Skip to main content

Leaseholders’ Rights (Insurance)

Volume 586: debated on Wednesday 22 October 2014

I want to start by thanking the Minister for coming here at short notice. This issue might seem like a curate’s egg. I do not know whether he saw the article I wrote outlining the issues in PoliticsHome.

We might think that the right of a person to know what they are paying for is a consumer issue, or it might seem like an insurance concern about whether it is fair to make residents pay for terrorism insurance if they live in my part of town. Indeed, the matter could be seen as a constituency concern—the besmirching of Walthamstow as a site of potential terrorism—or it could be seen as a leasehold issue about how leaseholders and freeholders can resolve disputes. I know that other Members here have an interest in that issue.

I shall outline the concern and then ask the Minister questions. I hope we can make progress on the issue, because it has been a long-running vexatious issue for nearly 4,500 of my constituents in Walthamstow, some of whom are here today because they are so frustrated by it. I should declare that I am a previous leaseholder of the Freehold Managers company in question, so I have known for a long time about the nature of the leases and the exorbitant insurance that the company required of those of us who had flats with it.

The application of a terrorism insurance surcharge is a relatively new experience for people in Walthamstow. As a diligent MP, I queried it with the company. Why did it feel the need to add such a surcharge to already expensive insurance? In response, it sent me a copy of a press cutting about how one of those involved in the plane bombing threat had lived in Walthamstow at one time. I was mortified by the suggestion that that therefore required people in Walthamstow to be insured against terrorism ad infinitum, so we started to look into the situation.

I will set out the concerns. Residents are paying on average £204 for their buildings insurance. On any reputable price comparison site for Walthamstow, we could find considerably lower premiums. On top of that, we are adding in another £70 for people who live in the E17 postcode in my part of town. I also have the E10 postcode, where there are flats whose residents are being charged a mere £37. Perhaps the company feels that terrorists will be more likely to want to live and bring about destruction near Walthamstow Central station rather than in Walthamstow as a whole, but I digress. That is a 40% increase on the cost of an insurance that is already not competitive, and the leaseholders who have managed to buy their freehold tell me that their premiums are on average £120 lower.

I am sure the Minister will say it is for the leasehold valuation tribunal to resolve issues about whether charges are fair. Indeed, I am extremely conscious that the leasehold valuation tribunal has recently issued a ruling that it is right for Freehold Managers to apply terrorism charges. After all, this is not part of the original lease. There has been confusion and discussion about whether it could be argued that insuring properties against explosions included terrorism. There has been concern that what was originally intended to apply to commercial property has been applied by Freehold Managers to residential properties. I am acutely conscious that the judgment held that although it was not explicit, it was good practice to insure against any sort of damage or destruction, which could arguably include terrorism.

Having researched terrorist examples in residential areas —the 4,500 flats are in residential areas in Walthamstow—I am surprised that there is a determination that terrorism is such a threat in Walthamstow that insurance should be increased by 40%. Let us consider some attacks: the sarin gas attack in Matsumoto in Japan, the Rajneeshee bioterror attacks on salad bars in the United States and the tragic murder of Lee Rigby. We have had IRA bombings in London, and the Litvinenko incident caused several million pounds worth of damage to properties because of contamination. So there might be a case that terrorism is something that people have to consider in a residential area.

However, even if one accepts that it is fair to ask people to pay for such damage, the concern for my residents is that they are simply not able to scrutinise the policy. Freehold Managers has steadfastly refused to reveal the details. When one looks at the IRA bombing or the Litvinenko attack, one must take into account the location. Location matters in insurance, so we want to know whether Walthamstow has been assessed as a high or a low-risk residential area for terrorism and what that means for the charge. In essence, why is there a 40% increase?

My hon. Friend is making a powerful case for her constituents. Is what she describes just another example of property management companies taking advantage of people who have signed into a contract?

I agree with my hon. Friend, whose constituency is to the south-east of mine. I am sure he knows Walthamstow and will be concerned that it is considered such a risk by Freehold Managers. We simply do not know how the company reached this figure of a 40% increase in insurance because Walthamstow might be a place of terrorism. We do not know, for example, whether a gas attack in which people needed to be decontaminated, as opposed to an explosion, would be covered by the policy. We simply have no details.

