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Housing: Leaseholders

Volume 762: debated on Thursday 25 June 2015

Question for Short Debate

Asked by

To ask Her Majesty’s Government what plans they have to review the procedures by which resident leaseholders in blocks of flats agree to a Right to Manage or a change to commonhold tenure.

My Lords, I declare my interest as recorded in the register, and as a leaseholder for many years. My continuing interest in this subject will not surprise Members, as I have been concerned about progress in these leasehold matters for a long time and have taken an active part in most new property legislation since I took my seat in the House years ago.

Some of the key issues are simplification of the law, regulation of managing bodies, transparency in the complaint processes, closing loopholes, protecting leaseholders’ rights, standards of service and value for money. I raised these same issues in a debate in March 2012—three years ago. Progress has been made only on regulation of managing bodies—managing agents must now be members of the Association of Residential Managing Agents—and in the complaint process; there is now access to a redress scheme. While I regret the loss of the process whereby ordinary individuals had access to less expensive means of raising issues through the leasehold valuation tribunals, brought in under the Housing Act 1980 and price pegged in the later 1985 Act, in which I was involved, their replacement by the First-tier Tribunal Property Chamber from 1 July 2013 is a change consistent with consolidation, which is my aim. The substantive law should now follow to create an efficient and coherent system.

It is estimated by the Federation of Private Residents’ Associations—the FRPA—that there are more than 4 million leaseholders in private blocks, retirement homes and local authority and housing association properties. I commend their latest leaflet, Empowering Leaseholders, to all, as it sets out the problems and needs very clearly.

I am delighted that the Minister is speaking on this subject today as he is a Scottish law officer. I look forward to hearing my noble and learned friend Lord Keen’s maiden speech, which I can add my appreciation for only now because I am not allowed to say anything after he has made it. Property law is, in my opinion, much better in Scotland than in England. People seem to have a better understanding of their property positions and rights, and conveyancers honour the long-established system of letters of obligation. The Abolition of Feudal Tenure etc. (Scotland) Act 2000 abolished the feudalism feu whereby blocks had a head lessee owner—would that we could produce a similar situation in England.

For years I have been trying to get answers from the Ministry of Justice on property law. Whenever I have tabled a Question—even when a former Lord Chancellor advised me on the wording to attract a reply from the Ministry of Justice—the replies have always been from the Minister for Housing, whose view on these matters seems to overlook, or fail to appreciate, the unsatisfactory legal situation in which many leaseholders find themselves caught.

Property law has been covered piecemeal for years and I have participated in the work done on Act after Act, each one amending a previous Act, so that any solicitor working in this field now has to refer to many Acts. This is a time-consuming and costly process and we need a consolidation Act to make it simpler for people to understand and to avoid many hours of expensive legal work. I quote the FRPA reference to the,

“glaring need to consolidate all … landlord & tenant legislation”.

In reply to an earlier discussion of this point, the then Minister replying agreed that laws should be able to be understood by ordinary people, rather than only the professionally qualified, who will of course always be needed for their expertise on complicated points.

The 2002 commonhold Act allows leaseholders to agree to convert their blocks to this tenure, but only if there is 100% agreement. In reply to my many questions on this point in your Lordships’ House, it has been admitted repeatedly that 100% is impossible to achieve. The same applies in too many cases where 50% of leaseholders in a block must agree if they want right to manage. This should not be impossible to achieve but it is still very difficult, particularly in London, as there is such a high proportion of foreign owners who simply do not reply to any correspondence on these matters. They expect the standards of the blocks to be maintained but are either unwilling or unable to play any part in ensuring that a block is efficiently managed and money wisely spent.

Not long before the general election, I was present in the other place at a very well-attended meeting chaired by Sir Peter Bottomley. The difficulty of getting any response from some of the leaseholders in a block was raised. A verbal reply from a civil servant present was to the effect that they were considering whether it would be appropriate to treat the non-replies as having been “deemed” to support the majority view. This seems to be an idea that could provide the solution that would benefit those who are presently so frustrated when all attempts fail to get any response.

