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Leasehold Reform

Volume 571: debated on Wednesday 4 December 2013

Mr Turner, it is a pleasure to see you presiding over this debate this afternoon. I am also very pleased to see the Minister here in Westminster Hall and the hon. Member for Worthing West (Sir Peter Bottomley), who has led on this issue in this House for a number of years now. I know that he wants to make a contribution to the debate before the Minister responds, so I am very happy to see that he is here.

This is a growing issue. I have had a number of cases in my constituency of Poplar and Limehouse in the past 16 years involving people in very expensive properties; professional and qualified individuals, residents who paid large sums of money for the homes that they inhabit. They are being ripped off and exploited by unscrupulous property management companies and individuals who have spawned these management companies.

That is my own local perspective. However, this is a national issue. As I understand it, about 5 million people are in leasehold tenure in the United Kingdom and only one other country has that degree of tenure. A note on the statutory instrument that we debated last week in Committee—the Redress Schemes for Lettings Agency Work and Property Management Work (Approval and Designation of Schemes) (England) Order 2013—said that 40% of all new properties are under leasehold tenure. East London, where we have massive regeneration and lots of new properties and conversions, is I think one of the areas with the biggest number of properties under leasehold tenure. This is not a situation that will go away. It has been growing for years and will continue to grow.

When we were in government, I know that we tried to address the issue to a certain extent. We had a number of stabs at it, but sadly we did not cover it. I am very hopeful that the Minister will be able to say that the coalition is still very interested in the subject and want to address it.

It is not just leasehold tenure that is an issue. I have to declare that I live on an estate that was previously managed by Peverel, which was previously owned by the Tchenguiz brothers, who were quite notorious. An Office of Fair Trading report is due out this Friday; I will mention that later. I am a freeholder, but because I am on an estate that is run by a property management company I have a covenant and therefore I am included and have a role to play. I want to put that on record, so that I am not accused of any conflict of interest.

Despite the reforms in the statutory instrument, there are still specific problems, including unfair charges for repairs, insurance and electricity supply, and complex procedures for residents to seek redress; those procedures are supposed to be informal. When residents get to land valuation tribunals—I know that the structure of those tribunals is itself being reformed—property management companies turn up with heavyweight legal teams, including barristers, and put people under massive pressure. One other difficulty is that, even where residents win their legal cases, the legal costs incurred by the property management companies, which were supposed to be capped at £5,000 but are not, suddenly appear on the bills of the residents for the following year as part of their service charges. That is grossly unfair and adds insult to injury.

I congratulate my hon. Friend on raising this very important issue. Does he agree that these problems are a particular nightmare for elderly residents who simply cannot cope with the pressure that they are put under and the extent of the rise in costs?

My right hon. Friend anticipates a point that I will make later, namely that these problems are not restricted by class, age or geography. They relate to properties ranging from pensioner and retirement flats that have a value of only £50,000 through to million-pound properties in my part of east London. However, when we are talking about pensioners in their retirement homes and other such communities, the trauma and the stress caused by these issues is even greater. Although there are some restrictions in the legislation about the fees that these property management companies can charge, and measures dealing with the ability of local authorities to prosecute these companies when they see that there is a transgression, local authorities appear to be unwilling or unable to respond legally.

I know of a number of cases. In my constituency, I have two high-profile cases running at the moment: one on the Canary Riverside development and one on the West India Quay development. Both involve companies owned by the Yianis Group and are operated by Octagon Assets. They are in major disputes with residents, who have real problems in getting their situations resolved. The right to manage estate ballots procedure is very complex, especially where there are absentee owners who are sub-letting, and it is also very expensive. At the Kingsmere development in Brighton, it cost residents £30,000 to take action and they failed to secure the right to manage their own properties. An individual in Battersea, Mr Dennis Jackson, entered a dispute with his property management company about £7,000. He incurred legal costs of £76,000 and nearly lost his £800,000 flat, which he now has to sell to pay for his legal fees. That example shows the level of professional individuals we are talking about. They have to relocate to deal with the problems they have had to face.

We have had predators such as the Tchenguiz brothers and Peverel, the largest property management company in England, with many complaints from pensioners and others about onerous and unnecessary maintenance work and about exacting fees; my right hon. Friend the Member for Oxford East (Mr Smith) mentioned the pressures on pensioners. There is no requirement on these property management companies to demonstrate value for money, or to ensure quality of service.

I would be grateful if the Minister, when he responds to the debate, brought us up to speed on the OFT investigation into Peverel and on the leasehold inquiry, which I believe has been announced. I know that he will not be able to say too much without compromising embargoes and so on, but I know that there have been announcements, so it would be good to put on the record today exactly what is happening.

