Skip to main content

Leasehold and Freehold Reform Bill

Volume 837: debated on Monday 29 April 2024

Committee (3rd Day)

Relevant document: 16th Report from the Delegated Powers Committee. Welsh Legislative Consent sought.

Amendment 64

Moved by

64: After Clause 50, insert the following new Clause—

“Power to establish a Right to Manage regime for freeholders on private or mixed-use estatesIn Section 71 of the CLRA 2002, after subsection (2) insert—“(3) The Secretary of State may by regulations make provision to enable freeholder owners of dwellings to exercise a right to manage in a way which corresponds with or is similar to this Part.(4) A statutory instrument containing regulations under subsection (3) may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.””Member's explanatory statement

This new Clause would permit the Secretary of State to establish a Right to Manage regime for freeholders of residential property on private or mixed-use estates.

My Lords, the amendments in this group concentrate on yet another aspect of the regime that fleeces home owners with unexpected and extortionate charges, but in this case, they are levied on residential freeholders living on private and mixed-tenure estates.

I had one or two such encounters as a councillor. In one case, there was a five-year battle to get an estate through-road adopted as a public highway because the residents were facing extraordinary and unaffordable costs for highway repairs; and in another, a series of children’s play spaces were abandoned by developers as soon as their sales were completed, with no provision made for maintenance, health and safety checks or upgrading to meet the latest safety standards. But it was not until I campaigned for my honourable friend Alistair Strathern, now the excellent MP for Mid Bedfordshire, that I saw the volume of housebuilding that had gone on with the assumption that new residents would be responsible for a wide range of maintenance to highways and public spaces, and other exceptional costs that had clearly not been set out in a transparent way at the time of purchase.

As my honourable friend put it,

“Across the country, homeowners in a state of adoption limbo are being left exposed to exploitative and often unaccountable management companies. Despite their warm words, sadly the Government did not take any of the actions that the Competition and Markets Authority urged them to take in order to end the issue of fleecehold once and for all”.—[Official Report, Commons, 4/3/24; col. 631.]

My honourable friend pointed out that residents of estates across the constituency are trapped in extortive relationships with unaccountable private management companies, while their estates go unadopted.

Of course, this sharp practice is not limited to Bedfordshire. The Conservative MP Neil O’Brien has written of this:

“Across the country many people are moving into new build homes, only to discover something nasty which they didn’t expect.

Often the first they know of it is when a large bill comes through the door, from an obscure company they’ve never heard of.

The bill demands that they pay a large sum for the maintenance of their new estate, and warns them that they could lose their house if they don’t pay up.

These bills can be of a scary size, and the bills often escalate sharply over time.

To add insult to injury, residents often find that the work they are paying for isn’t actually done, and then find that trying to get any redress is impossible: the firm sending the bills is opaque and uncontactable. People are sometimes billed for baffling things”.

Mr O’Brien went on to look at the large numbers of those affected. The estimate is about 20,000 housing estates, so this could affect up to 1.5 million home owners. The Competition and Markets Authority has examined this in great detail, and commented on the fact that

“over the last five years 80% of the freehold properties built by the 11 largest housebuilders … are likely to be subject to such charges”.

Our amendments in this group seek to address the fleecehold issues still outstanding, which we believe the Bill must address to avoid a continuation of this escalating trend, which is simply providing another method of extorting money from hard-pressed home owners, effectively making them leaseholders of the public space on their estates. As my honourable friend the shadow Secretary of State for housing said in the other place,

“Underpinning all those issues of concern is a fundamental absence of adequate regulation or oversight of the practices of estate management companies”.—[Official Report, Commons, 13/7/23; col. 193WH.]

and the fact that residential freeholders currently do not enjoy statutory rights equivalent to those held by leaseholders.

There was cross-party support for the fact that this situation is untenable, so I hope the Minister will be able to respond positively to amendments in this group so that we can make some progress. Our Amendment 64 would give residential freeholders on private and mixed-tenure estates the same right to challenge the reasonableness of estate management companies and their charges as leaseholders have. As Matthew Pennycook said in Committee:

“We also believe that it is right in principle that there is parity between residential leaseholders and freeholders when it comes to the right to manage”.—[Official Report, Commons, Leasehold and Freehold Reform Bill Committee, 30/1/24; col. 436.]

Our Amendment 87 would prevent developers building to a lower standard. The government amendment would remove estate charge costs that should be borne by local authorities, and then expect private management companies to pay for them themselves, as they can no longer pass the costs on to the occupants. However, this would motivate developers to leave degradation of buildings rather than repairing them. Further, our amendment would put the onus on the developer to ensure high standards are in place from the moment they pass the estate over.

Amendment 93 asks the Government to carry out a review of such non-standard terms and charges included in freehold deeds, including those relating to estate management companies. The alternative is that the Government implement the recommendations so clearly set out in the report of the Competition and Markets Authority.

We support the other amendments in this group tabled by the noble Baroness, Lady Thornhill, which are essentially driving at the same issue of tightening up on those dreadful fleecehold practices. The amendments in the name of the noble Baroness, Lady Finn, relate to the kind of issue I mentioned earlier, when developers sometimes provide public amenities that are not of an adoptable standard. It is not reasonable for leaseholders to be required to make up the difference. The noble Baroness’s second amendment refers to the money-for-nothing culture of leaseholders being charged for services that they do not receive. We would support both of those amendments, and we look forward to hearing from the noble Baroness, Lady Thornhill, and the noble Baroness, Lady Finn, and to hearing the Minister’s reply. I beg to move.

My Lords, it is a pleasure to follow the noble Baroness, Lady Taylor. I shall speak to Amendments 87A and 87B, in my name. The first amendment seeks to prohibit future freehold “fleecehold” estates, where freehold home owners can be tied into expensive maintenance costs for public amenities and open space, without recourse. I recognise and welcome the provisions in the Bill that currently provide additional redress for people trapped in fleecehold, but it is important to make sure that no more people become accidental fleeceholders. Fleecehold has become prevalent not because of any policy decision by an elected Government but rather as a way for developers and managing agents to make more money at the expense of unsuspecting home owners. My honourable friend Neil O’Brien has spoken out many times about the fleecehold estate scandal. He has compared it to the Post Office scandal, in that it is an injustice that has ruined so many people’s lives, yet nothing has been done.

The way that the fleecehold system works is now well known. In recent decades, the builder would normally build a new estate, make sure that the roads and other facilities were up to spec and pay a Section 106 charge, and the council would then take over the running of it. Under the fleecehold model, however, the developer agrees to hand over the company to another company, which it may or may not own, to run many parts of the estate, such as roads, open spaces, play areas and even sewers. The developer thus pays less in Section 106 charges and the council abdicates the responsibility to maintain the road and other amenities but not, of course, council tax. The developer and council, in essence, split the profits while the residents and new tenants get the bill. This is not only collusion between the council and the developer but an extremely inefficient way to run things. Many of the people on these estates end up with a huge bill to sort problems that have arisen because the amenities were not sorted properly in the first place.

There are numerous examples of abuse, from residents being charged terrorism insurance for a fence or charged for work that never happened. The problems of the fleecehold model are all too apparent. We need to solve these problems for existing residents, which is why I welcome the current measures in the Bill, but we also need to prevent this model from being used in the future or we will be deliberately piling up problems for the new home buyers of tomorrow.

Amendment 87A would end fleeceholds; development should be only private estates, where that is a deliberate, known choice on the part of buyers. It builds on the CMA report on housebuilding, which called for new adoptable standards for amenities and mandatory adoption by the relevant authorities. Subsections (2) to (4) of the proposed new clause would give the Secretary of State the power to prescribe those standards and for local authorities to vary them in relation to open spaces, which is the recommendation of the CMA. Subsections (5) and (6) would give powers to prohibit councils from granting permission, unless public amenities meet those standards and are to be adopted. Subsections (1) and (7) would make clear that a tribunal can invalidate any demands for estate management fees that people receive in relation to services that should be adopted.

We need to end this outrageous fleecehold model, which has brought misery to the lives of so many. We need to protect them against extortion and corruption, which is essentially what fleecehold is. I hope that my noble friend the Minister will be able to reassure your Lordships that the matter is being considered carefully and that the Government will bring something forward on Report to address it.

Amendment 87B aims to give leaseholders stronger powers over their estate management services. Residents who pay a service charge have a contract with a freehold management company to oversee problems in their properties. However, while consumers, under the Consumer Rights Act 2015, have the right to request compensation if a service is not delivered to a reasonable standard within an adequate timeframe, the same principles do not apply to leaseholders and the services that they should be able to secure from estate management companies. This amendment seeks to redress the imbalance. The amendment would give leaseholders a right to financial restitution or a proportion of their service charge should the management companies not, within an acceptable time period, address concerns that leave their properties uninhabitable. It would therefore create a financial impetus for management agents to act more quickly to address problems and fulfil their contractual obligations.

There are numerous examples of managing agents failing to fulfil their obligations, thereby leaving leaseholders without crucial facilities for weeks on end. In one new 31-home development, the residents were left without lift access, fire safety, security measures and basic amenities for over a year. The managing agent failed to issue demands for the service charge, resulting in a severe lack of funds to maintain essential services. As a consequence, residents were left paying for services that never materialised and liaising with service providers themselves to try to rectify the problems. It was only when the police and fire brigade intervened that the management company finally engaged. In consumer legislation, consumers have the right to the contracted service being provided with reasonable care and skill and in a reasonable timeframe; estate management companies should be required to abide by similar obligations.

There is also evidence of consistent poor communication between managing agents and leaseholders, who often have no clear channel by which to contact their managing agent when a service is broken or when they wish to raise concerns. This lack of communication often leads to basic amenities, such as intercoms and fire doors, being left unfixed for years. Equally, leaseholders have faced sharp increases in building insurance and service charge costs, but managing agents rarely provide cost breakdowns of the increased charges, despite being contractually obliged to do so.

The financial redress that the amendment would offer would place pressure on managing agents and freeholders to deliver an adequate service to leaseholders and provide a financial incentive for transparency to leaseholders on service charge cost breakdowns. Acting otherwise would lead the managing agent to incur costs. I hope that my noble friend the Minister will take back this amendment for consideration.

I am pleased to say the good news is that we are all on the same page in this regard. The noble Baronesses, Lady Taylor of Stevenage and Lady Finn, have set out the context and the evidence for this. Like the noble Baroness, Lady Taylor, I too had many meetings in my former role about the fact that this issue affected individuals, whether with regard to roads or, in one particular acrimonious case, to playgrounds. So I think we all know which way we are going.

I shall speak to the amendments in my name and make a few general comments about this whole set-up. Amendments 86 and 91 deal with what we now know as the fleecehold issue. As has been said, we all know exactly what that entails. The commercial substance of the arrangement that is eventually arrived at really is a leasehold. Homeowners are often fleeced by the management company, which charges exorbitant fees for maintenance, and may be unable to force directors to hold annual general meetings or provide proper accounts, which I feel should be a basic right. However, leaseholders do not want to publicise the issue because it will reduce their ability to sell the property when they leave, a matter that has not been touched on. You do not want to tell a potential buyer what they are letting themselves in for, which is why the transparency measures in the Bill are important.

Management companies are often non-profit-making, passing on costs of maintenance to owners of homes, but are controlled by the original developer and outsource maintenance work to businesses connected to that developer. There is a body of evidence showing that that leads to increased costs, as local companies could often do the work far more cheaply. A significant problem is that homeowners do not have the resources to take the company to court or force it to hold meetings or to get competitive quotes for required work. In many cases their conveyancing solicitor was recommended by the developer, so the initial advice given was not truly independent.

Amendment 91 would ensure that residents could take ownership of an estate management company if the company had not provided residents with a copy of its annual budget, invited residents to an annual general meeting or acknowledged correspondence from residents. There are existing provisions that allow leaseholders to gain control of their freehold or the right to manage their own lease, but freeholders are assumed not to need that kind of provision. This amendment seeks to address circumstances where freeholders are trapped in a situation where they are being taken advantage of. Crucially, it would allow them to take control of the assets that are vital for the proper enjoyment of their homes.

I say to the Minister that I note the Government are bringing forward the appointment of a substitute manager, which I think is very similar, beginning in Clause 88. However, the householders in that situation would have to prove to a tribunal that the existing management was at fault, which can be difficult. It is the complexities in getting a substitute manager appointed that my amendment highlights. They may be up against the other side’s lawyer, and it is not unusual for KCs to be brought into tribunals in circumstances like this. It is indeed a fault-based policy, and it is a very complex matter to get redress. You cannot just sack the company if you want to take control with your own residents’ management company. Simply put, the amendment is a short cut to being able to take control without such complexities and is less adversarial.

Similarly, Amendment 86 would mean that services or works that would ordinarily be provided by local authorities were not relevant costs for the purpose of estate management charges. I make no apology for saying that this amendment is our statement of principle; we believe it is a matter of principle. The amendment would prevent freeholders being charged twice, first through council tax and then through their management company, for essential services such as roads and pavements. We are aware that there are significant issues as to how and why this situation has arisen, and we urge the Government to look into it further.

Among the other amendments, I single out Amendment 87 from the noble Baroness, Lady Taylor, which seems entirely sensible. It seeks to ensure that householders are not bailing out private developers for shoddy construction or defective homes. It is not right that someone who has paid a premium for their home is then expected to pay maintenance costs to sort out the mess left by the original developer cutting corners or, in some instances, breaching building regulations.

On the other amendments in this group, the Minister is well aware of the thrust and direction that we are all pushing in. I am aware that the business models for development are predicated on whether or not these assets remain the responsibility of the freeholder, the developer or the local authorities. The arguments for this are very varied, ranging from—and I have heard this said—“Local authorities are strapped for cash and we do not want to maintain these amenities” to “Local authorities are asking for impossible standards that are not set centrally and that will add to our costs”, or “Local authorities set standards that mitigate against creating decent workplaces that people want to live in”. A similar example that I had to deal with was there being no trees on the pavements because the local authority felt that they were too difficult to maintain and added cost for looking after both the pavements and the trees. Who wants to live on an estate with no trees?

We need to return to this issue on Report, as the noble Baroness, Lady Finn, said—otherwise, we are piling up problems for tomorrow.

My Lords, the themes that have been touched on by the three noble Baronesses who have spoken to this group are familiar to me as a professional. They all pivot around these common realm assets—if I can call them that—that are left behind or, at any rate, put into some sort of park mode when the rest of the estate has been built out. These are things that have not been adopted and are placed in the care of an estate management company.

Local authorities may have all sorts of good reasons, within their own scope, for not wanting to adopt novel surfacing, additional lighting, planters or special features. But alongside this there are allied issues because, if they do not adopt, the construction cannot be guaranteed to meet adoption standards—by that I mean roads, drains and all the other things that would normally meet standards that are very often laid down in legislation.

This is an open goal for corner-cutting, which goes on. I cannot tell your Lordships how many times I have been asked to advise on the fact that there are defective drains outside the property, somewhere in the common realm—under the road, common parking areas or landscaped areas—and nobody knows what has happened. It can be not only drains and road construction but engineered embankments, landscaping and ponds: these do not necessarily get constructed to the right standards either, but it can be hugely expensive to try to fix them after the event, and that is where the problem is. The question of just parking them in a management company that then charges whatever it likes goes to the heart of standards, responsibility and the funding of the maintenance of them.

The accountability of management companies seems to be in many instances next to zero. The burden on the freeholders, where the costs charged to them reach that magic figure at which lenders start putting their ears back and question whether they want to lend, results in the sort of lock-in that we well know affects leasehold flats subject to remediation.

I very much support this group of amendments, although they probably need to go further in establishing responsibility and funding. That is something of which the Government really need to take notice, because this is an absolute scandal—not just for the fact that it has gained this moniker of “fleecehold” but because it affects people in their own homes and cannot be allowed to persist.

My Lords, I thank noble Lords for their various amendments on the freehold estates and for the thoughtful debate.

Amendments 86 and 87 tabled by the noble Baronesses, Lady Thornhill and Lady Taylor of Stevenage, seek to prevent costs being passed over to home owners. Amendment 87 from the noble Baroness, Lady Taylor, seeks to prevent home owners having to pay any contribution towards the costs where work is required to rectify defects during the estate’s original construction. I fully agree that it is important that communal areas, whether a new road, a playground or open space, are built out to a proper and reasonable standard.

In some cases, elements of construction and maintenance that are subject to an estate management charge may have been delivered via a Section 106 planning obligation or through a planning condition. The local planning authority has enforcement powers to ensure that the relevant infrastructure is built out to the required standard, and it will discharge the obligation when it is satisfied that it has been properly delivered. Some Section 106 agreements may have in them a remediation clause, which will confer responsibility to rectify any problems back to the developer. When there is no remediation clause and management of the estate has been transferred to an estate manager, it will be for that manager to resolve the issue and take legal advice as to the best way forward, when appropriate. This may involve recourse to legal challenge in the courts.

In some cases, it may be relevant if the estate manager has an extant insurance policy that covers the particular issue—for example, subsidence—in which case the insurer might pay for the remediation works then pursue the developer itself. There may be some facts and circumstances where the home owner is not directly liable even though the costs of insurance, for example, may ultimately be passed on to the home owner. However, in cases where remediation or construction issues are not dealt with in a Section 106 obligation and this is not covered by building insurance, it will be for the home owners to pursue any claim for negligent construction through the courts. Furthermore, the potential financial and reputational damage of being challenged through the courts should provide a deterrent so that the developer delivers construction of the site to the required standard.

There are also some unintended consequences that mean I will not be able to accept this amendment. The first concern is the burden of proof. It may be very difficult to prove that the construction defect is the responsibility of the construction company, especially if it has been signed off by the local authority. Secondly, during the period of a dispute, what is expected to happen to the alleged defect? Without any means to raise funds to remedy it, there is a risk of those defects remaining unattended to until the estate manager has concluded the dispute with the construction company. While this litigation is under way, it could mean that the defects on the estate are not being rectified, potentially pushing the estate into further disrepair. This in turn could intensify the problem, creating more disputes between the home owner and the estate manager over whether costs are payable, because they are not relevant costs.