Dr Lu Xu, senior lecturer in property law at Lancaster University, in a report due to be published shortly on a study funded by the British Academy, has been in contact with more than half of the existing 16 commonhold schemes. That is all there are—16 of these schemes. There are up to 100,000 new leaseholds being created every year. There is little appreciation or understanding of the commonhold system. His findings are that commonhold has never had any support from government. The lack of willingness on the part of mortgage lenders is also a very serious problem at present, particularly for those who already own commonhold property.

The Title Conditions (Scotland) Act 2003 introduced to the statute book the system of real burdens, a more practical system developed by the court and conveyancers in Scotland so that the owner of a flat could be legally obliged to pay for the repairs and maintenance of parts such as the roof of the building. English law apparently does not allow such onerous obligation on property ownership unless there is legislative intervention. Scotland has been very effective in introducing important property law statutes in the 21st century. In 1994, Lord Templeman observed in this House that nothing had been done to legislate on the recommendation of Lord Wilberforce’s committee, which reported on this issue in 1965. I am not good at maths but even I can work out that that is 50 years ago.

In 2011, the Law Commission produced another recommendation and draft Bill for land obligations. The government response in 2012-13 was that they intended to respond in 2014. However, despite

“good progress … in analysing the recommendations”,

they never had time to respond in the last parliamentary Session. We now have a new Parliament and so the time for the overdue consolidation of housing and property law should come.

Commonhold took more than 20 years of consultation and deliberation to reach the statute book. This Parliament can address any flaws in the present legislation so that it can reach its potential as part of the consolidation process. As I said, land obligation has been a legislative proposal for 50 years, in spite of being promoted by successive Law Commission reports. This Parliament should carefully consider its merits and make something happen. We need a consolidation Act for property in England and Wales.

My Lords, I thank my noble friend Lady Gardner for introducing this debate. It provides an opportunity for two things: first, to listen to the important points she has made and on which, I confess, I am no expert; and secondly, for my noble and learned friend Lord Keen to make his maiden speech, to which I look forward.

My noble and learned friend comes to your Lordships’ House following a distinguished career at the Scottish Bar. He also comes with form. In 1999, the House of Lords Bill was going through this House. My friend Lord Gray introduced the proposition to the Committee for Privileges that the Bill contravened the provisions of the Union with Scotland Act 1706, which provided for a number of Scottish Peers, elected from among their own number, to come to this House on a regular basis. The proposition was that the House of Lords Bill contravened that provision and that it should be amended accordingly. My noble and learned friend Lord Keen represented that proposition to the Committee for Privileges. I am sorry to say he did not persuade it. No doubt he will do better this evening.

We put another proposition to the Committee for Privileges at that time: that a Writ of Summons could not be cancelled in the middle of a Parliament. I am afraid that proposition failed as well—that is that but I am very sorry about it. In the midst of all these proceedings the Bill was amended to allow for 92 of our hereditary colleagues to remain and I have the privilege to be one of them. I look forward very much to the maiden speech of my noble and learned friend Lord Keen and I thank my noble friend Lady Gardner for making that possible.

My Lords, I thank the noble Baroness, Lady Gardner of Parkes, for putting down this Question for Short Debate. As usual, she raises an important issue, which the Government should look at and take action on. The noble Baroness has an impressive record in raising these matters and the Government would be wise to listen to her.

I warmly welcome the noble and learned Lord, Lord Keen, to the House. I look forward to his maiden speech, responding for the Government. I looked at the noble and learned Lord’s biography and it makes impressive reading indeed. As the noble Lord, Lord Trefgarne, said, he is a lawyer with a distinguished legal career, a Queen’s Counsel and a member of the Bar both in Scotland and in England and Wales. He joined Her Majesty’s Government as the Advocate-General for Scotland immediately after the general election last month. He is a law officer of the Crown and advises the Government on Scottish law. He derives considerable power from the Scotland Act and one of his roles is to consider all Scottish Parliament Bills as they progress, in consultation with interested UK departments, to assess their legislative competence. I, together with all Members of this House, wish him well in his new responsibilities at the start of this Parliament.