The hon. Lady is making an incredibly important speech. The issue does not affect only her constituency, but constituencies throughout the country. The defence is that there is a right to manage and therefore, in theory, residents are protected and getting value for money, but because of the costs and the inability to get accurate information from decision makers, and the use of section 106 agreements as an excuse, it is almost impossible for people to exercise the right to manage. Residents are being ripped off by organisations such as Countrywide. It is not acceptable.

The hon. Gentleman has pre-empted my next point. In chasing the company for details for the past four years so that my residents might fairly exercise their rights at the leasehold valuation tribunal, we have been stonewalled at every opportunity and told that the information is commercially sensitive, even though the charges are not part of the original leases.

Section 106 agreements were not around when the Warner flats were built in the Victorian era, but the leasehold agreements were. The company claims that the information is commercially sensitive, and when we have gone to the insurance company, which is directly billing my constituents, it too has said that its client is the freeholder. It is a Kafkaesque nightmare for my constituents, who are trying to resolve why they are being charged an extra 40% on their insurance. They cannot go to a leasehold valuation tribunal to ask whether it is a fair charge and what assessment has been made.

I am sure my colleagues could share similar horror stories about other charges. Freehold Managers is seeking to charge residents of mine up to £10,000 to consent to a loft conversion—not to do the loft conversion, but simply to give consent. It continues to push the boundaries about what is an acceptable service charge and an acceptable fee. It is resolute in the idea that it should not share any accountability. But that is not the view of others in the insurance industry, let alone in the freehold management industry.

Although the Association of British Insurers argues for a terrorism surcharge, it also argues that leaseholders should be given clear and timely information each year about their insurance contracts and that that should take place before the contract is agreed. It says that residents should have details about what shopping around the management company has done to make sure the premium is competitive, and whether there are any significant exclusions. As I said, are we protected in Walthamstow against explosions, but not decontamination fees? The ABI says that the insurance broker should be clear about whether there are any fees involved in the process. Those are all questions that Freehold Managers has simply refused to answer, so the ability of my constituents to seek redress at a leasehold valuation tribunal is hampered as a result. Given the fees involved in going to a leasehold valuation tribunal, it is not fair to expect people to seek such redress without the information to make their case.

I have come here today as a constituency MP but with my other hat on, as a shadow Minister, I have tried to make progress on this matter in the Consumer Rights Bill, to make it clear that a consumer has the right to the details of a policy, product or service that they have directly paid for. Let me stress again: residents are getting direct bills from the insurance company on behalf of a freehold management company. Sadly, the Minister’s colleagues in the Commons rejected the proposals, arguing that it was already explicit that people should be able to access such information. The fact that there are colleagues from other parts of the country—indeed, from other parties—who are saying, “No, we’re seeing the same sorts of problems”, shows that that is simply not the case.

I have a number of questions for the Minister and I want to give him time to answer them, and to answer any questions he may have, because it must seem such a surreal situation to be faced with. First and foremost, does he think it fair that residential properties are being charged a terrorism surcharge on their insurance? If so, what assessment has he made of the likelihood of terrorist incidents across residential areas in this country? My local police or other emergency services are certainly not aware of the likelihood of such an incident.

Secondly, does the Minister think that my constituents have a right to exercise their consumer rights in this instance and know the details of the policy that they are being asked to pay for? If so, where would he see them being able to exercise those rights? Thirdly, will the Minister raise this issue with a leasehold valuation tribunal? Given the persistent failure of the freeholder I have mentioned to provide this information, which would enable my constituents to have their day at the tribunal to see whether the charge being imposed on them is fair and competitive, what action can he take to assist my constituents—and, I suspect, the thousands of other people across the country who are also dealing with recalcitrant freehold management companies?

Finally, can the Minister tell us what action the Government will take to reform leasehold law? I ask that because this issue is clearly not only about insurance charges but about these other charges, and about companies such as Freehold Managers, which see residents such as my constituents in Walthamstow as a cash point. It tries to squeeze them consistently, even threatening them with legal action when they so much as query these charges, challenging them about their right to buy the freehold and imposing excessive charges for simple things such as queries about loft conversions or indeed leasehold extensions. Surely it is time to stop the misery of what is mystery buying, as opposed to mystery selling.