We also need to consider the safety of all those who use the estate. There may be a higher risk of injury to members of the public during a period in which defects are not resolved and, in the event of an incident, the estate manager may be liable. This liability could also sit with the residents themselves where they are members or directors of an estate management company. I recognise that there are, sadly, cases in which initial work is not of the expected quality. However, I hope that the noble Baroness, Lady Taylor, is aware that there are significant challenges to consider with regard to preventing estate managers reclaiming costs from home owners.

Amendment 86 from the noble Baroness, Lady Thornhill, would clarify that an estate management charge is a relevant cost only if it covers services or works that ordinarily would not be provided by the local authority. The impact of this amendment is that home owners on a new or existing managed estate would not be liable for any costs that a local authority would normally carry out. This might include maintenance and the improvement of roads and public open spaces. However, this term is difficult to define. For example, would it include insurance costs of the local authority?

I recognise the many concerns expressed here and in the other place about the fact that local authorities are not required to adopt new developments. I know that mandating adoption of new estates is a key recommendation of the Competition and Markets Authority as part of its recent market study into housebuilding. The question of adoption is very important, but unfortunately it is not something that this Bill can fully address. This is because legislation governing public amenities, such as roads, drainage and open space, is covered by other legislation outside the scope of the Bill.

Furthermore, on its own this amendment has considerable implications. For example, while it may stop payments by existing home owners, it does not take away responsibility for the upkeep of the area under the terms of the property deeds. These home owners would not have any means of raising funds to pay for such upkeep, because they would cease to be treated as relevant costs. This would prevent home owners complying with their legal obligations.

It would also be detrimental to existing home owners, as the condition and upkeep of communal areas may rapidly diminish, impacting on the condition of the area and the well-being of all the residents. This could make it very hard to buy or sell these properties. I should also stress that there would be no contractual obligation for local authorities to take on the management of an existing estate. They are extremely unlikely to do so unless they can ensure that they have sufficient finances to manage and maintain it.

Amendments 64 and 91 from the noble Baronesses, Lady Taylor and Lady Thornhill, seek to achieve the laudable aim of empowering home owners to take over management of the estates on which they live. While I support every effort to drive up the accountability of estate managers and empower home owners on existing estates, I hope I can persuade the noble Baronesses not to press these amendments.

We recognise the benefits of Amendment 64 from the noble Baroness, Lady Taylor. It would mean that a new right for home owners on freehold estates could be introduced in legislation to take on the obligations and liabilities associated with running an estate. There would, though, be many detailed practical issues to work through to deliver a right-to-manage type regime, particularly as estates contain different tenure types, such as leasehold and freehold houses, leasehold flats and commercial units. These issues would all require careful handling as they affect not only property rights but existing contract law.

I would like to reassure Members that we are listening carefully to the arguments being made for the Bill to go further to empower residents on existing freehold estates and, before Report, I would welcome further contributions on this, if noble Lords have them.

Amendment 91, tabled by the noble Baroness, Lady Thornhill, would enable residents to take ownership and possession of the estate management company where an inadequate service is being provided. The grounds presented to invoke this, although well-intentioned, seem unreasonably narrow. Many of these failures are company law issues or are already being dealt with through the Bill. Furthermore, there would need to be solutions for important issues, such as how to address the legal costs of transfer, as well as consequences for the company’s solvency if its equity is removed and it is assessed at a nominal value.

I do not consider that the reasons set out in the proposal from the noble Baroness, Lady Thornhill, provide sufficient basis for a nil-cost transfer. We are concerned that this very simple and broad power is not an appropriate way to address the significant substantive policy issues involved in transferring responsibility. As Members of the Committee will know, we are introducing measures in the Bill to empower home owners and make estate management companies more accountable to them for how their money is spent, including the ability to apply to the appropriate tribunal to replace a failing managing agent.

Amendment 93 from the noble Baroness, Lady Taylor of Stevenage, would require the Government to carry out a review of the extent and impact of non-standard terms and charges imposed by estate managers in property deeds and leases. We are aware that there are many different types of language in deeds and leases, but I do not think this review is necessary. First, home owners will face different obligations depending on what amenities the local authority is or is not responsible for. Secondly, where home owners are responsible, we are driving up the accountability of estate management companies with regard to how they spend the money they charge home owners. These reforms bring in significant protections to prevent exploitation of home owners, and we will of course keep these arrangements under review. I fully recognise the noble Baroness’s desire to provide further support to help home owners living on these estates, particularly in light of the Competition and Markets Authority’s recent report. However, I do not believe that these amendments are the right way of delivering the desired outcome, for the reasons I have explained, and I ask the noble Baronesses not to press them.

My noble friend Lady Finn’s Amendment 87A seeks to deliver the recommendation in the Competition and Markets Authority report that the Government prepare common adoption standards and mandate local authorities to take over responsibility for these public amenities once these standards are met. These are very important issues that must be carefully considered, but, as I mentioned previously, they are not things the Bill can fully address. Legislation on planning considerations and liability for governing public amenities are covered elsewhere and are outside the scope of the Bill. The Government’s thinking on this issue will be set out in our response to the CMA report.

On Amendment 87B, also tabled by my noble friend Lady Finn, it is right that estate managers should be held accountable for the poor delivery of services they provide. However, I do not think this amendment is necessary, as the Bill already contains adequate protections for home owners. Clause 72 makes it clear that any estate management costs must be reasonable and that services or works should be of a reasonable standard. Clause 75 grants home owners the right to apply to the appropriate tribunal for a determination on whether those charges are reasonable. Taken together, these clauses will incentivise estate management companies to charge the correct fees from the outset, thereby reducing the number of home owners being overcharged for works and services on their estate. However, I understand my noble friend’s concerns and those of other noble Lords who have spoken in this debate, and I can reassure them, as I said before, that we are carefully listening to these arguments. Given these considerations, I ask my noble friend not to press her amendments.

My Lords, I listened carefully to the Minister’s response, and I am grateful to her for going through each amendment in detail. However, having spent many hours in this Chamber debating what is now the Levelling-up and Regeneration Act before this Bill, we hear the same refrain again: things are either too complex to deal with, they are the subject of another Bill or they need further work.

Today’s debate has indicated yet again—and I am sure there will be later debates in a similar vein—that these types of Bills need very effective pre-legislative scrutiny so that the great expertise contained within this Chamber can be used to make the Bill better before it comes to the House. It would mean that we are not faced with being told something should be in another Bill or needs further work. The subject of this Bill has been a manifesto commitment of the Government since 2017, so there has been plenty of time to do the other work before the Bill came before the House. That said, I beg leave to withdraw the amendment.

Amendment 64 withdrawn.

Amendments 65 to 65B not moved.

Clause 51: Extension of regulation to fixed service charges

Amendment 66

Moved by

66: Clause 51, page 59, line 15, leave out “as follows” and insert “in accordance with subsections (2) to (6)”

Member’s explanatory statement

This amendment is consequential on the other Government amendment to this clause.

My Lords, I will now speak to Amendments 66, 68 and 70 in my name. I start by noting that I fully recognise the challenges facing leaseholders, with rising service charges caused by the increased costs in managing and maintaining buildings. The Government are clear, however, that any increase in charges must always be reasonable. We also recognise that the existing statutory protections leaseholders have do not go far enough, which is why we are introducing measures in the Bill to empower leaseholders and help them better scrutinise and challenge the costs they are asked to pay.

Amendment 68 is a technical amendment to Clause 51. It provides further clarification on which parts of the regulatory regime should continue to apply only to landlords who charge and leaseholders who pay variable service charges. These are charges which will vary year on year, depending on the actual cost of providing services.

As currently drafted, the Bill provides such clarity only in respect of measures in the Landlord and Tenant Act 1985. This amendment makes it clear that certain measures and protections in the Landlord and Tenant Act 1987 and the Commonhold and Leasehold Reform Act 2002 should also apply only to leaseholders who pay variable service charges. These include, for example, the ability to appoint a manager and the requirement to hold service charge contributions in trust. Amendments 66 and 70 are minor consequential amendments because of these further changes to Clause 51.

I turn to Amendments 71 to 75 in my name. Amendment 71 clarifies what steps are required to ensure that the written statement of accounts is prepared properly. It follows feedback from and discussions with expert stakeholders after publication of the Bill. We are grateful for their observations. The amendment places an obligation on landlords to provide leaseholders with a report prepared in line with specified standards for the review of financial information. This report must also include a statement by the accountant that the report is a faithful representation of what the report purports to represent.

The amendment also makes it clear, for the avoidance of doubt, that leaseholders must make a fair and reasonable contribution towards the costs of the report. This permits landlords who are unable under the terms of the lease to recover such costs through the service charge to do so, to avoid financial difficulties. This may include right to manage or resident management companies.

Amendment 72 implies a term into the lease where the cost of the preparation of the report is to be payable through the variable service charge. Amendment 73 is a consequential amendment required because of the change to new Section 21D(2)(b).

Amendment 74 allows for the appropriate authority to expand the definition of

“the necessary qualification”

in Section 28(2) of the Landlord and Tenant Act 1985. This will allow the Secretary of State and Welsh Ministers to widen the description of people who are deemed capable of preparing the written report. Amendment 75 makes it clear that any regulations made will be subject to the affirmative procedure.

We will work closely with leaseholders, landlords and professional bodies to ensure we prescribe the right standards to be applied and the right level of detail. I beg to move Amendment 66 and hope noble Lords will support the other technical and essential amendments in my name. I look forward to hearing from noble Lords on their amendments relating to service charges.

My Lords, I do not think I am actually the next in line to speak on this, but I have Amendments 78C to 78G and 80A and 80B standing in my name. The intentions behind the Bill in relation to greater transparency and fairness are welcome, but, in my view, they do not go far or fast enough to deal with the current crop of egregious monetising schemes, where there seems to be no end to the inventiveness of the worst offenders.

My amendments go further than the Government’s proposals, for this reason. Some of what is in the Bill will take time to work through and, during that time, the same old abuses—or variants of them—will continue. I want the worst ones to stop immediately the Bill receives Royal Assent. It is part of an essential consumer protection package.

Amendments 78C to 78G, which I will deal with first, seek to close loopholes in the current law, require landlords to achieve value for money in the management of their buildings, promote competition in the property management sector and clamp down on the charging of unnecessary ancillary fees. Amendment 78C clarifies that the costs are to be treated as incurred as soon as there is an unconditional obligation to pay them, even if the whole or part of the cost is not required to be paid until a later date.

The moment when costs are incurred is particularly important in relation to Section 20B of the Landlord and Tenant Act 1985. That section prevented tenants being charged costs incurred more than 18 months before a demand for payment was made, unless they were informed that costs had been incurred and therefore would be payable.

Surprising as it may seem to your Lordships, there are conflicting decisions as to when costs are incurred for the purposes of Section 20B. In Jean-Paul v Southwark London Borough Council in 2011 in the UK Upper Tribunal, Lands Chamber, reference 178, it was held that costs are incurred only when payment is made; but, in OM Property Management Ltd v Burr in 2012, in the UK Upper Tribunal, Lands Chamber, reference 2, it was held that costs are incurred on the presentation of an invoice or on payment. Both leave it open to landlords to ask a supplier to delay the presentation of an invoice, or themselves to delay payment, to postpone the commencement of the 18-month time limit. I do not see this amendment as controversial, as it prevents abuse of the system and brings landlord and tenant law into line with accepted accounting practice.

Amendment 78D covers a situation under Section 19(1)(a) of the Landlord and Tenant Act 1985, where service charge costs are payable

“only to the extent that they are reasonably incurred”.

This amendment replaces the “reasonably incurred” test in relation to service charges with a stricter one of providing “value for money”.

It is established case law that, if a landlord has chosen a course of action that has led to a reasonable outcome, the costs of pursuing that course of action are reasonably incurred even if there was another cheaper outcome that was also reasonable. This wide margin of appreciation leaves leaseholders at risk of overcharging. A value for money test would require landlords to interrogate all options before spending leaseholders’ money. It is not an unreasonable test; it is one that most people use in daily life when considering any significant purchase.

Amendment 78E requires landlords to provide tenants with a range of information, and to update it regularly. It goes further than the Government’s Clause 55, under which landlords are required to provide information only on request. If leaseholders are to be encouraged to take greater interest in the management of their buildings, I do not think we should place obstacles in their way. It should not be difficult for a landlord of a well-manged building automatically to provide and keep up to date a data room of information.

Amendments 78F and 78G continue the consumer protection theme of these amendments by promoting competition in the property-management sector. Amendment 78F prevents landlords contracting with related parties or connected purposes, thus removing an obvious conflict of interest. The danger for leaseholders if a landlord company places contracts with its subsidiary is well illustrated by the Charter Quay case, in which the managing agent, which happened to be owned by the landlord company, was roundly criticised by the tribunal for placing onerous service contracts with other subsidiaries.

In the same vein, to promote competition through regular retendering, Amendment 78G places a maximum contract duration of five years. Although under current law landlords must consult leaseholders before entering into a qualifying long-term agreement—that is, a contract of more than 12 months—there is no limit on its duration. In practice, even limited consultation requirements are relatively easily avoided. Contracts between a holding company and one or more of its subsidiaries, or two or more subsidiaries of the same company, are not qualifying long-term agreements; neither are contracts for a year or less, even if they have been regularly renewed.

Amendment 78H seeks to reduce costs on leaseholders by setting out in statute details of cosmetic works that can be undertaken without approval from a landlord. Most leases contain very tightly drawn provisions in this respect, which are against undertaking virtually any type of work, no matter how insignificant, without the landlord’s consent. Provisions such as a prohibition of the

“cutting, maiming or injuring, or suffering to be cut, maimed or injured, any roof, wall or ceiling”,

are very common. The fees for consenting to some minor works often run into hundreds of pounds, so this amendment attempts to find a way to streamline that.

One may debate at length the areas where a more relaxed regime might impair the amenity of other residents, but I seek to establish the principle of getting away from the monetisation of consent for every mortal thing—from pets to paint colour, and light fittings to lino floors—and putting it in the past. There ought to be greater freedoms for leaseholders but, in noting that the Law Commission report implied that consent for floor coverings should be relaxed, I would only observe from experience that engineered timber floor finishes in particular are often a potent source of noise transmission affecting other residents—so the matter is nuanced. At this stage, I simply wish to sound out the Government’s willingness to draw up, say, a code of practice, or otherwise take steps to free up this area.

I now turn to Amendments 80A and 80B, which are really rather different. I would have had them disaggregated had I been a bit more alert on Friday afternoon, because they relate to insurance moneys. Amendment 80A requires landlords to pay the proceeds of a building insurance policy into a separate fund that is held on trust for leaseholders. It also requires landlords, on receipt of insurance proceeds, to begin immediately to repair or rebuild a building, as far as reasonably practicable.

Service charge funds already have to be held on trust for leaseholders and I contend that building insurance payouts should be treated in the same way. As noble Lords are aware, I have raised my concerns about the risk of landlord insolvency. It has been suggested to me that, if a landlord became insolvent, any insurance proceeds held by the landlord on entering insolvency would form part of the company’s insolvent estate, leaving leaseholders in a damaged or destroyed building as unsecured creditors. Holding insurance proceeds on trust would go some way to protect them from risks relating to landlord borrowings—of which more in relation to Amendment 80B.

Most leases require landlords to reinstate damaged buildings—as, I think, does statute in the case of damage caused by fire. Subsection (3) of the proposed new clause in Amendment 80B places that duty beyond doubt. It requires landlords to move quickly to repair or rebuild the damaged or destroyed building. It goes some way to closing a loophole commonly found in leases that gives landlords the right to terminate where it is not possible to reinstate a building within a certain period. That is often three years, which is likely to be insufficient time to effect reinstatement of a larger or complex building.

Amendment 80B closes what I consider to be another loophole for insurance. Most leases require that the landlord insures the building, with the cost charged to leaseholders. However, what concerns me is the ability of landlords to assign the proceeds of insurance policies as security for their borrowings.

For instance, leaseholders in properties owned by subsidiaries of the three Long Harbour fund holding companies—a landlord to over 103,000 homes—are likely to be concerned that their subsidiaries have assigned the

“rights in each Insurance Policy, including all claims, the proceeds of all claims and all returns of premium in connection with each Insurance Policy”

to the Irish holding companies as part of an intercompany loan agreement. They will be even more concerned to learn that, according to the same standard insurance contract:

“All monies received or receivable by a Borrower under any insurance policy maintained by it (including all monies received or receivable by it under any Insurance Policy) at any time (whether or not the security constituted by this deed has become enforceable) shall at the option of”

the holding company

“be applied in making good or recouping expenditure in respect of the loss or damage for which those monies are received or”—

this is significant—

“towards … discharge or reduction of the Secured Liabilities”.

Similar assignment provisions can be found for companies with loans from Rothesay Life. When leaseholders challenged those provisions, the excuse was that they formed part of a standard form of finance agreement. Lenders apparently insist on the provision so that they can have control of the funds and stop the landlord taking the insurance proceeds and walking away. In this case, somebody else walks away with the money, but the leaseholder still does not get the benefit of that being paid to their building. Some insurance policies note a lender as the priority payee so that it will receive the insurance proceeds instead of the insured party—you could not invent this stuff.

It seems to me that such provisions conflict with the terms of most leases that require a landlord to reinstate a building. Lest leaseholders in a damaged building are forced to fight a holding company or lender, possibly overseas, for the funds needed to repair, this clearly needs addressing. Even if the funds were made available to leaseholders, the holding company or lender could withhold that element of the proceeds relating to its subsidiary’s or borrower’s interest in the building, leaving leaseholders with a shortfall. I am sure that noble Lords will agree with me that this situation cannot be allowed to persist.

