupancy building, making the directors criminally liable if negligence can be proved. The same Act, however, requires only that freeholders “co-operate” with accountable persons, without any enforcement mechanism in place at all. The freeholder at Barrier Point has held up remediation works for several months and is refusing to sign off on them. The directors of the right-to-manage company desperately want to fulfil their legal obligations but they are left liable because of the refusal of the freeholder to say okay, and there is no comparable liability on the freeholder. That seems wrong, and I wonder whether that imbalance can be addressed in the course of the Bill’s passage through the House.

The Minister said in oral questions just last week that the Government plan to make changes to the Bill as it goes through Parliament, and I hope he will consider how that imbalance can be addressed to ensure that remediation work can go ahead in a case such as that, which I suspect is by no means unique. The residents of Barrier Point want to purchase their freehold. To do so, they need to get at least 50% of all the leaseholders to agree to, and be able to afford, a freehold purchase. That is very difficult in a building with 257 households. I do not think the Bill does anything to make that process easier, so I very much hope that Ministers will be open to further improvements as it progresses through the House.