As the noble Baroness, Lady Gardner of Parkes, pointed out, the law in respect of leaseholders, commonholders and other aspects of living in a property which is leasehold rather than freehold is complex and not easily understood by people. That is not a good place to be in. The law should always aim to be clear, simple and understandable for ordinary people, particularly when it affects where they live. This must surely be an aim of the Government. It would be useful if in his response the noble and learned Lord could address what plans the Government have to ask the Law Commission to look at these matters, with a view to producing a Bill that consolidates all the various property Acts, as the noble Baroness, Lady Gardner of Parkes, referred to. I think it is long overdue and will be warmly welcomed.

I have never lived in a leasehold property, having grown up with my parents, brother and sister in a council property; each property I have bought and sold as I have moved around the UK has always been freehold. But I have a number of friends who live in flats that are leasehold and I have seen some of the quite unsatisfactory arrangements and conditions they live under. It is not something that I would find acceptable in all cases and the Government really should seek to act on it.

I am also aware of the considerable number of new flats being built in the London Borough of Southwark, where I grew up, and the London Borough of Lewisham, where I live, and other parts of London, which will have these similar leasehold arrangements. The system of leasehold tenure that we have in England and Wales is fairly unique. The lease can be as long as 999 years and ensures that the leaseholders of a property with communal areas are equally responsible for its maintenance. There are significant problems with this type of tenure and the managing agents, who have no responsibility to the leaseholders; the leaseholder is in effect frozen out of any involvement in the effective management of a property they own, which may be their home.

We should all expect good service and value for money but living in a leasehold property with a managing agent, where there is little competition, can be something of a lottery. It is very difficult to change your managing agent or to challenge a service charge. The leaseholders can find it extremely difficult, having to go to the leasehold valuation tribunal to receive a satisfactory remedy. There are further problems with connected companies where a freeholder also owns the management company. Of course, leaseholders have sometimes been successful at the leasehold valuation tribunal and been awarded sums of money, having suffered unacceptably high service charges.

This is a huge issue. We have up to 5 million people living in 2.5 million leasehold properties spending as much as £2.5 billion in service charges per annum. I would like to see the introduction in this sector of an independent regulator which would be able to ensure that agents act in a professional manner and adhere to minimum standards of competence. I would like to see all managing agents subscribing to an ombudsman service guaranteeing leaseholders free and accessible arbitration. I would also like to see reform of the leasehold valuation tribunal, and the order that prevents freeholders reclaiming their tribunal costs retrospectively through service charges should be automatic unless the freeholder can prove that they should be able to reclaim charges and that the threat of forfeiture of properties for failure to pay charges is disproportionate.

The Commonhold and Leasehold Reform Act 2002 created commonhold tenure, designed to be used in both new and existing tenure. Similar forms of tenure are used across the world, which offer perpetual ownership of blocks of flats alongside a share of a company responsible for common-area management. The commonhold community association is owned by the unit-holders and they decide who manages the property. The major barrier, which the noble Baroness, Lady Gardner, referred to, is the 100% requirement for converting existing leasehold properties. This should be relaxed because we are giving one leaseholder a complete veto on transferring to commonhold. That is one of the key points the noble Baroness made in her contribution.

That 100% requirement should be reduced to a figure in the region of 75%, which still means that you need three-quarters of the leaseholders to agree, but no one individual has a veto on making this change. I will be very interested in the response to this point from the noble and learned Lord, Lord Keen. Will the noble and learned Lord also tell the House what plans the Government have to promote commonhold and whether they are considering incentives to sell new blocks of flats as commonhold?