I will make one more comment on—

I will be very brief. Some of the costs that have arisen are as a result of Fire Safety Act and Building Safety Act provisions set up by the Government. Some time ago, I asked the people I work with to set up an online resource, which I commend to noble Lords. It is I hope that it will help a number of people to unpick what is a very complex situation.

My Lords, the number of amendments discussed today highlights just how many issues there are with the exploitation of leaseholders. The noble Baroness, Lady Taylor, mentioned the option of some pre-scrutiny with people who have expertise in this area—although I am not suggesting that I am one of them. That might have benefited this legislation.

Normally, with leasehold properties, people think that they are buying a house or a flat, but then they are laden with decades of financial obligations to a landlord who can charge a ridiculously long list of things to the leaseholders. That does not seem to be a very fair system. There are far more problems than your Lordships’ Committee will be able to resolve, so there is clearly a need for further legislation when a new Government come to power. I hope that the new Government will consider the issues raised in Committee, including my Amendment 78B, which shines a light on the growing trend of public assets being funded by leaseholders. For example, green spaces, play areas and roads are often being charged to leaseholders, even when they are freely accessed by the wider community.

These leaseholders are facing a double taxation: they are paying their council tax, which is used to fund play areas and roads provided by the local authority, and they are also being charged by their landlord for play areas and roads that are within the estate. There seems to a case for these publicly available assets to be brought into local authority management, ownership and funding. I would appreciate it if the Minister, and any budding future Ministers, could give their thoughts on the issue and perhaps undertake to look at it further.

My Lords, my main focus so far has been boosting leaseholder control over service charges by removing barriers to the right to manage. However, we must dramatically reform the law for leaseholders who cannot gain this control and who wish to stand up to their freeholder on service charges. It is positive that the Government are enforcing service charge transparency and disclosure with the new right-to-inform scheme in Part 4, Clause 55, which makes changes to the Landlord and Tenant Act 1985, but I believe we need to go further and make it easier for leaseholders to challenge rip-off freeholders with their service charge.

Tribunals are very stressful: they take a long time and often do not have the power to enforce their decisions. This leaves leaseholders in a very strong predicament. Leaseholders normally have to file another application with the county court to get their money back for any overcharging, at least as they see it. My Amendment 78A is all about enforcement and giving teeth to tribunals’ decisions, where it has been determined that the service charges that the leaseholders have paid were not payable or were unreasonably incurred.

Various rules in Parliament have been passed in an attempt to regulate this behaviour of freeholders; again, I mean poor freeholders—the whole market is not like this. Often, these work only when leaseholders have the time, money and energy to enforce them at tribunal, which then is not always guaranteed when residents are up against armies of layers. Freeholders often hold many freeholds and have a big financial backing behind them and can just tire out leaseholders—they can work them into the ground and threaten them with forfeiture, for instance, should something go wrong. The Secretary of State was right to say that we need to put the squeeze on freeholders, but that means making freeholders actually fear leaseholders bringing cases against them at tribunal.

In my Second Reading speech, I mentioned that research from Hamptons has shown that leaseholders paid £7.6 billion in service charges. Many of those service charges were overcharge, and we want to create a situation where leaseholders can fight back. The annual service charge for flats in England and Wales has increased by 8.4% since the beginning quarter of 2023. Around 270,000 leaseholders are now paying more than £5,000 a year in service charges, which could quickly become a second mortgage for many leaseholders.

My Amendment 78A seeks to amend the Landlord and Tenant Act 1985 regime for service charge disputes to try to make service charge tribunals against freeholders more serious by taking three important steps. One is by providing an opt-out. At the moment, leaseholders have to sign up for a case to benefit. Even if the tribunal determines that they have been overcharged, unless they have signed up their neighbour may receive a payment but they will not because they did not sign up. That is unfair in modern life: you could be elderly; you could have children; you could just be away when all these things are going on. Your neighbour would receive benefit and you would not, even though you would also have overpaid. That is why we need an opt-out, not an opt-in, to make it more serious.

Secondly, after a successful Section 27A challenge by any leaseholder in a block, the freeholder would be under a duty to account to all leaseholders within a two-month period of the decision being handed down. This means that any money overpaid would have to be paid back within two months, because leaseholders—many of them owning a place for the first time, many of them young people, many of them elderly people on fixed incomes—have paid out this money which they often could not afford. They should get it back in a speedy fashion.

Thirdly, there should be interest after a two-month period if the freeholder has not paid back money owed to the leaseholders. This is to give the sanction some bite and to make sure that a freeholder does not just wait out hapless leaseholders because they have all the power and the financial power.

I would like to see some more action in this Bill to deter and punish bad behaviour by freeholders and ensure that leaseholders can swiftly get their money back where overcharging has been determined by a tribunal. My Amendment 78A gets us closer to that position.

My Lords, Amendment 78 is about one part of service charges that sometimes gets neglected: the lack of consultation about major works that remain uncapped, opaque and difficult to challenge. This mainly affects those who have brought homes where the landlord or freeholder is a council. The amendment is also about the failed attempts by the law to help them in the past and whether we can use the Bill to rectify that.

In Committee last Wednesday it was implied that leaseholders are mainly wealthy home owners of luxury flats. These leaseholders deserve fair treatment, however wealthy they are, and they should not be ripped off, but many leaseholders do not fall into that category, with 49% of leaseholders being first-time buyers. We also have right-to-buy leaseholders who bought their own council homes, and leaseholders who bought former council homes because they were cheaper and therefore home ownership was within their grasp, rather than them being priced out of the market. I declare an interest as one of those people.

Leaseholders living in former council homes now face enormous refurbishment bills of tens of thousands of pounds, despite a legal cap being introduced 10 years ago, which is being circumvented by local authorities. The reason for major works is no doubt exacerbated by years of weak investment and cuts. Social housing estates do need to be maintained, and I understand that councils have difficulty doing that. However, neglect builds up and leaseholders end up being the ones who pay the price. The bill for entire blocks has been divided between the local authority and individual leaseholders because council tenants cannot be charged. Therefore, we end up with situations such as that of George and Alma, a couple who were suddenly landed with a £45,000 bill for windows in the roof of the estate, which do not even affect them, making them sick with worry. As has already been discussed, the disrepair that accumulates on estates ends up not just increasing service charges but coming as one large bill. George said, “I pay a service charge and I have not seen any work being done on a yearly basis—then suddenly we get this big bill”.

I am a Haringey leaseholder of a maisonette. I noted one extreme case that came to light during lockdown, when 76 leaseholders in Wood Green were told to find between £56,000 and £118,000 to cover Haringey repairs and improvements. One young woman, when she bought her maisonette in 2015, was told that major works planned would cost £15,000. Instead, after losing her job because of lockdown, she ended up with a bill of £110,000. Another couple, when buying their property, were given an estimated bill for major works of £12,500. Mid-completing buying their house, that had swelled to £25,000 with no explanation whatsoever for the increase, and they could not find out why. There was then stalling for five years, again with no explanation. Haringey then added in some other major works—roofs, windows and door replacements—so now the final bill is a whopping £108,450. To quote them, “We will be ruined”. The bill will be a third of what they paid for their home.

This is happening all over London, and councils’ responses have been complacent. Lambeth Council said: “We appreciate that major works can place a financial burden on leaseholders, which is why we offer a number of repayment options”. However, even those which break it down over five years, for example, which is one of the options available, can almost double some people’s mortgage, and this is even beyond increasing service charges.

What is frustrating about all this is that the shocking problem has been known and, indeed, legislators tackled it 10 years ago. In 2014, the then Communities Secretary, the noble Lord, Lord Pickles, introduced Florrie’s law. It was named after pensioner Florence Bourne, who was mortified by a £50,000 repair bill from her local authority landlord and panicked about the noisy works which—and this is key—a tribunal later ruled were completely unnecessary. Sadly, Florence Bourne died of a heart attack. Florrie’s law introduced a £15,000 cap on major works in London and a £10,000 cap outside London over a five-year period. But it applies only if central government money is involved. Guess what? There has not been much central government money involved in helping councils with their social housing stock. It is not clear at all whether Florrie’s law has ever been used, but I would like the Minister to look into a dormant law that was meant to tackle a problem that is still going on.

This amendment seeks to deal with the narrower matter of local authority leaseholders being completely shut out of any consultation about major works. Unlike leaseholders in privately owned buildings, local authority leaseholders have no right to decide on the scope or timing of proposed works or to request alternative quotes from contractors. They have the right only to make observations on plans. We local authority leaseholders live in dread of a series of letters containing estimates for the next high capital expenditure, often for works that do not directly improve our own home, sometimes not even our own block. We cannot do anything but sit in fear of the final bill, knowing that it will not be value for money.

Most council landlords use qualifying long-term agreements with contractors. They are not required by law to find alternative quotes, and with only one tender there is no incentive to compete on price. Worse, contractors often use their own surveyors to determine the scope of works and costings, costs can be inflated, and the work carried out is often not essential. Workmanship can be shoddy—poorly fitted windows, leaks in new roofs and so on. Local authority leaseholders have no say and are forced to foot the bill for substantial work. There is a huge amount of waste, sloth and lack of accountability, as I realised when I was evicted from my own block of flats after fire and water damage. It took three years for us to be returned to that block, and much public money was squandered. Of course, that money is now being recouped from other leaseholders in the local area and, indeed, us.

Leaseholders are the very people who care enough to ensure that major works are efficient and of a high standard. The council has no interest in controlling costs if, indeed, leaseholders cover the bill. That is why the proper consultation called for in this amendment would improve the situation.

Again, this has already been tackled by legislators before us. In the Commonhold and Leasehold Reform Act 2002, Parliament wanted to ensure that proper consultation on major works was introduced into law. It was part of a drive to provide leaseholders with transparency back then, so that they would have the opportunity to influence the cost of a project and have input into who would get the contract. Unfortunately, in 2013, the Supreme Court thwarted the will of Parliament by undermining a key provision, often referred to as the Daejan ruling from the Daejan v Benson court case. This means that freeholders can push through major works by calling them an emergency, or by filing an S20ZA order which, since the Daejan ruling, tribunals generally nod through.

This lack of leaseholder consultation on major works means that freeholders almost always have carte blanche to choose what works need doing and determine their cost. As Professor Sue Bright of the University of Oxford says, with leasehold reform as a political priority, it is a good moment to reflect on the Supreme Court decision in Daejan. Professor Bright also notes that this lack of consultation goes against the spirit of the Building Safety Act and the Hackitt review, which tried to address the problem of residents needing more opportunities to have a strong say and voice and offer their views in decision-making processes. That is why both Barry Gardiner MP and Matthew Pennycook MP raised the problem of the Daejan ruling in the other place. The Housing Minister, Lee Rowley, admitted that he did not know about Daejan but promised to look into the problem and come back to Parliament. Maybe the Minister can respond to this here and we can get on with ensuring that Parliament’s will as expressed in 2002 actually happens.

All this amendment tries to do is restore the intention of the Section 20 major works regime in the 2002 Act to what it was before the Supreme Court’s unhelpful intervention. I hope the Minister will help ensure that occurs.

My Lords, I congratulate the noble Earl, Lord Lytton, on his high-speed gallop through a large number of his Friday afternoon amendments. They were quite technical, and anyone who managed to keep up with them all deserves a prize. It was very good indeed. I will address one of them, Amendment 78F. It is very short but very important.

Much of this Bill is designed to protect leaseholders from freeholders and their managing agents acting in concert in any attempt to inflate service charges. These in-house relationships are ripe breeding territory for dishonest behaviour and abuse, of which the noble Earl gave an example, in the opaque realm of service charges—something we look forward to being reversed or changed by this Bill. It is a money-making business model, albeit morally and actually dishonest. We should ban any close links of this kind between managing agents and their freehold clients, and inflict suitable penalties that are strong enough, or high enough in financial terms, to be a deterrent. If the Government really want to protect leaseholders, connected relationships giving rise to such potential abuse must be banned.

My Lords, I will speak to my Amendment 77 and make a few brief comments on other amendments. Amendment 77 would allow leaseholders to apply to the appropriate tribunal to ensure that freeholders who do not provide the agreed estate management services and allow a block to become run-down can be subject to a penalty at the sale of the freehold. There is clearly an issue of absent freeholders and little penalty when a managing agent is not appointed or adequate estate management services are not provided. The amendment would create a mechanism by which a penalty could be placed on the enfranchisement value and mean that leaseholders who have suffered from freeholder failures and consequently had to take the step towards acquiring the freehold should pay a lower cost for the collective enfranchisement of that freehold. This would reflect the freeholder’s dereliction of duty if a tribunal deemed it was warranted.

The Bill aims to remove barriers and rebalance legal costs for leaseholders to challenge freeholders at tribunal. Clause 56 addresses the enforcement of freeholders’ duties relating to service charges, and it includes provisions for tenants to make an application to the appropriate tribunal and the measures tribunals may put in place. As such, the amendment would just add to that. As well as having a power to make a landlord pay damages to a tenant for failure to carry out duties related to service charges, a tribunal would also have the power to apply a penalty to the enfranchisement value at the sale of the freehold to leaseholders. It does not seem fair, after having taken action to gain control of the freehold due to an absent freeholder, that leaseholders then have to compensate the freeholder with no penalty for that dereliction of duty. This is a modest amendment that would leave the judgment in the hands of the appropriate tribunal as to whether a penalty was warranted.

On Amendments 67 and 69, in the name of the noble Baroness, Lady Taylor of Stevenage, it is only right that leaseholders with old leases that have fixed service charges can challenge the reasonableness of those fees at tribunal. Evidence of costs being passed on in service charges is evident. This also ties in with Amendment 98D from the noble Earl, Lord Lytton.

We on these Benches support Amendment 69. We do not agree with the Government having a power to remove certain landlords from being subject to basic service charge transparency rules; all leaseholders are owed clarity on what they are paying for. We do not understand why that should not be the case.

I turn to Amendment 78 from the noble Baroness, Lady Fox of Buckley. We agree that leaseholders should be fully consulted on major works that they pay for; the noble Baroness showed that some of these costs are eye-watering. We agree with her proposal to restore the major works scheme in the Commonhold and Leasehold Reform Act 2002, which was eviscerated by the Daejan ruling by the Supreme Court in 2013, which the noble Baroness mentioned. We agree with the dissenting Lord Wilson in that decision, who said that the majority had subverted the intention of Parliament. It is not right that landlords no longer have to involve leaseholders in the decision-making process. We should use this Bill to at least restore the position to pre-Daejan so that transparency and accountability on major works are increased for leaseholders.

Amendment 78A, from the noble Lord, Lord Bailey of Paddington, would require a landlord who had lost a service charge determination, and who was meant to return the money to the leaseholders, to pay up in two months or else face compound interest. While Section 19(2) of the 1985 Act requires that overcharges be returned to leaseholders, landlords can and do ignore this. The same applies to similar provisions in leases. Where a tribunal has determined that a service charge or portion of it has been excessive, it should be relatively straightforward for leaseholders to get that money back. We on these Benches support that part of the thrust of the amendment—to ensure that landlords are under pressure to account to leaseholders in a timely manner, or otherwise experience financial penalties, as debtors in other parts of our economy do.

I turn to the mighty avalanche of amendments from the noble Earl, Lord Lytton. For us, Amendments 78D and 78E stand out. Amendment 78D provides for a new, tighter and more objective test of value for money to replace the current test of “reasonably incurred”, which could be open to a wide range of interpretation—obviously, this is in relation to service group charge costs. Amendment 78E pushes the Government to go further in the entitlement of leaseholders to have more and better information. Given the rationale behind the amendments from the noble Earl, Lord Lytton, we believe it is worth the Government giving them serious consideration.

Finally, although we have not yet heard from the noble Lord, Lord Moylan, we are minded to agree with his amendments, as right-to-manage and residential management companies are thinly capitalised. Unlike big freeholders, they will not have lending facilities, so would be unable to pay legal costs up front to take non-paying leaseholders to tribunal or county court. Right-to-manage and residential management companies are non-trading companies and have nothing except the service charges in their coffers. I look forward to the Minister’s responses.

My Lords, I rise to speak to Amendments 67, 69, 76, 78I and 78J, in the name of my noble friend Lady Taylor of Stevenage. Noble Lords across the House have been emailed and briefed in relation to some very troubling real-life examples in the area of service charges—in fact, we heard earlier from the noble Baroness, Lady Fox of Buckley, about an unscrupulous situation.

In the other place, honourable friends have shared some horrific casework examples which clearly expose the unfit and unjust system leaseholders have been subject to. My honourable friend Matthew Pennycook MP, said:

“Soaring service charges are placing an intolerable financial strain on leaseholders and those with shared ownership across the country. Among the main drivers of the eye-watering demands with which many have been served over recent months are staggering rises in buildings insurance premiums and the passing on of significant costs relating to the functioning of the new building safety regime. Given that many leaseholders are being pushed to the very limits of what they can afford, do the Government now accept that the service charge transparency provisions in the Leasehold and Freehold Reform Bill … are not enough, and that Ministers should explore with urgency what further measures could be included to protect leaseholders better from unreasonable charges and give them more control over their buildings?”—[Official Report, Commons, 22/4/24; col. 636.]

Only last weekend, the Mayor of London, Sadiq Khan, wrote about

“Sky-high service charges … financially crippling for people living in flats or who are shared owners … they amount to the everyday extortion of leaseholders and a shameful abuse of power by landlords and freeholders”.

I thank the Minister for introducing further government amendments, which we welcome. We very much welcome the intention behind them. Much of the detail will await the statutory instruments required to bring them into force, but those measures have the potential to improve tangibly what is without doubt one of the most contentious and, for leaseholders, difficult aspects of the feudal leasehold tenure.

Speaking to leaseholders recently, I heard the clear frustration caused by the setting of service charges. They have been subjected to unreasonable costs, and costs artificially inflated as a result of outright error, such as duplication of charges for the same service. There are large periodic increases that are rarely justified and abusive practices such as the deliberate misuse of funds. Even when leaseholders do not believe that there is a specific problem with the amount of their service charges, most nevertheless feel that they are not particularly aware of, or informed about, what their charges are spent on, or what their future liabilities might be, leading to uncertainty and a lack of clarity.