I congratulate the Leasehold Knowledge Partnership both in respect of the full OFT investigation into residential leasehold and the securing of the OFT report into the Peverel-Cirrus price-fixing racket, which involved warden call and electronic door systems in retirement leases. Again, that relates to the point that my right hon. Friend made about pensioners. I believe that the report is due out this Friday, but I would be grateful if the Minister confirmed that.

I thank the LKP and Carlex for their briefings and the information that they have given me, particularly the information about repayments to residents: £1 million to residents at St George Wharf; £500,000 to residents at Charter Quay; and £400,000 to residents at Chelsea Bridge Wharf. Those are huge sums, and they demonstrate that something has gone badly wrong in this sector.

We have had the statutory instrument and the redress scheme. I asked the Minister’s colleague—the Under-Secretary of State for Communities and Local Government, the hon. Member for Keighley (Kris Hopkins), who presided over the statutory instrument—about the redress scheme. He was able to say that the scheme, which has now been extended, means that, if someone is not in the scheme they will not be able to operate. Perhaps the Minister could say a little more about how the scheme will make it simpler for residents and tenants to be treated fairly. Also, can he give any information about the OFT inquiry, its duration and the liaison between his Department and colleagues in the Department for Business, Innovation and Skills about that?

The fundamental question is whether the Government accept that this issue must be addressed, with solutions in due course—

Sitting suspended for a Division in the House.

On resuming

Do the Government accept that this growing issue will not go away and that action is needed? Certainly, the OFT announcement suggests that the authorities recognise that, although whether that is because the Government have told them, I am not entirely sure. It would be good to hear the Minister’s view on that.

Returning to my right hon. Friend’s intervention, leasehold crosses class and age boundaries, and includes everything from expensive lofts and expensive apartments to retirement bungalows and flats, and it is not geographically limited, either. The issue affects the whole country.

On the Delegated Legislation Committee, the Minister’s colleague, the Housing Minister said that he is prepared and happy to meet me, the hon. Member for Worthing West and other colleagues with an interest. I would be grateful if the Minister confirmed that meeting. Obviously, the OFT inquiry means that things will be happening in parallel, but it would be good to put that directly to the Housing Minister and the Department at some time in the future.

I thank the hon. Member for Poplar and Limehouse (Jim Fitzpatrick) for using the Delegated Legislation Committee to draw the Government’s attention to the matter, and I congratulate him on securing this debate.

I welcome the Minister, and I hope that he will pass on to his departmental colleagues and to Ministers in the Ministry of Justice the fact that something needs to happen to make things fair, to give people freedom and to avoid what I have called criminal behaviour in leasehold deals, price-fixing cartels, the cheating of freeholders and excessive exit fees and fiddles. Opportunist lawyers are playing the system, and at times the Property Chamber—or the Leasehold Valuation Tribunal, as it was—has not been led with the determination that secures justice for people sorting out ordinary disputes between a leaseholder, a managing agent or a freeholder.

I would like to invite the barrister Justin Bates, for example, to say out loud the ways in which opportunist managing agents and freeholders can frustrate an application to the Leasehold Valuation Tribunal or the first stage of the Property Chamber, where, as the hon. Gentleman said, the fee is fixed at £500, yet a lawyer can explain to the respondent, the managing agent or the freeholder, “You can make applications to delay the hearing, you can apply to go to the county court or you can bounce between the two. And, by the way, if you take the advice of some lawyers and apply for the right to manage, it can take up to 18 months for the courts to dispose of the fact that you do not have to have the letters RTM in the name of the proposed management company that would replace the managing agency appointed by the freeholder.” As my hon. Friend the Minister will know, the freeholder appoints and gives instructions to the managing agent, and the freeholder has every interest in the managing agent doing what the freeholder wants and not what is right by law or necessarily in the interest of the leaseholder.

I first became involved in the matter indirectly because of my Worthing home, which is leasehold. The other five owners and I took up an offer from the freeholder to buy the freehold. It took us two exchanges of letters to agree a price. The managing agent appointed by the freeholder was very good, and we continue to use that managing agent now. That is an example of how the system is supposed to work. If we had had a dispute over the price, we could have gone to the Leasehold Valuation Tribunal and solved it, but we did not need to do that.

Also in my constituency is a block of flats where a number of people—poor, old and some of whom were dying—found themselves applying to get back money that had been wrongly taken from them. It took well over a year to get the case to the Leasehold Valuation Tribunal. Partly because of my intervention, the freeholder recognised that what it had done was wrong and it offered £70,000 to the leaseholders, which was accepted. The sum was less than the leaseholders would have got in court, but at least it solved the problem.