The Government should also do more to promote the right to manage, which allows leaseholders to assume control over management of their properties without having to pay to own the freehold where they get 50% qualifying support to do so, although the freeholder should be required to assist the leaseholders in making contact with each other as they may not be in residence at any particular point in time. Again, the noble Baroness, Lady Gardner of Parkes, referred to this. This is an important policy matter that affects many people and the time has come for the Government to take positive action to help leaseholders and create more flats in commonhold. I particularly like the idea of non-responders being regarded as having accepted. That may be one way of injecting some life into this policy.

In conclusion, I again thank the noble Baroness, Lady Gardner of Parkes, for raising this important issue in your Lordships’ House, and hope that the noble and learned Lord, Lord Keen—in what I am sure will be a very eloquent contribution—will be able to set out some hope for the future.

My Lords, it was a singular honour to be introduced to your Lordships’ House. I am obliged for the consideration and courtesy extended to me by Members and staff, and more immediately by my noble friend Lord Trefgarne and the noble Lord, Lord Kennedy of Southwark. My first week in this House was one of lost and found: I got lost and was found by the doorkeepers. Matters deteriorated slightly when I attempted my first Division on Wednesday of this week. I moved with alacrity to the not-content corridor. I passed through that corridor, turned right and right again. I became slightly confused but joined a group of Members standing in the vicinity of the Chamber. After a minute or so chatting away, I noticed that we were shuffling in a particular direction. It occurred to me that I was re-entering the not-content corridor. I rather thought at this moment that not even the Chief Whip would welcome my attempts to vote twice in a single Division, and I slipped away quietly to reconsider the geography of your Lordships’ House.

I thank my noble friend Lady Gardner for raising this Question and for the contribution from the noble Lord, Lord Kennedy. Two particular issues are touched upon: commonhold and the right to manage. Although they appear to converge and to be related, they are of course materially very different. They are quite distinct concepts. The right to manage is, as it says, about the right of leaseholders to take over the management of a multi-unit block. Commonhold, on the other hand, is a matter concerned with the law of property—a more fundamental issue of rights and obligations.

The Government welcome suggestions to improve the working of the law of property for property owners who live in multi-occupation buildings and will of course consider all proposals carefully. However, the Government are also mindful of the need to strike a balance between the interests of all those who would be affected by any change, whether as freeholders, leaseholders or commonholders. We are also mindful of the need to avoid putting unnecessary regulatory burdens on property owners, whether they are freeholders or leaseholders.

On the matter of right to manage, that specific statutory right was conferred on long residential leaseholders in 2003. The right to manage can be assumed by an administrative process. There is no legal process required and in that way expense is kept to a minimum. It can be achieved effectively by a majority of the leaseholders in a multi-unit building. It has clearly been, in relative terms, a success. We know that because we have seen the registration of at least 4,000 right-to-manage companies at Companies House. The process is straightforward and fair. It does not involve the long leaseholders in the expense of having to acquire by enfranchisement the freeholder interest in any property.

However, one has to remember that the right to manage brings with it very material obligations and, in that context, it is important that there should so far as possible be a consensus between leaseholders as to whether they wish to assume those rights and obligations. There can be difficulties in tracing some leaseholders, but there are means by which this can be achieved if a right-to-manage company is incorporated with the intention of taking over the management of a block.

Pursuant to Section 93 of the Commonhold and Leasehold Reform Act 2002, the RTM can require the landlord to provide information with regard to the whereabouts of leaseholders. There are similar rights under Section 82 of the same Act. Our perception at this time is that the right to manage is a welcome addition to the armoury of leaseholder rights and is proving effective in the protection of those rights.

I turn now to the matter of commonhold. My noble friend Lady Gardner observed that we could trace matters back to the Wilberforce committee of 1965—that is true. The coining of the term “commonhold” dates back to 1984 and a report from the Law Commission. Thereafter, I think it would have to be accepted that matters moved slowly until we had the 2002 Act, which came into force in 2004. Part of the difficulty, which I intend to address in a moment, can be discerned from the title of that Act—the Commonhold and Leasehold Reform Act 2002. Hand in hand with the introduction of commonhold came very material improvements in leasehold. In a sense, that carried the seeds of the difficulty encountered by commonhold as a form of land or property holding.