The noble Earl, Lord Lytton, introduced his amendments eloquently and made perfect sense. We shall listen very carefully to the Minister’s response to what he proposes, especially about consumer protection, closing loopholes and exploring all options to avoid leaseholders being burdened.

I now turn to our amendments. Amendment 67 is an attempt to probe the Government’s decision to exempt fixed service charges from the test of reasonableness. Such charges can and do include all sorts of unreasonable costs, and it strikes us as wrong that leaseholders who are obliged to pay them—not least those living in for-profit retirement developments without care, where they are a particularly prevalent arrangement—will not be able to challenge those costs if they feel that they are unreasonable. We are also concerned that exempting fixed service charges from the test of reasonableness may incentivise unscrupulous freeholders to create more of them, rather than relying on variable service charges, which will be made more transparent by the other changes being made in this part of the Bill. The amendment would delete subsection (4)(a) to ensure that the test of reasonableness applied to fixed service charges, to afford greater protection to leaseholders subject to them.

Our Amendment 69 addresses concerns around new powers that allow negative regulations to exempt certain landlords from the requirement to demand payment of a service charge using a specified form—a requirement that we welcome. The requirement will also ensure, by inserting 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 it until the requirements are met. We very much welcome this, which would ensure that service charge demands and annual reports were provided to leaseholders in a standardised format. If it works well, the provision 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. We have reservations about the inclusion of exemption powers, because they could be used to exempt entire categories of landlords from the requirements in subsection (1), thereby denying large numbers of leaseholders the benefits they would otherwise secure as a result of their application. If the Government will not consider this, we would be grateful for clarity about what kind of landlords they believe might need to be protected.

Amendment 76 would give the Secretary of State the power to set prescribed amounts, with a view to ensuring that leaseholders are not subject to unreasonable costs should they need to request certain categories of information. The Bill introduces the right for leaseholders to request information and, while it is right for landlords to be able to recover reasonable costs from complying with these requests, this comes with a risk that excessive fees will be charged. This amendment would protect against that risk.

The purpose of our Amendment 78I is to prevent landlords passing on costs from a service charge imposed on them by Ofgem or the Energy Ombudsman in relation to their mismanagement of communal heating systems. This includes Ofgem fines and redress orders, Energy Ombudsman awards and statutory compensation to customers for service failures. Without this amendment, tenants and leaseholders face having to pay their own compensation payments and the fines imposed on their landlord for failing to provide them with a compliant service.

Our final amendment in this group is Amendment 78J. Housing is responsible for more than a 10th of the UK’s emissions, so reform across every tenure needs to be accelerated to meet our net-zero commitments. While progress has been slow across all housing tenures, the rate of progress in Britain’s leasehold buildings has been practically non-existent. Leaseholders and landlords are usually prevented by the terms of the lease from carrying out any works to the building that are considered improvements. That is an important leaseholder protection. Landlords can repair and maintain the existing building but cannot improve it—say by installing cavity wall insulation, a heat network, or double-glazed or triple-glazed windows. Similarly, a leaseholder is prevented from altering common parts within their demised flats—for example, walls or windows—to improve their home’s energy efficiency and reduce their energy bills. This amendment would provide for terms to be implied into leases that permit qualifying energy-efficiency and retrofitted improvements to a building. Furthermore, it would provide a start to ensuring that leaseholders can improve their homes by retrofitting them or allowing them to make energy-efficiency changes. It would allow a variation of leases to allow for a net-zero improvement and would protect leaseholders at the same time.

These Benches appreciate the broad support of noble Lords from across the Committee for a number of the amendments in the name of my noble friend Lady Taylor of Stevenage. Various contributions today have illustrated the depth and breadth of concern that we all feel around service charges.

In concluding on the wider issue of charges, I will share the example of a 90 year-old elderly woman, whom I have been told about today. The important point is that the ground rent charges in her building changed from £25 to £2,350 annually. What is even more shocking about this example is that the increased charges were backdated to more than 10 years, which meant that her charges were £17,000. Furthermore, within two weeks, this elderly woman was threatened with legal action. What advice would the Minister give to that 90 year-old woman with this demand from her landlord?

When will the Government announce the results of the ground rent consultation? There seem to be policy announcements and leaks in the media in relation to ground rent policy, but this has happened without the ground rent consultation even being published. This is severely disappointing, as we are approaching Report in the next few days. How can we possibly scrutinise the consultation now? I look forward to the Minister’s response in addressing the numerous concerns raised in your Lordships’ House.

My Lords, before the noble Baroness takes the Dispatch Box, I apologise to the Committee and to the noble Lord, Lord Moylan, in particular. Due to lots of pieces of paper, I commented on two amendments that are actually in group 4, so I reassure the Committee that I will not be repeating those comments.

My Lords, I apologise in advance for the length of my response. This is a large group so I might go on for quite a long time. I apologise for that, but I think it is important that I respond to all the amendments.

I thank the noble Lord, Lord Khan of Burnley, who spoke to the amendments from the noble Baroness, Lady Taylor. Amendment 67 seeks to give the right to challenge the reasonableness of a service charge to leaseholders who pay a fixed service charge. I recognise that leaseholders who pay fixed service charges do not have the same right to challenge the reasonableness of their service charges as leaseholders who pay a variable service charge. However, there are good reasons for that. The main sectors where fixed service charges exist are the retirement and social housing sectors, where households are often on limited or fixed incomes; certainty over bills is paramount for these homeowners. Leaseholders, especially on low incomes, who pay a fixed service charge have more certainty over the amount of their service charge compared with those who pay a variable service charge. They will know about and understand the level of the charge before they enter into an agreement.

Landlords benefit from not having to consider tribunal applications, but in return they have a clear imperative to provide value for money: if they underestimate the costs, they will have to fund the difference themselves. They will still need to provide the quality of service as set out in the lease since, if they do not, they may be taken to court for breach of that lease.

By giving the right to challenge fixed service charges in a similar way to how variable service charges can be challenged, there would likely be operational and practical challenges. For example, if landlords underestimate costs in one year but overestimate them in another, it is feasible and reasonable to be able to challenge the unreasonableness only in the year when costs are overestimated. It is not proposed to give the landlord an equivalent right to apply to seek to recover the balance of an underestimated cost on the basis that it would be reasonable to do so. There is a possibility that landlords may move to variable service charges, and that could have unintended and undesirable consequences for leaseholders with a fixed income who benefit from the certainty of fixed service charges.

Through the Bill, leaseholders who pay a fixed service charge will be given additional rights. Landlords will be required to provide the minimum prescribed information to all leaseholders. I consider that the additional rights given to leaseholders who pay fixed service charges will allow them to better understand what their service charges pay for, and to hold their landlord to account. I hope that, with that reassurance, the noble Lord will not move the noble Baroness’s amendments.

I thank the noble Lord for Amendment 69 in the name of the noble Baroness, Lady Taylor, which seeks to remove the provision that enables the appropriate authority to exempt certain categories of landlords from the requirement to provide a standardised service charge demand form to the leaseholder. I recognise the importance of all leaseholders receiving sufficient information from their landlord to enable them to understand what they are paying for through their service charge. Requiring landlords to provide leaseholders with a standardised service charge demand form contributes to increased understanding. However, I am aware that there could be instances now or in the future where it is necessary to exempt landlords from that requirement. It could be too costly or disproportionate to expect certain categories of landlords to provide that level of information. As the Minister for Housing mentioned in the other place, one example might be the Tyneside leases.

Prior to any exemptions being agreed, we will consult with stakeholders to determine whether an exemption is justified. I emphasise that the list of exemptions is expected to be small—if it is needed at all, in fact—and full justification will be required for any agreed exemptions. I note the noble Baroness’s concerns but I hope that, with this reassurance, the noble Lord will not move the amendment.

I also thank the noble Lord, Lord Khan of Burnley, for Amendment 76, which would create a power for the appropriate authority to prescribe the maximum costs that landlords may pass on to leaseholders for providing information. I recognise that leaseholders can face increasing service charge costs and that not capping costs for providing information could drive landlords to charge unreasonable amounts.

However, introducing a cap would be difficult, as landlords will incur varying costs that are dependent on the information requested and the difficulty of obtaining it. By law, service charges must be reasonable, and measures within the Bill strengthen the requirement for costs included within the service charge demand to be transparent. I consider that these provide sufficient protections for leaseholders to ensure that landlords do not charge excessive amounts and that the costs are reasonable. I hope that, with this reassurance, the noble Lord will not move Amendment 76.

Amendment 77 tabled by the noble Baroness, Lady Thornhill, would allow the First-tier Tribunal in England or the leasehold valuation tribunal in Wales to award damages against landlords at the point that leaseholders buy the freehold of their blocks. We do not think that this amendment is appropriate, and we also think that it is unworkable. Clause 56 expressly refers to consequences for failure to provide information. These damages are awarded following an application to the appropriate tribunal and on the basis of the information available. Therefore, it is not appropriate or consistent with judicial proceedings to delay any award. Any poor behaviour by the landlord during enfranchisement is best dealt with through the normal process for doing so.

Amendment 78 from the noble Baroness, Lady Fox, seeks to clarify when a landlord may seek dispensation from the need to consult leaseholders when major works need to be undertaken. Currently, a landlord can make an application to the appropriate tribunal for a dispensation from the requirement to consult on major works or before entering into a qualifying long-term agreement. The tribunal will make a judgment on whether a dispensation from the consultation requirements is reasonable. This amendment would require landlords to prove that there is an urgency behind the need for dispensation from the consultation and would place the onus on the landlord. This would enhance the rights of leaseholders and empower them to have greater influence over major works.

However, there are potential unintended consequences. It might overly narrow the scope of the discretion given to the tribunal since, for example, it may be desirable to carry out works sooner rather than later, in the interests of managing the building. Furthermore, where it is unnecessary, under this amendment landlords would be required to carry out more consultation for no real benefit, and this could come at an increased cost to leaseholders. I believe that the appropriate tribunal is best placed to consider the circumstances of each application for dispensation. The tribunal is able to consider a wide range of matters when deciding whether it is reasonable to dispense with consultation requirements, and we would not want to narrow the grounds for dispensation.

There are already protections for leaseholders, in Section 19 of the Landlord and Tenant Act 1985, that ensure that service charges payable by leaseholders, whether or not they are for “major works”, must be reasonable. There are also measures in the Bill to drive up service charge transparency, including leaseholders being given greater notice of anticipated major works and being provided with more information about the major works that will be carried out on their properties.

I admire the noble Baroness’s commitment to protect leaseholders from unreasonable costs from major works, and I hope that, with this reassurance, she will not move her amendment. I shall certainly look at Hansard tomorrow, because she brought up a number of other issues, which I would like to discuss further with her, if she is willing.

I thank my noble friend Lord Bailey for Amendment 78A, which seeks to strengthen the service charge disputes regime by introducing proposed new Sections 27B to 27E to the Landlord and Tenant Act 1985. Proposed new Section 27B would introduce a requirement for a landlord to notify all leaseholders in their block of any application under Section 27A of the Landlord and Tenant Act 1985 and to assume that all leaseholders in that block are party to the application for a determination unless they opt out.

Proposed new Section 27C would introduce a duty on landlords to reimburse leaseholders for any costs deemed to be unreasonable, if a determination made in favour of the leaseholder is made by the appropriate tribunal. The landlord must account to all leaseholders within two months of the determination. Proposed new Section 27D would introduce a power to enable the appropriate tribunal to award interest on any determination in favour of the leaseholder, when a leaseholder has made an application.

I fully agree with the intention behind the proposed scheme that there must be a robust regime in place to challenge service charges. We are aware that the existing statutory requirements to protect leaseholders do not go far enough, which is why we are introducing measures in the Bill which will enable leaseholders to account for the money they spend. However, I cannot accept the amendment as it stands.

First, this is due to the role of the tribunal itself. Decisions made in the First-tier Tribunal in England and the Leasehold Valuation Tribunal in Wales are subject to the principle that a decision of a lower tribunal is persuasive only in another application. This means that it does not bind another tribunal as an appellate tribunal decision would. Each decision must depend on its own circumstances, even when considering facts similar to those of another application.

Secondly, while in some circumstances it may be beneficial for as many leaseholders as possible to become party to a claim, it may not be appropriate to do so all the time. Leaseholders may have their own reasons not to join the proceedings, so it is not right that the default is to make all leaseholders party to a claim. There is nothing to stop neighbouring leaseholders joining together in the first place using formal means, such as a resident tenants’ association being a party to proceedings, or informal means, such as knocking on doors.

There are also risks in a leaseholder involuntarily becoming a party to proceedings. By joining, they will be bound by the decision of that tribunal and also risk being made liable to pay the landlord’s legal costs of those proceedings where the landlord wins and is permitted by the tribunal to pass on its costs. This will be the case even when the leaseholder does not play a substantive role in the proceedings. There is also a risk that this approach would slow down the system somewhat. Landlords would be required to notify all affected leaseholders, which may hinder the whole process and make tribunal case management unnecessarily cumbersome.

The appropriate tribunals already have adequate case management powers to either add parties to a single set of proceedings or, in England, to direct that one or more cases be specified as a lead case. This is set out in Rule 29 of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013. For these reasons, while I share the underlying sentiment put forward by my noble friend, I cannot accept his proposal and therefore ask him not to move his amendment.

I thank the noble Baroness, Lady Jones of Moulsecoomb, for her amendment, which calls for a review of the municipalisation of public assets funded by leaseholders. However, I do not think these measures are necessary. As the noble Baroness is aware, the services that leaseholders must pay for are set out in their lease, alongside their expected contribution towards such costs. This may cover not only issues directly relating to buildings but, in some circumstances, may include a contribution to the common parts of the wider estate. This may also be the case in respect of social landlords.

The Landlord and Tenant Act 1985, as amended by Clause 51 of the Bill, sets out what is meant by a service charge and what it may cover. By law, the relevant costs that are taken into account in determining the amount of any service charge must be reasonably incurred and the works or services must be of a reasonable standard. Leaseholders may challenge the reasonableness of any such charges in the First-tier Tribunal in England or the Leasehold Valuation Tribunal in Wales. Furthermore, leaseholders may apply to the county court for damages where they consider that the landlord has breached the terms of the lease.

Leaseholders with social housing landlords are also able to complain to their landlord or, if unhappy with their landlord’s response, to the Housing Ombudsman Service if they have concerns about the behaviour of their landlord. This right includes complaints about the calculation, collection or communication of service charges.

Through the Bill, we are introducing measures to empower leaseholders to better scrutinise and challenge unreasonable landlord fees. We consider that these measures provide sufficient protection to ensure that service charge money is used for its intended purposes. I therefore request that the noble Baroness does not move her amendment.

I thank the noble Earl, Lord Lytton, for his Amendments 78C to 78H. Taken together, these measures would represent a total overhaul of the way in which we regulate how buildings are managed and paid for. This overhaul would also introduce in many cases a standard approach for doing so. As the noble Earl is aware, the Government have recognised that the existing statutory regime around service charges does not offer sufficient protection to leaseholders. That is why we are introducing measures to address this and to enable landlords to be better scrutinised and challenged in relation to any charges considered unreasonable.

While I am very keen to listen to ideas on how to improve the regime, I question the merit of doing so at this time. Leasehold law is complex and there are many interactions between various sections that need to be fully understood and considered to ensure that there are no unintended consequences. I will take the amendments in turn.

Amendment 78C seeks to introduce a requirement for costs to be treated as incurred where there is an unconditional obligation to pay them. We do not think that this amendment is necessary as case law has already been established as to when relevant costs have been incurred.

Amendment 78D seeks to replace the “reasonably incurred” test of a service charge with a value for money assessment. I am not convinced that this is an appropriate judgment to make, as “reasonableness” is a well-defined term, with considerable case law, whereas value for money is a subjective term that would still be open to considerable debate on the interpretation of the given definition. The use of “reasonableness” already allows the tribunal to consider value for money when determining whether or not a relevant cost is reasonable, while also allowing for wider issues to be considered. I do not think that we should be changing one of the fundamental pillars of the service charge regime at this stage.

I have just been told that time is up. I am very happy to answer all noble Lords’ questions, which will take me another five minutes, or to sit down. I did warn noble Lords that there were a lot of questions and I think it is worth answering them all.

Amendment 78E seeks to require a landlord to provide leaseholders with information and to update the information regularly. I agree that providing more information to leaseholders is vital in order to help them hold landlords more easily to account. However, this is already what Clauses 53 to 55 seek to achieve.

Amendment 78F, supported by the noble Lord, Lord Thurlow, seeks to prevent landlords entering into a contract for the provision of goods or services with a related party or connected person. The landlord is best placed to manage their building, but I do agree that any connections should be well understood. I am particularly aware that this is often an issue regarding “captive insurance”. Under Section 20 of the Landlord and Tenant Act 1985, landlords are required to notify leaseholders if a tender for a major works contract or qualifying long-term agreement is from a connected party. This amendment is therefore not necessary, as appropriate measures are already in place.

Amendment 78G seeks to prevent landlords entering into a contract that is for more than five years. Long contracts are particularly common with local authorities, which tend to procure major works programmes under public procurement legislation. There are measures in place to ensure that leaseholders are consulted in cases where contracts are over 12 months and the cost to a leaseholder exceeds £100. This measure is therefore not necessary, although I recognise the risks associated with long-term contracts.

Amendment 78H seeks to enable a leaseholder to undertake cosmetic work without approval from their landlord. I assume that the noble Earl is referring to works within a leaseholder’s property. Works that leaseholders may or may not carry out to their premises are set out in their lease, and having a prescribed list may not be appropriate in all circumstances. It may also disadvantage some leaseholders and I therefore ask the noble Earl not to press the amendment.