The hon. Member for Poplar and Limehouse rightly mentioned Martin Boyd and Sebastian O’Kelly and their work with the campaign against retirement leasehold exploitation. LKP has saved millions of pounds for hundreds of people. The Government’s Leasehold Advisory Service does its best, but it does not have enough money or resources, and sadly it has to take advertisements from people who should not be advertising at all, let alone through a Government advisory service. I name Mr Benjamin Mier, who, when shown a report by the Judicial Conduct Investigations Office, resigned his position. If he had not, the report would have been made public. Because he resigned after reading the report, we do not know what is in it—actually, we do know what is in the report because we know what he had been doing, but we do not have that information formally. People only have to read the comments of the chairman of the Leasehold Valuation Tribunal to know what Mr Mier did.

Besides answering the debate today, for which I am grateful, will the Minister please ensure that the whole Government come together, follow the OFT investigation into what is going wrong commercially and consider what the Serious Fraud Office had, and the OFT has, on Peverel, which has been named? I would also like the Minister to consider Mr Israel Moskovitz, who, again, has played the system to avoid his leaseholders in Plymouth getting into dispute resolution, the Leasehold Valuation Tribunal, or the right to manage or the right to purchase.

The Association of Residential Managing Agents, with our former colleague Keith Hill as its arbitrator, has some of the right ways forward. It ought to be illegal for any managing agent or freeholder to take a commission from an insurance company without having an open book and without showing that what they are doing is in the best interest of leaseholders.

I am pleased that the right hon. Member for Kingston and Surbiton (Mr Davey), who is also the Secretary of State for Energy and Climate Change, and I had meetings with the OFT that have led to the decision this week to investigate. There is more to come. Bluntly, it is wrong that were I a convicted fraudster who came out of jail yesterday, I could set up as a managing agent today without having to meet necessary and obvious standards. Such standards are not just for those who live in big flats on the Thames—those with lawyers and expensive flats—but for small people who cannot get anything other than a leasehold property of their own in which to live, hopefully without undue cost.

We must make the system such that managing agents have a duty to paying leaseholders to get the best possible service at the right price and leaseholders do not have to pay for things that are not needed. The OFT will address the door-call systems whereby many hundreds of blocks of flats—there are probably six in my constituency, and I know there are such flats in the constituencies of both the Chancellor of the Exchequer and the Prime Minister, and there are probably some in most constituencies—are forced to have unnecessary renewals at prices fixed by almost a cartel. They are not actually cartels, because the two other so-called bidders do not do the work. If I were 99% of the market, I do not think I should get relief from the OFT rules by confessing my sins after the Serious Fraud Office had passed my case to the OFT.

I will not go on, because there will be other opportunities for the House to consider these matters. The hon. Member for Poplar and Limehouse has rightly spoken for millions of people, and it is time that Parliament and the judiciary took action to stop such scandals, costs, frustration and worry for ordinary individuals who are just trying to live quietly at home.

It is a pleasure to serve under your chairmanship, Mr Turner. I feel much safer with you watching over us.

I congratulate the hon. Member for Poplar and Limehouse (Jim Fitzpatrick) on securing this debate and on speaking with both passion and persistence on an issue that I know is of great importance to his constituents. I also thank my hon. Friend the Member for Worthing West (Sir Peter Bottomley) for his contribution and his persistence in pursuing the matter, which some might view as arcane but is a very real source of worry and distress in many people’s lives.

I am responding to this debate in place of the Housing Minister, the Under-Secretary of State for Communities and Local Government, my hon. Friend the Member for Keighley (Kris Hopkins), as he is required to respond to an Opposition day debate on business rates. I may not be able to address all the issues, and if I try to do so, I might not address them as intelligently as he would have done, but I know that he is happy to write to hon. Members to follow up on any issues. Of course, he is also happy to hold the meeting mentioned by the hon. Member for Poplar and Limehouse, to which he has already committed.

Residential leasehold is indeed an important and growing housing sector. Many leaseholders, like my hon. Friend the Member for Worthing West, are happy with their home, but we recognise that some leaseholders are not. The Housing Minister’s postbag makes that very clear.

The hon. Member for Poplar and Limehouse has raised a wide range of issues, and I will attempt to address as many as I can in the time available. I am glad to have been asked how the redress schemes will assist leaseholders and others. Since 2010, the Government have become increasingly aware of the issues in the residential leasehold sector, particularly to do with the quality of service. The Enterprise and Regulatory Reform Act 2013 gives the Secretary of State for Communities and Local Government the power to require all residential letting agents and property management agents in England to be members of a Government-approved redress scheme. We are making good progress on implementing those powers, and we expect to start approving such schemes early in the new year.