I congratulate the hon. Member for Walthamstow (Stella Creasy) on securing this debate. I know that this issue is one that she and others have campaigned on for some time and I also know that, as she outlined in her speech, she raised it during the debates on the Consumer Rights Bill back in March.

I will try to respond to the range of issues that the hon. Lady and my hon. Friend the Member for North Swindon (Justin Tomlinson) have raised. I will start by saying that the Government recognise the importance of the issue that the hon. Lady has raised, namely the rights of leaseholders to obtain details about the insurance policy they contribute towards by way of service charges, and indeed the rights of leaseholders to gain information about other service charges that are imposed upon them.

It is important to note that for some years now leaseholders contributing towards the costs of buildings insurance and service charges more generally have had the right to access and obtain copies of documents relating to the insurance they contribute towards, as well as those relating to other service charges. This includes a right to request in writing a copy of the insurance policy or to ask the landlord or managing agent to provide reasonable facilities to enable them to inspect the policy and other supporting documents. Also, the Competition and Markets Authority is looking at this issue at the moment. In particular, it is looking at the ability of tenants or leaseholders to be involved in the decisions that are taken in this area, and therefore at the possibility that landlords will need to test the market transparently and consult on these matters. We are waiting for a response from the CMA on that, which is due later this year.

One of the issues with the freehold management company that I have been discussing is that it has said it may give information to individual leaseholders but that, as the policy in this instance is a collective policy, it will not release information about it. That means that my constituents cannot assess whether or not they are being fairly charged across the piece. After all, terrorism is something that is likely to affect not just one property—if such a God-awful incident were to happen. Can the Minister therefore clarify whether the Government’s view is that companies such as this one, and insurance companies such as Zurich, should provide access to the whole detail of the policy, including the collective provision, and not just to detail about an individual property?

I will have to look at this issue in more detail. However, if an individual wants to receive information about the detail of a policy and the costs attributed to them, there needs to be transparency from the company about how it apportions those costs. I would imagine that that is something the CMA will look at, but I am happy to have a look at it myself and I will come back to the hon. Lady about it.

The Government are generally aware of a number of concerns in the leaseholder sector and we welcome suggestions about how residential leaseholder protections can be improved. However, at this stage we are not persuaded of the need for wholesale reform, although that does not mean—particularly with the input later this year of the CMA itself—that we should not examine some individual issues, depending on what comes out in the CMA report.

That ability for a leaseholder is in addition to their ability to request a summary of service charges in general, which would include the costs of insurance, as the hon. Lady rightly says. Leaseholders have the right to ask to inspect invoices, receipts and any other supporting documents that relate to those costs, which comes back to the point about the overall policy position.

If a landlord, or a managing agent acting on their behalf, fails to comply with a request for information without providing reasonable justification, they are committing a summary offence that, on conviction, is subject to a fine of up to £2,500. Landlords and agents have to show the policy documents to leaseholders; not doing so, and withholding information about service charges, comes within sections 20 to 22 of the Landlord and Tenant Act 1985.

In addition, legislation requires that service charges, including the cost of insurance, must be reasonably incurred. As my hon. Friend the Member for North Swindon and the hon. Lady will be aware—indeed, she referred to it herself—leaseholders can apply to the property chamber of the first-tier tribunal for a determination about the reasonableness of the costs of insurance they contribute towards, as well as the reasonableness of other service charge payments. The grounds for making such a case could include, for example, that the type or level of insurance is not appropriate, in addition to the reasonableness of the premium.

Of course, it is in everybody’s interests to try and resolve concerns or disputes, either through discussion or alternative dispute resolution where possible, before resorting to the tribunal system. I am pleased to say that the situation for leaseholders has improved since the hon. Lady first raised this issue. There is now a requirement for letting and managing agents to belong to one of the three redress schemes that have been approved by the Government. That measure came into force on 1 October and it will enable leaseholders to follow up complaints. It will also be an effective way of driving up standards, while creating the lightest regulatory burden possible.