Amendment 78I, spoken to by the noble Lord, Lord Khan of Burnley, seeks to prevent landlords passing on costs imposed on them, whether by the regulator, under a consumer redress order or following an outcome in an alternative dispute resolution, in relation to the landlord’s mismanagement of communal heating systems. Where communal central heating systems are used in leasehold buildings, the obligations of the landlord and the rights of leaseholders will be set out in the terms of individual leases. However, where fines, penalties or compensation payments are imposed on the landlord because of their mismanagement, they are already prevented from passing them on to leaseholders. This is because they are not a relevant cost within the meaning of Section 18 of the Landlord and Tenant Act 1985.

Through measures in this Bill to drive up transparency, we will make it even harder for unscrupulous landlords to pass on unjustified and unlawful costs. Furthermore, where a landlord fails to comply with obligations under the lease, the leaseholder can bring a claim for damages in the county court for the landlord’s breach of the terms of the lease. Leaseholders may also consider applying to the appropriate tribunal for a manager to be appointed in place of that failing landlord. I therefore ask the noble Lord not to press this amendment.

Amendment 78J, also spoken to by the noble Lord, Lord Khan of Burnley, seeks to enable leasehold estates to reduce their carbon emissions and increase their energy efficiency as part of the net zero targets. It would be done through introducing qualifying energy efficiency or retrofit improvements measures to buildings. These improvements would be paid for by leaseholders through the service charge. Improving energy efficiency in our homes is important for keeping homes warm, dry and cheaper to heat. Our ambition, as stated in the 2021 heat and buildings strategy, continues to be that homes should meet EPC 1 by 2035 where reasonable cost-effective practicalities allow. We have been working across government to make the ambition a reality.

I fully support the intention behind the amendment—to help improve the energy efficiency of homes—but introducing statutory improvement work provisions would require careful consideration in order to avoid unintended consequences, not least in relation to costs. While I appreciate that the amendment would enable the Government to set more detail through secondary legislation, there are a range of factors to consider, including potential caps on improvement projects, who pays for ongoing maintenance, and the mechanism through which leaseholders may challenge costs or works if they consider them unreasonable. The amendment could lead to significant additional costs being passed through to leaseholders. It would impose a significant change on all parts of the sector, and we must carefully consider the implications for landlords and managing agents, but mainly for leaseholders.

Of course, the Government support energy efficiency, as I said. Our reforms in the Bill of the right to manage and enfranchisement will empower leaseholders and provide them with greater leverage over their buildings to make alterations in support of net zero. I therefore ask the noble Lord not to press the amendment.

Amendment 80A, tabled by the noble Earl, Lord Lytton, seeks to require that insurance proceeds are held in a separate and dedicated fund. I assure the noble Earl that the landlords’ duties to their leaseholders regarding maintenance, repair and insurance apply regardless of whether moneys are held in a separate fund or not. The amendment also aims to ensure that insurance proceeds for the destruction of or damage to a building be used to carry out repairs and maintenance on the building as soon as reasonably practical. I agree with the noble Earl’s intention to ensure that landlords fulfil their duties in a timely manner. Landlords’ obligations to repair or renew are set out in the lease, and failure to act within a reasonable period would usually amount to a breach of the lease. A leaseholder could apply to the court for an injunction requiring their landlord to perform their contractual obligations and seek damages from them for their failure to do so. However, the amendment as drafted, although well meaning, would not lead to landlords complying with their obligations more quickly.

I also thank the noble Earl, Lord Lytton, for his Amendment 80B, which aims to prevent the misuse of insurance proceeds in the event of a claim. The noble Earl may have a particular case in mind, and I agree with his intentions, but I am of the view that such misuse is already prohibited. The creation of a new statutory offence, therefore, is not necessary. The amendment as drafted, although well meaning, would not lead to rogue landlords changing their behaviour. I hope that, with these reassurances, the noble Earl will not press his amendments.

My Lords, I know that the Minister has been speaking for a while, but I want to press her on this important point as we are talking about charges. There is a huge, fundamental area of concern in that the ground rent consultation has yet to be published. I know that it is unreasonable for me to ask the Minister to talk about any leaks or media announcements. However, how will this House be able to scrutinise it at this late stage of the Bill’s passage?

We debated ground rents last week, and I do not have anything to add. If there are any changes to the Bill, we will give sufficient time for all noble Lords to consider them.

Amendment 66 agreed.

Amendment 67 not moved.

Amendment 68

Moved by

68: Clause 51, page 60, line 19, at end insert—

“(7) The Landlord and Tenant Act 1987 (“the LTA 1987”) is amended in accordance with subsections (8) to (10).(8) In the provisions referred to in subsection (9), in each place they occur—(a) for “service charge” substitute “variable service charge”; (b) for “service charges” substitute “variable service charges”.(9) The provisions are—(a) in section 24 (appointment of manager by tribunal), subsections (2) and (2A);(b) in section 35 (application by party to lease for variation of lease), subsections (2) and (4);(c) in section 42 (service charge contributions to be held in trust), the heading and subsections (1), (2), (3), (4), (6), and (8).(10) In section 35(8), for ““service charge” has the meaning” substitute ““service charge” and “variable service charge” have the meaning”.(11) In section 167 of the CLRA 2002 (failure to pay small amount for short period)—(a) in subsection (1), for “service charges” substitute “variable service charges”;(b) in subsection (5), for “service charge” substitute “variable service charge”.”Member’s explanatory statement

This amendment would, in light of the amended definition of “service charges” in section 18 of the LTA 1985, make amendments to provisions in the LTA 1987 and CLRA 2002 that use that definition so that they refer to “variable service charges” (and accordingly preserve the current effect of those provisions).

Amendment 68 agreed.

Clause 51, as amended, agreed.

Clause 52 agreed.

Clause 53: Service charge demands

Amendment 69 not moved.

Amendment 70

Moved by

70: Clause 53, page 62, line 28, leave out “the Landlord and Tenant Act 1987 (“the LTA 1987”)” and insert “the LTA 1987”

Member’s explanatory statement

This amendment is consequential on the Government amendments to clause 51.

Amendment 70 agreed.

Clause 53, as amended, agreed.

Clause 54: Accounts and annual reports

Amendments 71 to 75

Moved by

71: Clause 54, page 63, line 21, leave out paragraph (b) and insert—

“(b) that, on or before the account date for an accounting period in respect of which a statement of account is provided, the landlord must provide the tenant with a written report about the statement prepared by a qualified accountant, which—(i) is prepared in accordance with specified standards for the review of financial information, and(ii) includes a statement by the accountant, in a specified form and manner, that the report is a faithful representation of what it purports to represent;(c) that the landlord must provide adequate accounts, receipts or other documents or explanations to the accountant to enable them to provide the report; (d) that, if the landlord incurs costs in obtaining the report, the tenant must pay the landlord a fair and reasonable contribution to those costs.”Member’s explanatory statement

This amendment would clarify that the obligations of the landlord are to obtain a report from a qualified accountant as to the accuracy of the statement of account and to provide adequate documents to the accountant, and would require the tenant to contribute towards the costs of the report.

72: Clause 54, page 63, line 36, at end insert—

“(4A) An amount payable under the term implied by subsection (2)(d)—(a) is a variable service charge for the purposes of section 18, and the provisions of this Act relating to service charges apply accordingly;(b) is payable irrespective of whether a lease, contract or other arrangement provides for it to be payable as a service charge.”Member’s explanatory statement

This amendment would subject any costs payable under the new section 21D(2)(d) to the restrictions relating to variable service charges.

73: Clause 54, page 65, line 7, leave out “certification of” and insert “report on”

Member’s explanatory statement

This amendment is consequential on the amendment to new section 21D(2)(b).

74: Clause 54, page 65, line 8, at end insert—

“(aa) for subsection (2) substitute—“(2) A person has the necessary qualification if the person—(a) is eligible for appointment as a statutory auditor under Part 42 of the Companies Act 2006, or(b) satisfies such other requirement or requirements as may be specified in regulations made by the appropriate authority.”;”Member’s explanatory statement

This amendment would allow an appropriate authority to expand the meaning of “the necessary qualification” in section 28(2) of the LTA 1985.

75: Clause 54, page 65, line 10, at end insert—

“(c) after subsection (6) insert—“(7) Regulations under this section—(a) are to be made by statutory instrument;(b) may make provision generally or only in relation to specific cases;(c) may make different provision for different purposes;(d) may include supplementary, incidental, transitional or saving provision.(8) A statutory instrument containing regulations under this section (whether alone or with other provision) is subject to the affirmative procedure.””Member’s explanatory statement

This amendment would make provision about regulations about the meaning of “the necessary qualification” in section 28(2) of the LTA 1985.

Amendments 71 to 75 agreed.

Clause 54, as amended, agreed.

Clause 55: Right to obtain information on request

Amendment 76 not moved.

Clause 55 agreed.

Clause 56: Enforcement of duties relating to service charges

Amendment 76A

Moved by

76A: Clause 56, page 67, line 38, leave out subsection (2) and insert—

“(2) In section 26(1) (Exception: tenants of certain public authorities), omit the words “but section 25 (offence of failure to comply) does not”.”Member’s explanatory statement

This amendment seeks to preserve the ability to crowdfund private prosecutions of rogue landlords, which should help get section 24 orders for abused blocks. It also extends the protection of the criminal sanction to council leaseholders.

At Second Reading, I said that leaseholders should not be expected to become serial litigators in the same manner that the sub-postmasters had to in order to get some justice for themselves. We should seek to increase the rights of leaseholders, not strip them of existing rights and protections.

My amendment seeks to preserve the criminal sanctions against landlords withholding critical information about service charges. The Bill in its current form does away with these sanctions, which function as a backstop for the current scheme of service charge accountability. The Bill instead introduces a new scheme of service charge regulation, superior in many respects but lacking the critical ability for leaseholders to prosecute landlords who refuse to provide evidence that the services they have charged for were actually delivered.

Currently, under Section 25 of the Landlord and Tenant Act 1985, leaseholders have the right to pursue a private prosecution against their landlord if their request for service charge accounts or receipts has been refused or the landlord denies them the ability to inspect and copy the relevant documents. Without criminal sanctions, landlords will comply with the law only if it suits their financial interests to do so. A Bill capped at £5,000 of damages will not deter many and may mean that leaseholders now have to spend time and effort proving how much money they have lost.

I am not precious about this amendment, but I want to probe the Government on this and urge them to ensure that leaseholders will continue to have the right to bring private prosecutions against perpetually bad landlords under this legislation. I have mentioned Section 25 of the Landlord and Tenant Act 1985 a few times; it criminalises breaches of Sections 21, 22 and 23 of the same Act. These Sections 21, 22 and 23 are repealed by the present Bill, so my amendment would make a practical difference only until these repeals were brought into force.

It has been more than 20 years since the Commonhold and Leasehold Reform Act 2002, and some of the sections about service charges have not yet been brought into force. It may yet be some time before the present Bill is fully in force; in the interim, my amendment would extend the backstop of criminal sanctions, protecting private leaseholders and, indeed, council leaseholders as well.

Some would argue against decriminalisation because that stick leaseholders have as a last resort to force bad landlords to give them information to defend themselves is very important. The Government should support leaseholders in having a strong place to start from.

We fully understand the passion expressed by the noble Lord, Lord Bailey of Paddington, about criminality and having a last resort. We must think of it in regard to the worst rogue landlord offences, of which there are many, and I am sure several noble Lords have seen things worthy of that description. While we do not entirely go along with the noble Lord, we are interested to understand why the Government are using the Leasehold and Freehold Reform Bill to do away with a long-standing leaseholder right to bring a private prosecution against a landlord who has refused service charge and accounts transparency; it is surely a sign that they are trying to hide something.

The Government are bringing forward a new regime for service charges, under which landlords’ failure to comply with the requirement will be subject to damages of no more than £5,000 per leaseholder, which to us feels too low. Why does this policy have to strip leaseholders of a right to pursue a persistently abusive landlord with a private criminal prosecution? If the right was poorly drafted in the first place, surely it should be retained and made effective in the Bill?

We agree to a certain extent with the amendment’s attempt to bring local authorities into scope. As we know from past tragedies, local authorities are often treated far too leniently by leaseholder legislation, receiving exemptions from basic requirements. We broadly agree, but I look forward to the Minister’s response to the amendment.

My Lords, I thank the noble Lord, Lord Bailey, for his passion on this matter, as the noble Baroness, Lady Thornhill, said. It is appropriate to bring a probing amendment on this, to seek out some clarification from the Government about their intentions. It is clear that service charge accountability sits right at the heart of much of the Bill, and we would not want to do anything against that. It does seem a little odd that part of the Bill’s intention is to remove that right of private prosecution, so I look forward to the Minister’s reply.

The other point raised by the noble Lord was that we are going to have a hiatus when the Bill is passed, because it is not going to come into force until 2025-26. Can the Minister comment on what leaseholders can resort to in that interim period, in order to get matters justified if they have a persistent rogue landlord? Otherwise, we will have a gap where the original provisions are repealed and these ones have not yet come into force.

I agree with the noble Baroness, Lady Thornhill, about council leaseholders. There are other protections in force for council leaseholders. The health and safety Act and its provisions should sit there to protect council leaseholders from any poor landlord practice from councils—I know they have not always done so, but they should.

I am interested to hear the Minister’s response to this very good probing amendment.

I thank my noble friend Lord Bailey of Paddington for Amendment 76A, which seeks to retain the existing enforcement provisions concerning a landlord’s failure to provide information to leaseholders. I am grateful to other noble Lords who took part in this very brief discussion.

I fully agree with my noble friend that it is important to have effective enforcement measures in place where a landlord fails to provide relevant information to leaseholders. The existing measures, including the statutory offence under existing Section 25 of the Landlord and Tenant Act 1985, have historically proven to be ineffective. Local housing authorities, as the enforcement body, are reluctant to bring prosecutions against landlords, and the cost and complexity of doing so are a significant barrier to leaseholders bringing a private prosecution. That is why we are omitting Section 25 and replacing it with the more effective and proportionate proposals set out in Clause 56 of the Bill. Therefore, I am afraid that we cannot accept the amendment. Not only does it require—

In regard to the cost of leaseholders bringing a case, people are now using modern technology, such as crowdsourcing, to raise the funds to take on a landlord. When you have a persistently rogue landlord, this could be your last roll of the dice. It is not an entirely strong argument to talk about leaseholders not having the means; that is often the case, and what most of the discussion has been based on. For leaseholders in these very extreme cases—and they are extreme—this is a last resort, and that is why the word “backstop” was used, but people can club together to deal with these situations.

I am very grateful to my noble friend. I will address the rest of the issues, and hopefully I will pick up some the points he made. Like others, I am grateful for the passion with which the noble Lord speaks about this issue and his own experience of it.

I am afraid we cannot accept this amendment. Not only does it require us to return to the previous arrangements; I would respectfully say that it is not workable. This is because a local housing authority cannot take action against itself; they are one body. That said, I can assure my noble friend and others in the Chamber that there are very strong merits in his argument about the appropriate tribunal not being able to make an order for damages where the landlord is a non-compliant local authority. As has been said, it is not right that local authorities should be exempt from the same standards expected of other landlords. Both the department and the Minister are carefully considering this issue.

I will respond to a couple of points raised by noble Lords, including my noble friend. He raised the issue of damages; we believe that £5,000 strikes the right balance between a deterrent and an effective incentive. I believe it is higher than the existing provisions that a court can award on a summary conviction. The noble Baronesses, Lady Taylor and Lady Thornhill, asked about the hiatus, or interim, period; I assure noble Lords that it will not change until the new regime is ready. Therefore, with these reassurances, I ask my noble friend to withdraw his amendment.

Amendment 76A withdrawn.

Amendment 77 not moved.

Clause 56 agreed.

Amendments 78 to 78J not moved.

Clause 57: Limitation on ability of landlord to charge insurance costs

Amendment 79

Moved by

79: Clause 57, page 70, line 10, at end insert—

“(5A) The regulations must specify a broker’s reasonable remuneration at market rates as a permitted insurance payment.(5B) The regulations must exclude any payment which arises, directly or indirectly, from any breach of trust, fiduciary obligation or failure to act in the best interests of the tenant.”Member’s explanatory statement

This amendment would require “permitted insurance payment” to include payment of a reasonable sum to a broker at market rates for placing the cover, and to exclude any payments which have arisen from wrongdoing.

A lot of the Bill relies on secondary legislation coming through at a later date, meaning that we must all wait for many of the details of individual policies and cannot fully scrutinise them now. Last week we heard from the Minister that the commencement will be in 2025-26. In January last year, the Secretary of State, Michael Gove, announced his intention to ban freeholder and managing agent insurance commissions—or “kickbacks”, as they are colloquially known—that fatten leaseholders’ insurance premiums and pad their service charges. He was right to do so.

In recent years, there has been a series of truly horrific stories about leasehold building insurance, including bribes, kickbacks and commissions galore. When the Financial Conduct Authority did its investigation into this recently, it found that broker remuneration had increased by nearly 40% in three years, with at least 80 million leaseholder-funded commissions going to other parties. Brokers passed on more than half the commission to the freeholder, or the managing agent in 39% of cases. Brokers could not provide any evidence to support the claim that those payments were fair value. The FCA says:

“The level of commission is high, with typical commissions of 30%-49%, and … up to 62%. We have also seen that remuneration is shared with the freeholder or property managing agent (PMA) in many cases, with 37-42% of commission being paid away”.

That is damning. The commissions are clearly excessive and totally out of kilter with other classes of business.

The total commission going to freeholders or managing agents can be as high as 60% of the cost of the premium paid by leaseholders. This comes back to my core problem with leasehold: the people paying the bills do not have control over those bills and lack the ability to fire the rip-off companies they have to deal with—unlike flat owners under different arrangements almost worldwide, who have far more power and control. As the FCA observed, policies are being

“selected on the basis of commission rather than product quality. There is a lack of pressure on freeholders, PMAs and insurance brokers to search for the policy that offers the best value-for-money or to switch to better-value policies which may benefit leaseholders. This is because they can recover costs from leaseholders. We have seen instances of freeholders, property managing agents and insurance brokers having commercial arrangements with particular insurers which benefit them but not leaseholders”.