I have a brief technical point that I do not expect the Minister to answer today. In law, a leaseholder is a tenant, but leaseholders are not always counted as tenants, so will he try to check whether the schemes will cover leaseholders, as well as people normally referred to as tenants? Perhaps the Housing Minister can come back to us on that.

My understanding is that it will, but we will certainly write to my hon. Friend to reassure him. I skipped over a sentence that seems to imply that it will be the case, but we will confirm that to all right hon. and hon. Members present.

I want briefly to address the right-to-manage legislation. I must admit that this is the first time I have ever heard about it, so I may not make as much sense as hon. Members deserve. The leasehold right-to-manage legislation is designed to be available to as many private sector leaseholders living in blocks of flats as possible. The right was designed for use on a block-by-block basis. Applying the legislation to estates is complex and might result in the right becoming less, rather than more, accessible. Right-to-manage ballots can be complex and potentially expensive, and the legislation sets out in detail the procedures that all involved must obviously follow and comply with. The provisions aim to protect the interests of all parties, including those of the leaseholders. I am sure that my hon. Friend the Housing Minister will be happy to discuss that further if appropriate.

The hon. Member for Poplar and Limehouse mentioned high charges to leaseholders for repairs, insurance and utilities. The law provides leaseholders with a range of important rights to do with service charges, including the right to be consulted, the ability to challenge the reasonableness of charges at independent tribunal and the right to obtain information.

The right hon. Member for Oxford East (Mr Smith) mentioned older and vulnerable leaseholders, who may find it onerous or stressful to attend a tribunal or to exercise their rights. Free initial legal advice is available from the Leasehold Advisory Service—LEASE—which is funded by my Department.

I want to add a tribute to Anthony Essien, the chief executive of LEASE. He and the Master of the Rolls, as the head of the Court of Appeal, would agree that judgments by the Leasehold Valuation Tribunal and on appeal need to be trawled through, so that instances of when poor, ordinary people have been frustrated at great cost and worry can be collected. As the hon. Member for Poplar and Limehouse (Jim Fitzpatrick) said, the costs pile up and then come back as service charges. More work is needed.

I hope that I will be able to address, at least in part, the question of the ability of property management companies to recover their legal costs from leaseholders, even in cases where the leaseholder is the successful party, by adding them on as service charges for the following year. Whether the landlord can recover his legal costs, and if so, in what way will depend on the terms of the individual lease. Even when a lease does allow the recovery of legal costs as a service charge, the courts and tribunals still have the power to prevent that from happening by issuing what is known as a section 20C—of the Landlord and Tenant Act 1985—order, if they judge it appropriate. Of course, to get such an order does require someone to go through the court or tribunal. Each case will be determined on its merits, and independent legal advice should be obtained, but where leaseholders believe that they have grounds to do so, they should consider applying to the court or tribunal for such an order.

I want to address questions about the Office of Fair Trading. There have been several reviews, and I want to ensure that I get the information correct. I am advised that the OFT is carrying out an investigation into property management groups that use associated companies to supply security systems and other services, and I believe that it expects to report on that shortly. The OFT is also undertaking a separate market study of property management, but that is only in the initial stages, so I am unable to say exactly how long it will last or when it will report. I do know, however, that the OFT is seeking views on the scope of the study, which should be provided by January. I am absolutely certain that the Housing Minister will be able to provide more detail when he meets hon. Members.

At the end of his speech, the hon. Member for Poplar and Limehouse asked what is perhaps the most important question, which is whether the Government are saying, “Nothing to see here, move along,” or whether they are recognising the problems and abuses and the fact that, while some steps have been taken, including those in the Enterprise and Regulatory Reform Act 2013, other subjects may need examining. I reassure the hon. Gentleman and others that we do understand that there is abuse and that there are vulnerable people who are not best placed to defend themselves. We are open to conversations about ways to improve matters without massively over-complicating systems or adding hugely to the burden on either the taxpayer or leaseholders.

Does the Minister agree that, in addition, the professional standards bodies for surveyors, bankers, barristers and others should review whether the actions of some of their members should lead to reviews of whether professional standards are being met? If someone does something illegal, that is clearly wrong, but someone doing something that is against the public interest should not happen in a profession.

It is certainly the case in other professions that people can be struck off, even if not found guilty of a criminal offence, for breaking the code of that profession. I am sure that every profession will want the public to have full confidence in its professional standards and in its maintenance and enforcement of them.

Question put and agreed to.

Sitting adjourned.