The existing protections for service charges are also supported by what are now two codes of practice that have been approved by the Secretary of State for Communities and Local Government, and published by the Royal Institution of Chartered Surveyors and the Association of Retirement Housing Managers. These codes of practice are also in the process of being reviewed, to ensure that they are sufficiently robust and reflect good practice.

Although I have highlighted the fact that a number of statutory rights are already available to leaseholders to give them access to information about payments required by the freeholder and that mechanisms are in place to ensure that charges are reasonable, we always welcome any contributions about how we can further improve the situation for leaseholders.

We are aware that concern has been raised by some leaseholders about the appropriateness of certain elements of the insurance that they pay towards through a service charge. If leaseholders believe that the cost of such insurance or the type of cover provided is unreasonable, and can otherwise resolve the matter with their landlord, then—as the hon. Lady said—they have the right to apply for determination through the property chamber of the first-tier tribunal.

As for the collective policy being released, details have to be released that relate to a tenant’s dwelling. As I said earlier, if a tenant wants to have details about a policy that affects them, that means they must have some understanding of how things are broken down from the bigger picture.

It is, of course, important that leaseholders make the best use of a wide range of existing rights. We are making efforts to raise awareness. For example, we continue to fund the Leasehold Advisory Service, which provides free initial legal advice to leaseholders and others in the residential leasehold sector, and we will certainly ensure that it is also aware of the situation.

I pay tribute to the work of the Warner Action Group in Walthamstow, which has been trying to bring residents together. From what the Minister has said, it appears they have a course of redress through the leasehold valuation tribunal; but as I have said, because they cannot get the information, asking them to pay potentially thousands of pounds for legal representation is a high bar to pass. The Minister mentioned a summary offence. Who would the Warner Action Group report freehold managers to for investigation of that offence if they continue to refuse to release this information?

As I said, the Leasehold Advisory Service can also give that free initial legal advice, but I am very happy to come back to the hon. Lady and give her some further details about the specific issue she raises. As for the collective policy understanding, again, as there is a requirement for an individual to be able to understand what their policy charges are, they can only do that if they are part of a collective, by seeing that collective agreement. My view is that there should be a release of the details relating to the tenant’s dwelling, and if they are part of a collective, to understand that within a block, they need to understand what the block is. I would like to think we can help to facilitate that understanding for the leaseholders.

In conclusion, it is commendable that the hon. Lady has made such great efforts to raise awareness of this issue. As so often with these issues, quite a lot of the battle is about ensuring that the awareness is there: that people understand that there is a way to get redress and a way for them to take cases forward—as I say, there are statutory requirements in place. I am happy to raise those issues and take up anything further after this debate.

I thank the Minister for his generous response; I think that my constituents will be grateful for his help, as I am.

Can I just get him to clarify whether the Government have taken a view about whether residential properties should be insured for terrorism, and on what grounds, and whether there might be, for example, a paper on that in terms of the risk to residential property? After all, there are other residents in Walthamstow and, if Walthamstow has been designated as a place of likely terroristic opportunities, I think people would want to know. There is also the point I made about the central principle: that even if a third party has commissioned a product or service on someone’s behalf, they have the right in law to access the full information on that service or product. From what the Minister said, it is a summary offence under leasehold legislation not to provide that information. Will he clarify whether the Government believe that that is a central principle, so that they would in theory support making that explicit in the legislation? That would be a helpful guide for us on a number of issues to do with charges.

I had finished, but I am happy to respond. There is a requirement for the information to be published, so if a tenant is paying a charge, whether for insurance or part of a service charge, they have the right to understand what that is made up of and, as I said, to see the documentation behind that. It does not seem to me that there should be a difference depending on where that information comes from or whether it is allocated by a third party; the landlord still has to present and publish it. That seems clear to me, but I am happy to look further at that and come back to the hon. Lady.

I do not think that I or the Government can directly comment on what is part of insurance, in the sense that it is for insurance companies, landlords and property owners to take a view on what the risk issues are for any property that they are insuring, whether in respect of flood protection, terrorism protection or any other type of risk protection. It is for them to make an assessment, take a market view and make a decision about what is right for them. That will be led by risk assessments, which will be made by underwriters and insurance companies giving advice and quotes.

If I can just clarify, there was a ruling on 11 June by the leasehold valuation tribunal that it was relevant—

Sitting suspended.