That brings me to my concern. I am doing this on behalf of leaseholders countrywide and campaigning for insurance professionals who have a conscience. The crux of this matter is: are the Government not inadvertently entrenching commissions by rebadging them as “transparent fees” and having them disclosed?

I am no lawyer, but I understand that if a secret profit has been made, every penny is owed to the wronged party—the principal under the law of agency. If the Government were to force all the kickbacks to be disclosed, as the Bill proposes, would that not just weaken the position of leaseholders, because they would no longer be secret profits? Another point is that freeholders hold money on trust for leaseholders, so if they have made a secret profit they open themselves up to legal challenge on breach of fiduciary duty.

How will the Government decide the level at which the permitted insurance payment is set? How will that be set and who will be in charge? What will be the mechanism? Will it be someone’s will, or will we have an algorithm that does that? Is this not just a backdoor for freeholders to extract more money from hapless leaseholders?

In theory, a broker should do the legwork and get the best quotes for buildings insurance. Managing agents are already remunerated through the annual management fee that leaseholders pay, and they will usually also do the claims handling. So why do freeholders then get any money from the leaseholders’ insurance? My Amendment 79 would ensure that there is a backstop so that, if freeholders are getting any income from wrongdoing, leaseholders could still challenge it, despite the fees having been compulsorily disclosed to them. Having disclosure should not reduce the legal rights that leaseholders already have to challenge fees. All I am doing is providing clarity to the eventual definition of “permitted insurance payments”, so that

“any payment which arises, directly or indirectly, from any breach of trust, fiduciary obligation or failure to act in the best interests of the tenant”

is excluded from the scheme. That will ensure that freeholders can no longer abuse their position of power—as the one placing the insurance policy—to profiteer from captive leaseholders who must pay the premium.

I beg to move. Excuse me—I am dyslexic, and procedure is massively hard for me. One day I will get it all right—and all at the same time.

The problem is evident and not disputed, but the solutions are clearly debatable.

We support the amendment from the noble Lord, Lord Bailey of Paddington, as we share his concerns. The insurance scheme in the Bill, without the permitted insurance payment being set at something nominal such as £5 or £10 a year, could become another cost centre for freeholders. We know how difficult it is for leaseholders, especially on larger developments, to get like-for-like quotes. Often, brokers will not even quote, which makes challenging at tribunal very difficult, especially when the freeholder claims that their fees are for works done and not pure commission. It is good for there to be a backstop in the insurance scheme in the Bill, so that brokers are fairly remunerated, while ensuring that other parties in the distribution chain, including freeholders, are banned from profiteering from the captive leaseholders who pay but do not get to choose the policy.

Amendment 82 in the name of the noble Baroness, Lady Taylor of Stevenage, and signed by my noble friend Lady Pinnock,

“would prohibit landlords from claiming litigation costs from tenants other than under limited circumstances determined by the Secretary of State”.

Clause 60 puts limits on the right of landlords to claim litigation costs from tenants. When the Bill was in the Commons, the Minister said that

“unjust litigation costs should not be incurred”—[Official Report, Commons, Leasehold and Freehold Reform Bill Committee, 25/1/2024; col. 347.]

by leaseholders—and we agree—but the Bill as drafted does not go far enough in preventing that happening. There will be circumstances in which it is appropriate for leaseholders to bear those costs, but we believe that Amendment 82 makes provision for that. The presumption should be that the costs are not borne by the leaseholder, unless in circumstances specified by the Secretary of State.

My noble friend Lady Pinnock’s Amendment 80 would require the Financial Conduct Authority

“to report on the impact of the provisions in the bill around insurance costs in order to monitor progress on reducing costs passed on to leaseholders”.

I am pleased to say that the Law Society also supports the amendment. Rising insurance premiums have sent service charges soaring in the last few years, mostly due to the costs associated with remediation works following the tragedy of the Grenfell Tower fire. That means that even the leaseholders who can access funding to help them pay for vital works to their buildings are still paying the price to remedy a problem that they did not cause.

Clause 57 places a limitation on the ability of landlords to charge insurance costs to leaseholders. This is a very welcome step in the right direction. It is essential that this provision works as intended to protect leaseholders from extortionate costs. The Financial Conduct Authority’s report into insurance for multi-occupancy buildings, published in September 2022, found not only that premiums were rising, with mean prices increasing by 125% in the period from 2016 to 2021, but that the level of commission rates for brokers was

“an area of significant concern”,

with eye-watering rates of up to 60% being seen.

The FCA also found that brokers were sharing commission with the freeholder or the property management agent, meaning that they were unfairly profiting from leaseholders. Commission—and not cover or costs—was therefore the driving factor in the choice of policy. The provisions in the Bill to limit the ability of landlords to charge insurance costs to leaseholders, alongside the Bill’s increased transparency requirement, should—one hopes—go a long way to protect leaseholders. We also note that as of 1 January this year, the regulator will force insurance firms to act in leaseholders’ best interests and to treat them as a customer when designing products. They will be banned from recommending an insurance policy based on commission or remuneration level. It is clearly very early days, but we hope to see some improvement from that.

There is, of course, the argument that the Government should go further. A cap on service charges for leaseholds, especially at a fixed amount rather than as a percentage, has been suggested as a way to properly protect leaseholders from unreasonable costs. We would, therefore, want to place a requirement on the FCA, whose thorough report provided the impetus for these provisions, to assess whether it has had an impact in reducing costs for leaseholders and preventing freeholders and managing agents profiting off them. We hope that the provisions of the Bill will provide the necessary relief for leaseholders, who are clearly facing exorbitant costs. It will, however, be essential that the Government keep a close eye on the impact of Clause 57 and take action if it is not going far enough.

Finally, the noble Lord, Lord Moylan, does have some amendments in this group—I looked very worriedly at this point. On the surface, they appear to be about making the process simpler and easier, which is probably a good thing and worth consideration. I look forward to hearing what the noble Lord says.

My Lords, I had assumed that the noble Baroness had risen to speak to the amendment standing in the name of her noble friend Lady Pinnock. I will speak to the amendments in my name in this group. Although there are eight of them, they fall into three broad topics, so I hope to dispose of them fairly quickly.

The first are Amendments 81 and 81A. These relate to the ability of right-to-manage companies to bring legal proceedings and charge the costs to the service charge. The effect of the Bill is that freeholders will not be able to charge legal costs to the service charge unless they obtain a ruling from a tribunal. In the case of right-to-manage companies exercising the functions of the freeholder, they have no source of income apart from the service charge. If they are not able to charge their legal costs to the service charge, then they will not be able to bring legal action at all. In fact, without that ability, they would not even be able to initiate legal action unless the directors of the company were willing to fund the preliminary legal activities from their own pockets. If they were willing to do that, and they proceeded to court, they might find that the court or tribunal did not find that they were entitled to recover their costs or find that they could recover only part of their costs as a result. Again, they would have no recourse to any source of funds apart from their own individual pockets in such circumstances.

The second amendment, Amendment 81A, would extend this provision not just to right-to-manage companies but to residential management companies. Right-to-manage companies were established under the Commonhold and Leasehold Reform Act 2002, but there are other residential management companies that exist that are not right-to-manage companies under that Act. These two amendments are alternatives; they are both probing.

I have heard that the Government are aware that this is a problem and are willing to do something to address it, so I hope that this particular probe will find a positive response from my noble friend on the Front Bench, because it cannot seriously be the Government’s intention to make it virtually impossible for anyone to become a director of a right-to-manage company without having to face serious personal financial risks that were never envisaged when RTM companies were established in 2002.

Amendments 81B, 81C, 81D and 81E all work together. They relate to a different problem, which is that the Bill allows a court or tribunal to award costs to a freeholder in certain circumstances specified in the Bill. However, if these costs are not paid, the only recourse the freeholder has is to go back to the court and seek a new judgment to have the costs awarded to them, whereas the normal method of dealing with such a matter is to make a simple online claim for a judgment in default. That course of action is precluded, as I understand the Bill, in the case of freeholders seeking to recover the legal costs that have been awarded to them. All this will do is burden the courts with more applications, which can and should be, and are normally, dealt with through an online process that takes a few weeks to go through. That surely should be available to freeholders.

The third topic in this group relates to Amendments 82A and 82B. These, again, are probing amendments to understand why the Government are extending the protection in relation to legal costs to all leaseholders, when surely the intention must be to extend it to those leaseholders who are home owners—that is, who own the property that is the subject of the legal dispute. The Bill has the effect of giving this protection also to investor leaseholders—those who hold the property entirely as an investment. I do not understand the Government’s logic in doing this, and these amendments probe that by suggesting that it should benefit home owners only.

My Lords, I thank the noble Lord, Lord Bailey of Paddington, for introducing this group, setting the context for this debate about insurance payments and asking for clarity in relation to his amendment, which I am sure was also the intention of the noble Lord, Lord Moylan, in asking for clarity with one of his amendments and probing efficiency in his other amendments. I agree with the noble Baroness, Lady Thornhill, about the extortionate increases in insurance charges passed on to leaseholders. We found that the risk price that insurers charged between 2016 and 2021 pretty much doubled. The brokerage charge increased by more than three times. The service charges added on increased by about 160%, so they more than doubled, and those charges were passed on to leaseholders.

I will quickly speak to Amendment 82, in the name of my noble friend Lady Taylor of Stevenage. This new clause would prohibit landlords from claiming litigation costs from tenants other than in limited circumstances determined by the Secretary of State.

We support scrapping the presumption that leaseholders will pay their freeholders’ legal costs when they have challenged poor practice but, in merely limiting the ability of landlords to do so, the Government are creating an incentive for freeholders to litigate in a way that is likely to erode the general presumption that they are seeking to implement. As we argued in the other place, a far more sensible approach would be to legislate for a general prohibition on claiming litigation costs from leaseholders and then to provide for a limited number of defined exceptions to that general rule by means of regulations; for example, in cases where the landlord is a leasehold-owned company or the costs are, in the opinion of the tribunal, reasonably incurred and for the benefit of the leaseholders or the proper management of the building. Our Amendment 82, which would create a new clause to replace Clause 80, provides for a general prohibition on claiming legal costs from tenants and for a power to specify classes of landlord who would be exempt from it.

I look forward to the Minister’s response and, I hope, to some positive engagement in relation to these amendments.

My Lords, I thank my noble friends Lord Bailey of Paddington and Lord Moylan, and the noble Baronesses, Lady Thornhill and Lady Taylor of Stevenage, for their amendments in this group. I will take them in turn.

Amendment 79, moved by my noble friend Lord Bailey, aims to ensure that insurance brokers’ remuneration is linked to market rates. It also aims to prevent wrongdoing. We share the intent of this amendment and are committed to introducing a fair, transparent and enforceable approach to insurance remuneration. We also recognise that insurance brokers are an important party in the provision of insurance. Given that, this amendment pre-empts the content of secondary legislation. Following Royal Assent, we will consult on what would constitute a permitted insurance payment, then lay the necessary secondary legislation before Parliament. This will clarify what remuneration will be permitted by those involved in the arranging and managing of insurance. My noble friend Lord Bailey spoke with his customary passion. We continue to welcome his views and the Minister remains keen to meet. I hope that, with that reassurance, my noble friend will withdraw his amendment.

Amendment 80 was tabled by the noble Baroness, Lady Pinnock, and spoken to by the noble Baroness, Lady Thornhill. I assure all noble Lords that this Government are committed to banning building insurance commissions for landlords and managing agents and replacing these with transparent handling fees, to address excessive and opaque commissions being charged to leaseholders. The amendment seeks that within one year of the day on which Clause 57 comes into force, the FCA conducts a report into the impact of this clause in reducing instances of unreasonable insurance costs being passed on to leaseholders.

We agree in principle with monitoring the impact of the clause and, more widely, that insurance costs must be reasonable. The FCA has been closely monitoring the multi-occupancy buildings insurance market in recent years, has strengthened its rules on fair value, and provides regular updates. The most recent update to the Secretary of State was published on 29 February. We will continue to work closely with the FCA and other stakeholders to develop our secondary legislation and in monitoring buildings insurance. Please be assured that this is an area on which we, and the FCA, are keeping a close eye. I hope that with this reassurance, the noble Baroness will not move this amendment.

Amendments 81 and 81A were tabled by my noble friend Lord Moylan; I will take them together. Amendment 81 seeks to exempt right-to-manage companies from the requirement for landlords to apply to the relevant court or tribunal to recover their litigation costs from leaseholders through the service charge. This amendment would apply where the right-to-manage company is exercising the functions of the landlord. Amendment 81A seeks to exempt “non-profit entities” from the requirement for landlords to apply to the relevant court or tribunal in order to recover their litigation costs from leaseholders through the service charge. The amendment provides examples of types of “non-profit entities”, including resident management companies and right-to-manage companies.

Clause 60 seeks to protect leaseholders from being charged unjust litigation costs from their landlord. It does this by requiring landlords to successfully apply to the relevant court or tribunal in order to recover their litigation costs, either through the service charge or as an administration charge. The court or tribunal will make an order that it considers just and equitable in the circumstances.

We understand the intention behind my noble friend’s amendments. The Government recognise the position of resident-led buildings. That is why the reforms also include provision to set out in regulations those matters which the relevant court or tribunal must consider when making an order on an application. The Government will carefully consider the detail of these matters with stakeholders and the tribunal, including where a building is resident-led. We would be concerned that the exemption provided by Amendments 81 and 81A would leave leaseholders with little protection from paying unjust litigation costs where a resident management company or a right-to-manage company is in place. I ask my noble friend not to move his amendments. However, it goes without saying that this is a complex area of reform and we are considering the issue carefully.

It is unsatisfactory if this is to be left to secondary legislation. Bearing in mind that the directors of the right-to-manage company are elected by the leaseholders, and can be replaced by them, and that they are really one entity, what is to happen if the tribunal decides not to make an award of costs? How are the directors to recover that money and who would become a director in those circumstances if they did not have that assurance in advance?

I will have to pick that up at a later date. There are a number of variables in that circumstance. I hope that my noble friend will forgive me for not having an answer to hand. I will certainly take this up with the department, rather than saying something that is incorrect at the Dispatch Box. My noble friend is absolutely right to raise it as an issue. It is under certain circumstances that those individuals find themselves in that situation, but I am more than happy to take that away and then write to my noble friend.

I turn to Amendments 81B to 81E, also in the name of my noble friend Lord Moylan. As I have previously said, Clause 60 seeks to protect leaseholders from unjustified litigation costs by requiring landlords to successfully apply to the court or tribunal to recover their litigation costs from leaseholders. This replaces the right that leaseholders currently have to apply to the courts to limit their liability for landlords’ litigation costs. The relevant court or tribunal will make an order on a landlord’s application that is just and equitable in the circumstances.

Amendments 81B and 81D seek to amend the provision that allows the court or tribunal to make a decision on the landlord’s application for their litigation costs that it considers

“just and equitable in the circumstances”.

Instead, the amendment stipulates that where a landlord is successful in relevant proceedings, the court or tribunal will allow the landlord to recover their litigation costs from leaseholders—unless the landlord has acted unreasonably. We understand the intention behind my noble friend’s amendments—to minimise the amount of court or tribunal hearings. However, the Government have a few concerns with the amendment.

The amendment would mean that the court or tribunal would always need to make an order that the landlord can recover their litigation costs from leaseholders where the landlord had been successful in proceedings in whole or in part. The only exception is where the landlord has acted unreasonably. Of course, where a landlord is successful in bringing or defending a claim, we would expect that the court or tribunal would allow them to recover their litigation costs from leaseholders. However, there may be a range of variables and nuances that occur in disputes which need consideration on a case-by-case basis.

The Government think the relevant court or tribunal is best placed to assess applications for costs, taking into account the circumstances of each case. In addition, the measures currently provide for regulations to set matters which the court or tribunal will consider when making a decision on costs applications, which we will consider carefully with stakeholders and the tribunal.

Amendments 81C and 81E seek to allow landlords to recover their litigation costs, where allowed under the lease, without needing to make an application to the relevant court or tribunal in certain circumstances. These circumstances include where proceedings before the county court are subject to a judgment in default, where litigation costs have been incurred in relation to forfeiture proceedings or where proceedings against a landlord have been struck out or are settled before the first hearing. Again, the Government have concerns about these amendments. For example, if a landlord is unsuccessful in proceedings of forfeiture against a leaseholder, this amendment would allow them to recover their litigation costs from a leaseholder regardless. These amendments would also make the provisions more complex, with different rules applying to different scenarios. We completely understand the intention behind my noble friend’s amendments. However, for these reasons, I ask that he does not press them.

Amendment 82, tabled by the noble Baronesses, Lady Taylor and Lady Pinnock, and spoken to by the noble Lord, Lord Khan of Burnley, seeks to prohibit landlords from recovering their litigation costs from leaseholders apart from in excepted circumstances to be set out in regulations. Clauses 60 and 61 already seek to rebalance the litigation costs regime for leaseholders in an effective and proportionate way. As I have previously noted, Clause 60 will require a landlord to successfully apply to the relevant court or tribunal in order to recover their litigation costs from a leaseholder. This applies whether the landlord is seeking to recover their litigation costs as a service charge or an administration charge. I also note that Clause 61 gives leaseholders a new right to apply to the relevant court or tribunal to claim their litigation costs from their landlord. For both landlord and leaseholder applications, the relevant court or tribunal will make a decision on costs in the circumstances of each case. Taken together, these measures will rebalance the litigation costs regime and remove barriers to leaseholders challenging their landlord. We believe the Government’s approach strikes the balance of being robust but proportionate. Therefore, I respectfully ask that they do not press this amendment.