It was anticipated by the then Lord Chancellor in 2004 that some 6,500 commonholds would be created in each year after the Act came into force. In the event, there were not 6,500 a year; there were not 650 a year; there were not 65 a year; and there were not six a year. There have in fact been a total of 17 commonholds created since 2004. A great deal of effort, intelligence, research and work went into the creation of commonhold. It sailed under the fair wind of good intentions into a legislative Bermuda Triangle and nothing—nothing—came out.

Why should that have been? As I say, at the same time as commonhold was created, leasehold reform appeared. With those improvements, it became apparent that market forces would move in favour of continued use of leasehold rather than the adoption of commonhold. That carried with it a multitude of potential difficulties, we see now with the benefit of hindsight, including: the need to incorporate a company limited by guarantee; the need for there to be directors of that company; and the need for the directors of that company to accept the obligations of directors, including their fiduciary duties and the obligations now contained within Section 174 of the Companies Act. So we had a concept unfamiliar to property lawyers involving a further concept—corporations subject to guarantee—that was not particularly familiar to company lawyers. In these circumstances, the market has simply moved away from the idea of adopting commonhold. That is something we have to accept.

Reference was made by my noble friend Lady Gardner and the noble Lord, Lord Kennedy, to the employment of something other than the 100% rule for commonhold. But that is not an answer to the problem; that is a means of creating a further layer of complexity and difficulty. I say that in this context: if you were to allow commonhold by virtue of the votes of a majority of those in a unit, would you, first of all, be excluding the rights of the freeholder, whose rights would be extinguished? If so, that is a deprivation of property, contrary to Article 1 of the first protocol of the European Convention on Human Rights.

Secondly, will you deprive those non-consenting leaseholders of their rights as leaseholders, which are substantial because of the statutory protections now available to them? If so, that is a potential deprivation of property contrary to Article 1 of the first protocol.

Alternatively, will you allow those non-consenting leaseholders to remain as leaseholders of the commonhold, in which case you create not the intended community that commonhold was intended to bring about but something quite different: a division or pepperpot. There will be on the one hand commonholders of units and on the other long leaseholders who wish to remain long leaseholders within the same unit. Yet the commonholders may find that they then have a responsibility to the leaseholders because the leaseholders continue to have statutory rights about the level of service charge quite different from those of commonholders.

The commonholders’ rights and obligations in respect of the service charge are determined by contract and agreement. They do not have to be reasonable; they simply have to be agreed. However, the leaseholders who remain are entitled to the statutory protections already conferred on them. You could have a situation in which the commonholders decide on a service charge at one level—let us say, £10,000—and the consequence is that the leaseholders then have theirs reduced to £5,000. Who will pay the difference? As I say, introducing the idea of commonhold is an attractive way forward for property law—but only up to a point.

I am reminded that I have only one minute and have traversed but little territory. I apologise, but let me say this: despite being a Scot I cannot embrace the idea that Scotland has a better system. It has a different system, which traces its roots to the introduction of the feudal system by David I in the 14th century. There were proposals to abolish the feudal system in the 16th century but it took a further 500 years of consideration before that came about. However, the distinction is that real burdens could always be carried by property in Scotland—that is, perishable property title—because of the superiority. Even when that was abolished in 2003, real burdens could continue. It is not easy to compare the two systems because of the fundamental differences in property law and property title, so we can gain only little assistance from what happened there.

On consolidation, while the law is still in a state of flux, consolidation is not the way forward and therefore there are no proposals for it at present. On a review of the right to management, there seems no pressing reason for review. On commonholding, it is a voluntary scheme. It is open for the market to embrace it and perhaps there are steps that can be taken to encourage the market to do so. But as we have seen, the market finds it an unattractive offering despite all the efforts that were made to bring it to the market. It remains and will remain a voluntary scheme for those undertaking multi-unit development but we can see that it has not taken off at present. I apologise if I have overstayed my welcome and thank noble Lords for their attention.

House adjourned at 6.03 pm.