Finally, I turn to Amendments 82A and 82B from my noble friend Lord Moylan. Currently, in the tribunal and for particular court tracks, leaseholders can claim their litigation costs from their landlord only in very limited circumstances even when they win. This may deter leaseholders from being legally represented or from challenging their landlord in the first place. As I have previously said, Clause 61 gives leaseholders a new right to apply to the court or tribunal to claim their litigation costs from their landlord where appropriate. As with the landlord application for costs, the court or tribunal will make an order that it considers just and equitable in the circumstances.

Amendments 82A and 82B seek to amend the new leaseholder right so that it applies only to home owners rather than investor leaseholders. Amendment 82B provides the definition of a “homeowner lease” so that the leaseholder right applies only to a leaseholder of a dwelling which is their only or principal home. Exempting certain leaseholders from this right would restrict access to redress where we are seeking to remove barriers. For example, there may be instances where a leaseholder who privately lets their flat needs to take their landlord to court because they are failing to maintain the building, which is impacting their property. In these circumstances, we would want the leaseholder to feel able to hold their landlord to account. Providing leaseholders with rights, regardless of whether they are home owners or investors, is in line with the approach we have taken throughout the Bill. Such an exemption would be out of step and will add complexity to the measures. Therefore, I ask my noble friend not to press his amendments.

May I ask the indulgence of the Committee? I should have declared when I spoke—as I did earlier in debate—that I live in a building which is run by a right-to-manage company of which I am a director, as is shown in the register of interests. I should have said that in my opening remarks, but I hope I will be forgiven for adding it now.

Amendment 79 withdrawn.

Clause 57 agreed.

Amendment 80 not moved.

Clause 58 agreed.

Amendments 80A and 80B not moved.

Clause 59 agreed.

Clause 60: Limits on rights of landlords to claim litigation costs from tenants

Amendments 81 to 82 not moved.

Clause 60 agreed.

Clause 61: Right of tenants to claim litigation costs from landlords

Amendments 82A and 82B not moved.

Clause 61 agreed.

Clauses 62 to 65 agreed.

Amendment 82C

Moved by

82C: After Clause 65, insert the following new Clause—

“Building trustee(1) A prescribed building must have a building trustee.(2) In this section a prescribed building is—(a) a higher-risk building as defined by section 65 of the Building Safety Act 2022, or(b) a building where—(i) 50 per cent or more of the internal floor of the building (taken as a whole) is not occupied for residential purposes, and(ii) the total service charge payable for the building exceeded £250,000 in the last financial year, or(c) a building where a recognised tenants’ association has requested the appointment of building trustee, or(d) a building where a court or tribunal has ordered the appointment of a building trustee.(3) The Secretary of State may by regulations amend the definition of prescribed building.(4) A statutory instrument containing regulations under this section may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.(5) In this section—“building” means a self-contained building, or self-contained part of a building, in England that contains at least two dwellings;“prescribed” means prescribed in regulations made by the Secretary of State;“recognised tenants’ association” has the same meaning as in section 29 of the Landlord and Tenant Act 1985.”Member's explanatory statement

This amendment requires higher-risk buildings (over 18m), and buildings where 50% or more of the floor space is not residential and with a total service charge of more than £250,000 to have a building trustee. A building trustee may also be appointed at the request of recognised tenants’ association, or by a court or tribunal.

My Lords, I move Amendment 82C and will speak to Amendments 82D to 82M standing in my name. These draw on good practice in the management of multiunit developments in Australia, Europe and North America and seek to replicate best practice here. They are also designed to address some of the concerns raised in earlier debates, particularly in the context of the proposed change to the threshold for enfranchisement in mixed-use developments from 25% to 50%. I suggest that similar amendments to a future commonhold Bill would go some way to meeting concerns that have been expressed about the risks associated with a wholesale move to that tenure.

The amendments provide for the appointment of a building trustee. It is proposed that this should apply in the largest and most complex developments. Building trustees might also be appointed at the request of a recognised tenants association or by the courts. The building trustee will be an independent and impartial figure whose primary role of auditing performance would ensure that interest rights, responsibilities and performance of the landlord were properly balanced with those of leaseholders and, more importantly, that the building is properly maintained and the service charge provides value for money. I noted in our earlier discussions the Minister’s comments to me about value for money, but it is the benchmark used by the National Audit Office for local authority finance, I believe—I eyeball noble Lords who have experience in that line of business.

Amendment 82C sets out the buildings this would apply to, and Amendment 82D outlines the trustee duties—I will rattle through the amendments at some speed. Amendment 82E is about the appointment process of the building trustee. Amendment 82F sets out the trustee entitlement to documents and information.

There is, of course, the question of who pays for the building trustee. It would be unreasonable—particularly during a cost of living crisis—to burden leaseholders, especially as many of the buildings covered by Amendment 82C are already facing increased service charges owing to the new safety requirements under the Building Safety Act. Instead, Amendment 82G provides that the costs of building trustees would be covered by a levy on providers of commercial and residential mortgages and block landlords, excluding enfranchised building and tenant right-to-manage companies.

Amendment 82H sets out what would be the baseline value-for-money benchmark. This is necessary because there is a risk of inevitable bias in the management under the auspices of a party to the leasehold arrangements. This might be perfectly reasonable in terms of the person instructing the management, but still fall well short of the optimal.

One of the Bill’s key aims is to make it cheaper and easier for leaseholders to enfranchise. I welcome that. My amendments are designed to augment these plans by providing a light-touch oversight to ensure effective, efficient and economic management of a building. This backstop would require reassurance to lenders, leaseholders and other stakeholders that a freeholder-managed or resident-managed building will be properly looked after.

The reassurance offered by the building trustee is needed, as there is strong evidence that, monetising policies by a few freeholders apart, leaseholders themselves are often reluctant, unable or lack the skills to take on the responsibility and liabilities for the management of increasingly complex buildings, or to direct the professional managers adequately. Indeed, some complaints reaching my mailbox are about residents’ own management companies, and the Government’s own research found that leaseholders were concerned about issues of working with neighbours, lack of time and reluctance to take on additional responsibilities beyond those necessary as a home owner.

That touches on a point raised by the noble Lord, Lord Moylan, in a previous group, because although most leaseholders will appoint a managing agent to undertake the day-to-day running of a building, they themselves remain responsible for key decisions and setting priorities, such as service charge levels, authorising maintenance schedules and dealing with arrears. It can be difficult to get collective agreement on these issues, with resultant detriment to the management of the building fabric. According to data from the Scottish House Condition Survey, half of all housing is in what it describes as “critical disrepair”, and almost half demands “urgent attention”. The situation is most acute in tenements, so I appreciate that this probably relates to older buildings, but paying for common repairs or maintenance was the most frequent cause of disputes in these buildings.

By taking a whole-life view of the building, the building trustee can seek to avoid that Scottish experience by providing an independent assessment of maintenance needs and condition, and ensuring sufficient provision is put aside to maintain the building properly. Amendments 82I and 82J would require landlords to provide a 10-year plan of anticipated expenditure on capital works and building maintenance, and to establish a sinking fund to avoid leaseholders facing large, unanticipated bills. The plan and the fund would be subject to an independent audit and assessment by the building trustee to ensure that necessary works, and only necessary works, were planned for and adequately funded.

In an open letter to lenders on taking commonhold as a security, dated 21 July 2020, the Law Commission recognised that

“the value of a lender’s security is inherently linked to the management and maintenance of the building in which a flat is located. A failure to keep the building in repair, to insure it properly, or to keep sound finances all have significant potential to jeopardise the value of a lender’s security”.

The same is, of course, true for leasehold buildings. That is why I believe that professional landlords and lenders should cover the cost. It is the banks and the building societies whose capital is at risk. The building trustee should provide a cost-effective way of reassuring them that the flats they have lent on are being properly managed, and of maintaining the value of the security. The same is true of commercial lenders on mixed-use developments. I envisage that the Secretary of State would outsource the appointing of building trustees to an external body, as provided for in Amendment 82E.

Two significant further powers would be conferred on the building trustee through Amendments 82H and 82K. Amendment 82H would allow the building trustee to apply to the tribunal on behalf of leaseholders to seek refunds of expenditure that does not provide value for money. Amendment 82K would allow the building trustee to adjudicate in disputes between landlord and leaseholder, and between leaseholders. One of the main areas where I see this provision being used is service charge arrears. It is particularly important in leaseholder-managed blocks that do not have the wider financial resources of the major landlord groups that service charges are paid promptly. Failure to do so prevents a building being managed properly, and in extreme cases places all residents at unnecessary risk. If essential safety works could not be undertaken or building insurance obtained, that would create real problems.

Evidence from other parts of the world suggests that condominium statutes do not have sharp enough teeth to recoup outstanding contributions efficiently and effectively. In England and Wales, we currently fall between two extremes. I have sympathy with those noble Lords who argued in a previous debate that forfeiture, with the exorbitant windfall that it can offer landlords, is inherently unreasonable. Equally, I recognise the point the Minister made in previous discussions that civil debt recovery proceedings can be lengthy. The building trustee’s power to adjudicate offers a faster and less formal route of dispute resolution than the court, and supports the building’s cash flow.

Amendment 82L would provide for the building trustee to take over the management of a building if its landlord becomes insolvent. Historically, this has happened to very few landlords. However, the Committee will recall that I have previously raised concerns that not all landlord groups have the funds needed to meet the building safety remediation liabilities and could therefore become insolvent. The financial position of these groups may get significantly worse, depending on the Government’s decision on ground rents. Some of the country’s largest landlord groups—I refer to E&J Estates, which is landlord to around 40,000 homes, Long Harbour, which is landlord to around 193,000 homes, and Regis Group, which is landlord to around 30,000 homes—have significant borrowings that are due to be repaid from ground rent income over the next 40 to 60 years.

To the best of my knowledge, the Government’s final position is still unknown but, based on press comments on the Secretary of State’s own preference, it is reasonable to assume that the finances of landlord groups dependent on ground rent income to repay their borrowings will come under further, if not fatal, stress. This is not just my view; it is also that of the Government, whose own impact assessment states that

“there may be potential insolvencies/forfeiture and associated costs where the freeholder defaults on contractual obligations as a result of the cap”.

However, it does not seem that there has been further assessment of just exactly what this would mean in practice.

The collapse of a major landlord group would be without precedent and could cause tens of thousands of leaseholders in hundreds of buildings to be in serious trouble. In blocks subject to intermediate leases, it is likely that contracts covering everyday management and maintenance would be at risk because there would be no landlord to provide instructions. Conveyancing and lending transactions, which are already under stress, would be paused as there would be no one to process essential documents such as notices, deeds of covenant, landlord certificates and leaseholder deeds of certificate. The ability of the building trustee to assume the management of a building in such circumstances, and prevention of possible management contract termination, is an essential backstop that prevents leaseholders being left in limbo for months while they try to set up an alternative arrangement for managing their buildings and/or await the outcome of the administration or liquidation.

Finally, Amendment 82M would simply ensure that the building trustee has relevant qualifications for the task.

I hope your Lordships will see the merit in these arrangements, and that the Minister will be able to agree that measures such as this are a necessary complement to the Bill’s intentions. While I commend these amendments to the Committee, I simply say that I am not set on this particular structure, but the principle needs further examination to provide the point that I have constantly been on about—namely, consumer protection. On that basis, I beg to move.

My Lords, I will speak to Amendment 95A. The Long Title of the Bill is very clear. It includes the phrase

“in connection with the remediation of building defects”.

Much of the debate has been on the management and funding of remediation and maintenance, but the early identification of defects is clearly really important in order to avoid some of the problems that can occur, as, tragically, we have seen, for instance, in the Grenfell Tower fire.

That fire was caused by a faulty electrical appliance, but there is also a large number of fires caused by faulty electrical installations. Indeed, the charity Electrical Safety First has calculated that there are around nine such fires every single day in England and Wales. On average, they cost about £32,500, but they have in many cases ruined lives, and on a few occasions have meant, tragically, that people have lost their lives. Quite clearly, it makes a great deal of sense to identify faults at the earliest possible opportunity.

I have talked previously in your Lordships’ House about the dangers of faulty electrical appliances, but this amendment relates specifically to electrical installations—the wiring, the fuse-box, the sockets and so on. I am absolutely delighted that when I have raised these issues in the past, the Government have concluded that action should be taken. I am delighted that we now either have already in place, or will shortly have in place, measures that ensure that, in all forms of rented accommodation, there is a requirement for a five-yearly inspection of electrical installations. Indeed, there is a requirement that they have an electrical installation condition report produced, which will identify any potential faults and suggest ways of dealing with them, to avoid a major fire occurring.

Unfortunately, so far there is absolutely nothing in place for the 17 million properties in England and Wales that are owner-occupied; nothing similar is currently planned. About a year ago, I introduced a Private Member’s Bill in your Lordships’ House to address that issue; I am grateful to many noble Lords, as well as the fire brigades and a large number of outside organisations, who supported me and enabled that Bill to get through your Lordships’ House. Unfortunately, the Government did not find the time in the other place for the Bill to be considered. As a result, that Bill—something that was supported across your Lordships’ House, with huge support outside, including from organisations that represent owner-occupiers—has not gone through, sadly.

This amendment is simply to replicate and put the measures I proposed at that time in place. Quite simply, it would require not a five-yearly check, because that would be difficult to do, but, at the point of sale of an owner-occupied property, that an EICR—electrical installation condition report—be produced and made available to the new purchaser. It would cost between £150 and £250; they are already being carried out around the country in rented properties by qualified electricians, and have been saving lives and money. Something similar should be happening in the owner-occupied sector.

This is a relatively simple amendment. It would mean, based on the rate of sale of properties in England and Wales, that about 1 million properties a year would have the benefit of this electrical installation condition report being carried out. It is something I hope your Lordships will accept.

I will add one caveat. When you look at the details of this issue—during earlier deliberations on the Bill, high-rise properties have been talked about a lot. I recognise that there are a number of high-rise properties that have a mixture of tenure; there are some rented and some owner-occupied properties there. There is a good case for arguing, in the case of such properties, that there is a requirement for a five-yearly check on the owner-occupied properties within a high-rise building.

Certainly, if the principle of my amendment is accepted by the Government today—I hope very much that it will and they will be willing to have further discussions about it—perhaps at a later stage we could also look at a slightly different approach in respect of owner-occupied properties in such multi-tenure high-rise buildings.

My Lords, my Amendment 104 is very much part of the amendments I have—both today and on other days—that look at the way the law, as it was previously made, might not be doing what it is intended to. I am interested in restoring Section 24 management for leaseholders suffering at the hands of some predatory freeholders, suffering sky-high service charges and run-down buildings—some of the things we have been talking about.

Like many other noble Lords here, I still have the scars from scrutinising the Building Safety Bill when I first arrived here. It was the most hugely complicated piece of legislation, but it went through the House relatively quickly because of the importance of the topic. As I think we are all aware now, that speed probably led to a number of unintended consequences that have since come to light. One surely unintended consequence of the Building Safety Act is the way that its accountable person regime undermined Section 24 of the Landlord and Tenant Act 1987. Due to the wording of the Act’s accountable person policy, Section 24 court-appointed managers are barred from assuming their duty-holder role. Until that point, these tribunal-backed managers would be entrusted with all of the building’s management, when it was determined that the freeholder could not be trusted to remain in control of a development and leaseholder service charges.

I am not commenting in general on the accountable person policy per se, although there are problems with it. But it is odd that there is such a wide range of entities that can be the accountable person, including leaseholder-controlled resident management companies and right-to-manage companies, yet strangely, the Act prohibits a Section 24 manager from taking on the role, despite the fact that a Section 24 manager would have been appointed by a tribunal panel, which was satisfied that they had the credentials and experience needed to steward a development that had fallen foul of a poor freeholder. I do not understand how this happened, or why.

It is important to note that Section 24 has been a lifeline right for ripped-off leaseholders unable to buy their freehold or claim the right to manage because of costs or strict qualifying criteria. This is an attempt to ensure that Section 24, which is the ultimate backstop scheme, is restored in the Bill, to give leaseholders a clear route to remove freeholders and their management agents if it has been shown that they have actually been ripped off and it is the only route open to them.

This issue came to my attention in February, when Melissa York in the Times reported a devastating story of Canary Riverside in Tower Hamlets. This story really made an impact on me, because there the leaseholders have benefited from court protection, with Section 24 management, since 2016. A Section 24 manager was installed because the freeholder, a Monaco-based billionaire, John Christodoulou, had lost the confidence of the tribunal due to his company’s seeming financial mismanagement and poor estate maintenance. After years of fighting by the leaseholders, in March this year the Upper Tribunal found that the freeholder had used a related firm to overcharge the development by £1 million in secret insurance commissions—the kinds of issues we were discussing earlier today.

Yet despite this and other well-evidenced service charge abuses, and the fact that the leaseholders have benefited from independent Section 24 management, The Times reports that

“an oversight in the new Building Safety Act means the same court that removed his management company could put Christodoulou back in control of service charge moneys and safety works, including £20 million for cladding remediation”.

It seems to me that the Building Safety Act’s seemingly arbitrary exclusion of Section 24 managers from its accountable person regime did not intend to do this, but its effect is that those Canary Riverside leaseholders, among others, are faced with the prospect of their landlord staging a comeback and regaining control over block management, even though the leaseholders’ work over years, accumulating evidence to prove fault, has been accepted at tribunal level. That work is now undermined because a statutory right that leaseholders relied on for years is now blocked by the Act.

This is so frustrating, and it needs to be tackled in Parliament, as the courts are bound by the laws we make here. In December, in the first test case on this—Canary Riverside—the First-tier Tribunal confirmed that the Building Safety Act does not allow a Section 24 manager to be the accountable person. In March the Upper Tribunal agreed. Despite those tribunal decisions going against them, I commend the leaseholders at Canary Riverside, and say all power to them. They are still appealing in order to keep their Section 24 protection.

This is heroic work, which should remind us all of the real-life toll of the sort of issues leaseholders have to take on. They are ordinary people who bought leasehold flats, and who have ended up going in and out of court regularly—and there is not just the toll, but the costs. Nearly £200,000 has been committed in legal fees already. This is a sharp reminder that the unintended consequences of laws we make here can have wide-reaching, even devastating, effects on real people’s real lives.

We need to put right this wrong, here in Parliament, and to use the Bill to do so. The Section 24-accountable persons clash was raised in January with MPs on the Public Bill Committee by Free Leaseholders, End Our Cladding Scandal and Philip Rainey KC, who all drew this to our attention. As a consequence, the MPs Nickie Aiken and Barry Gardiner moved amendments on this issue in the other place. I would really appreciate it if the Minister looked into fixing this, because I do not think it is what we ever intended to do with the Building Safety Act. It is a loophole, and it has the most devastating consequences for leaseholders, which I am sure we could simply put right.

My Lords, I admire the persistence of my noble friend Lord Foster of Bath in his indefatigable pursuit of the perhaps unsexy but very important issue of electrical safety defects, as evidenced in his Amendment 95A.

The first group of amendments relates to building safety—a subject that we have debated many times in this Chamber in recent years, following the tragic events of the Grenfell Tower fire. Amendments 82C to 82M, in the name of the noble Earl, Lord Lytton, relate to a proposal that higher-risk buildings should have a building trustee. The trustee would be an impartial figure, whose role would be to ensure that the interests, rights and responsibilities of the landlord and leaseholders were balanced, that the building was properly maintained, and that the service charge provided value for money—a practice that exists elsewhere. We find the noble Earl’s proposal interesting, and certainly worthy of consideration in the future. However, it is quite a detailed proposal which may not have the chance to be scrutinised further in the context of the Bill.

Other amendments tabled by the noble Earl would make provision for what would happen in the event of insolvency of the landlord, particularly to prevent the termination of service contracts or insurance policies. Redressing the balance between the rights and responsibilities of tenants and landlords is a key aspect of the Bill, and it is important that we explore the different approaches to achieving this. The noble Earl also raises an important question about what happens in the case of insolvency to ensure that there is a person able to take responsibility for key aspects of building management.

Amendments 98 and 101, which were not moved by the noble Lord, Lord Young of Cookham, interestingly also relate to the accountable person and responsible actors. This was a key theme in the passage of the Building Safety Act, and it is clear from these amendments and others that there are unresolved issues. This was highlighted positively by the noble Baroness, Lady Fox, in her Amendment 104, when she talked about the unintended consequences of the lack of a Section 24 manager. I look forward to the Minister’s explanation of what seems to me an important and relevant question.

Amendment 101, tabled by the noble Lord, Lord Young, is particularly important as it makes the case for a new body to oversee and accelerate remedial works. We are particularly concerned about the pace at which remediation is happening, with the latest building safety remediation data highlighting the fact that only 23% of buildings have completed remediation works since the Grenfell tragedy. In the meantime, residents are either living in unsafe buildings or being forced out of their own homes. Reporting in yesterday’s Sunday Times, Martina Lees outlined how 15,000 people have been ordered to leave their homes because of safety risks. Many of those people are living in hostels or paying rent alongside a mortgage on a flat they cannot se-ll.

The costs faced by leaseholders is also the subject of Amendment 103, tabled by the noble Baroness, Lady Taylor of Stevenage, which would impose a cap on the charges that can be passed on to leaseholders as a result of the Building Safety Act. The Act introduced important changes to the regulatory framework, but it has had a knock-on effect on the charges leaseholders face. As my noble friend Lady Pinnock has said time and again, it is the leaseholders, who have done nothing wrong, who are paying the price of this crisis. We welcome amendments that would protect leaseholders from those costs, and we look forward to assurances from the Minister that the Government are taking action to ensure that all leaseholders affected by the building safety crisis get the support they need—sooner rather than later.

My Lords, I shall speak to our Amendment 103, and comment on others in this group. I thank the noble Earl, Lord Lytton, for his careful and thoughtful consideration of how we might use the Bill to rectify some of the glaring building safety omissions that are an unfortunate legacy of the Building Safety Act. His proposals on building trustees warrant close consideration, especially as he has carefully set out how they might be funded. Taken together with proposals in later amendments for a property regulator, this could deal with a number of the loopholes that have caused an overall descent into property chaos, which has been the subject of much debate in this House, by matching independent local oversight with a national property regulator.

The noble Earl set out in his customary forensic way his justification for the amendments. I respect his professional expertise in this area, and I do not think I need to say any more than to welcome the issues he has covered. As the noble Baroness, Lady Thornhill, said, those could have been subject to pre-legislative scrutiny—but sadly, they were not. As was said earlier today, it is a mark of how your Lordships’ House can contribute to legislation that we have them before us today. It is a shame they could not have been incorporated at an earlier stage, because it is late now to debate such detailed proposals. I look forward to the Minister’s response, and I hope she will, as she always does, take the amendments seriously and tell us what the Government are going to do when they consider them.

Noble Lords would have received the excellent briefing, as I did this morning, from the National Residential Landlords Association. It says that “it is more critical than ever, in the context of the Government’s Leasehold and Freehold Reform Bill” that the building safety remediation scheme “is implemented without further delay to resolve the failings of the Building Safety Act’s leaseholder protections”. The noble Earl, Lord Lytton, said that he is not particular precious about this structure but, if we do not have it, what will the Government put in its place to do that?

We are now seven years on from the dreadful tragedy at Grenfell. It is shameful that so many leaseholders are still living with the fear of fire risks and the unbelievable pressure from the uncertainty around the financial commitments that they will face for their building remediation. It is the most terrible indictment of this Government’s failure to recognise the unconscionable impact on the lives of those affected, let alone the issues raised so many times in this Chamber of those who live in non-qualifying buildings but, nevertheless, have the leasehold sword of Damocles hanging over them.

The noble Baroness, Lady Thornhill, already mentioned the excoriating article in the Times this weekend. Martina Lees gives an incredibly thorough and well-researched account of the impact of the cladding scandal. Her investigation points out that

“15,000 residents have been forced to leave homes due to fire or fire safety defects”,

and that escalated last year with the evacuation of at least 21 buildings. She also says:

“Despite £9.1 billion of government grants being set aside to help fix homes, only £2.1 billion has been spent. The building safety crisis has trapped 700,000 people in dangerous homes and left almost three million owners with flats they cannot sell. Almost all are properties built or refurbished since 2000, with defects such as flammable cladding systems, combustible balconies and faulty fire barriers”.

I am familiar with faulty fire barriers from Vista Tower in Stevenage. She also points to government manipulation of figures, in that they

“cite a total of 4,329 buildings or 248,000 flats over 11 metres high with unsafe cladding. Of these, 23 per cent have been fixed”.

However, as Ms Lees points out,

“previous government data added up to 375,000 flats over 11m, making the number fixed just 8 per cent. The new total excludes more than 1,000 buildings where the developer must pay for repairs but does not know whether work is needed. It also precludes hundreds of blocks that did not get taxpayer help because they had the wrong type of fire risks … or were deemed below 18m … It leaves out up to 7,283 mid-rise buildings that the government had previously estimated to be unsafe”.

I am sure that the Minister will tell us that she does not respond to press stories in the Chamber, but the headline issues raised here are that affected leaseholders continue to endure this misery, with some having to pay rent for properties that they have been evacuated to, on top of the thousands of pounds of service charges that they face. Amendments in this group would at least provide some longer-term solutions to these issues.

My Amendment 103 seeks to recognise that financial pressure and ensure that there is at least a cap on the charges that leaseholders are expected to bear. Our preference going forward would be that developers are held ultimately accountable for any fire or other safety defect remediation in the buildings. In future, we hope that even greater consideration is given to how that might be achieved.

We also support the amendment of the noble Lord, Lord Foster; it is surprising only in that it is not already the case that buildings with electrical defects cannot be sold. If that is the case, surely this should be urgently rectified through the building regulations regime. I hope that we do not have to wait another two years to implement that.

Amendment 101 is in the name of the noble Lord, Lord Young, although he did not speak to it. It seeks to impose a deadline of June 2027 for remediation of fire safety defects. That is not an unreasonable target, as it would mean that an entire decade had passed since the Grenfell tragedy.

The noble Baroness, Lady Fox, made a very powerful case for the unintended consequence of the removal of the Section 24 manager. Her amendment and that of the noble Lord, Lord Bailey, seek to improve accountability. As this is one of the stated aims of the Bill, we look forward to the Minister’s response to their proposals.

I thank noble Lords for their various amendments on building safety and for the debate. I will respond to the amendments in turn.

I thank the noble Earl, Lord Lytton, for his amendments relating to a building trustee. Amendment 82C requires some buildings to have a building trustee, while Amendments 82D to 82M cover the process of appointment, duties, rights to information and how these trustees will be funded. The building safety trustee will either replace or complement the functions carried out by the landlord or a managing agent. I fully agree with the view that landlords and managing agents must manage and maintain buildings for which they are responsible and provide a good-quality service to tenants. However, I believe that this proposal would create additional complexity with little relative gain. The proposed mechanisms for funding these trustees increase the risk of pushing more landlords into escheat and it is hard to see how the levy proposals can be delivered. Secondly, we consider that there are better ways to deliver the desired outcome. As I have previously mentioned, we are bringing measures forward in the Bill that will drive up the accountability of landlords and their agents, so we do not agree with the noble Earl’s amendments.

I thank the noble Lord, Lord Foster of Bath, for his amendment, which seeks to improve electrical safety standards in buildings by identifying whether there is an electrical defect prior to sale, and for his continued interest in this very important issue for housing safety. This amendment would require a specified person to acquire an electrical installation condition report or electrical installation certificate prior to marketing the property, unless it is being sold for demolition or a full electrical rewire has been completed in the last five years. This is an important issue; we know that improving electrical safety is paramount to helping prevent fires and making sure that occupants feel safe in their homes.

As the noble Lord said, the Government have already taken firm action in the private rented sector by requiring PRS landlords to acquire an EICR at least every five years and to organise remediation works where necessary. We have also consulted on equivalent electrical safety standards in the social housing sector through our 2022 consultation and call for evidence. Here, we examined proposals to require social landlords to obtain an EICR for their rental tenants at least every five years and then to carry out remedial works within a set timescale. Our call for evidence also explored extending the proposed requirements to owner-occupier leaseholders within social housing blocks, so that the whole block is subject to these increased standards. We are aware of the noble Lord’s concerns about the sector that we have not yet hit—the owner-occupied sector. The Government are still considering responses to the consultation and the call for evidence, and we will update this House in due course.

I thank the noble Baroness, Lady Fox of Buckley, and the noble Lord, Lord Bailey of Paddington, for their Amendments 104 and 105B—I will also speak to Amendment 98, although my noble friend Lord Young of Cookham is not here—relating to changes of the definition of accountable persons under Section 72 of the Building Safety Act 2022 and other changes protecting the position of managers appointed under Section 24 of the Landlord and Tenant Act 1987.

I trust that noble Lords will understand that the Government cannot accept the proposed amendments. First, defining a Section 24 manager as an accountable person would move financial and criminal liabilities away from the existing accountable person to the Section 24 manager. It was the intent of the Building Safety Act that financial and criminal responsibilities for certain aspects of maintaining the building should always remain with the accountable person, and the accountable persons cannot delegate this responsibility to a third party. As drafted, the amendments could also mean that Section 24 managers would not be able to recover funds from the accountable person for the incidents of remediation works. I assure noble Lords that the Government are looking closely at this issue and at options to ensure that Section 24 managers can take forward building safety duties and get funding, where needed, from the accountable persons.

Amendment 103 would cap the amount that leaseholders had to contribute to the ongoing management of building safety in their buildings. I trust that the noble Baroness, Lady Taylor of Stevenage, will understand that the Government cannot accept this proposed amendment. Those costs are related to the ongoing management of the building. It is appropriate, and indeed the long-standing legal position, that the management of a building is funded by leaseholders through service charges. Capping the fees that leaseholders pay towards the management of the safety of their building would mean that the freeholders would be unable to recoup the cost of meeting their legal obligations, or would be put in a position where vital safety works may be delayed for long periods of time. It is likely that this would mean that some freeholders would not be able to manage building safety effectively, putting residents at risk.

The amendment would also create the precedent that leaseholders should not be expected to contribute fully to the ongoing management of their property. It is a fundamental principle of leasehold property that leaseholders are liable to pay through the service charge for the ongoing management of their property. I hope that, with these assurances about the action that the Government have taken and are taking, noble Lords will agree not to press their amendments.

My Lords, it is my privilege to thank all noble Lords for their contributions to the debate on this group. I pay tribute to the noble Lord, Lord Foster of Bath, for his contribution. As the noble Baroness, Lady Thornhill, said, he has been a doughty campaigner on this issue without pause for breath. It is absolutely right to consider electrical safety in buildings.

I also particularly mention the noble Baroness, Lady Fox of Buckley, for her important contribution. It raised something that has bothered me for a long time—namely, that I do not see a long queue of people wishing to be the accountable person. Indeed, I do not think this has been correctly thought out. There is an assumption in the Building Safety Act 2022, and again in this Bill, that somehow these things are going to be accepted and fall into place. When it comes to liabilities, they do not automatically happen and they do not just fall into place.

I thank the Minister very much for her comments on my amendments. She said they would create additional complexity for very little gain and that there were better ways to deliver the outcomes. I am not sure what she thinks those better ways are, given that we are dealing with a situation that is a legacy of the Building Safety Act—which is getting on for two years old—but has not been fixed, and meanwhile people are in great difficulties in their homes as a result. There needs to be legal responsibility, proper accountability without gaps and resource in terms of funding, from wherever that will come. There is a necessity to identify that secure and adequate resource, but we do not have that at present.

I will very likely return to these amendments—or these subjects, anyway—at later stages on the Bill. In the meantime, I beg leave to withdraw the amendment.

Amendment 82C withdrawn.

Amendments 82D to 82M not moved.

Clauses 66 to 68 agreed.

Schedule 10: Part 4: consequential amendments

Amendment 83

Moved by

83: Schedule 10, page 227, line 11, leave out “subsection (4)” and insert “subsections (4) and (7)”

Member’s explanatory statement

This amendment is consequential on clause 67 repealing section 172(1)(a) of the CLRA 2002, which is amended by section 112(7) of the BSA 2022.

Amendment 83 agreed.

Section 10, as amended, agreed.

Clause 69 agreed.

Amendment 84

Moved by

84: After Clause 69, insert the following new Clause—

“Marketing of residential leasehold property(1) Within six months of the day on which this Act is passed, the Secretary of State must make regulations to regulate the marketing of residential leasehold property.(2) Regulations under subsection (1) may—(a) require residential leasehold property without a share of the freehold to be marketed and sold as “lease-rental”,(b) require that residential leasehold property without a share of the freehold be advertised with a disclaimer containing the words that “leasehold is a lesser title and management and service charges at this property are controlled by a third-party entity that is not subject to democratic resident control”,(c) provide information about the rights and responsibilities of leaseholders and landlords under a long lease to be given to prospective home buyers by sellers and property agents in the form of a document produced by the Secretary of State or another person,(d) require sellers and property agents to clearly state material information, including lease length, ground rent and service charge, in the marketing of residential leasehold property,(e) define “prospective home buyers”, “sellers” and “property agents”,(f) provide that the document to be given is the version that has effect at the time the requirement applies, and(g) specify cases where the regulations do not apply.(3) Regulations under subsection (1) may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.”Member’s explanatory statement

This amendment would provide for a scheme to regulate the marketing of residential leasehold property. The scheme involves requiring leasehold homes without a share of the freehold to be marketed and sold as “lease-rental”, which adopts a key recommendation of the leasehold report by the House of Commons’ Levelling Up, Housing and Communities Committee, published on 11 March 2019.

Last week, after I spoke in the debate, I received a message from someone I know quite well. It said:

“I’m currently in the final stages of trying to buy a leasehold flat and am pretty worried about what I’m getting myself into. The freeholder, a Housing Association, has increased the service charge by 27% since I had my offer accepted and there seems to be nothing to stop them doing so again. They claim they just do it to cover costs … I get the impression this is a rentier business pretending to be something else”.

The aim of the amendment, which in some ways might appear to be quite glib, is that everyone should stop pretending this is something it is not. When you become a leaseholder you are not actually buying a home, and I want to clarify that to say so is mis-selling.

Of course, I am hopeful that the Government will accept my earlier amendment for a sunset clause on leasehold and that commonhold will become the new normal, but in the meantime those buying homes on leasehold should be frankly told what they are buying into. I have noticed in this Committee, and in the wider debate on the issue, that developers and big freehold often defensively retort when we complain about treatment of leaseholders, “You knew you were buying a leasehold property. You knew the rules. Why didn’t you read the small print?” It is a form of victim blaming—“This is what leasehold is”—but it is disingenuous.

I want to tackle that by regulating the marketing of residential leasehold properties so that they are sold as lease rentals, which in fact was a key recommendation of the leasehold report by the House of Commons Levelling Up, Housing and Communities Committee that was published in March 2019. I stress that when you buy a leasehold property, you think you are buying a house or entering into the home-owning classes. That is how it is sold to us by politicians. For example, a DLUHC spokesperson, defending the mess that is shared ownership, stated:

“Shared ownership has a vital role to play in helping people onto the property ladder, and since 2010 we have delivered 156,800 new shared ownership homes”.

The whole idea, when you buy into shared ownership or you buy a leasehold flat, is that you are joining the property-owning classes. You think of it as the aspiration to own your own home, and all that that entails. That is what you are buying.

We need to consider the ideology of home ownership. I thought about that particularly when watching an excellent lecture entitled “Making our homes our own” by Professor Nicholas Hopkins, a Law Commissioner for property, family and trust law. When you are renting somewhere to live, there is a sense of dependence on a landlord. You have no conception that you own the property, and it is all very clear. I remember my father saying to me, “It’s time to grow up and stop renting”, and eventually I bought a flat—not until I was 40, mind. It was a leasehold flat, and I thought, “I’m all grown up now. I’m taking responsibility. No landlord—it’s up to me”. Little did I know.

When you buy a home, you think you are buying independence, autonomy and control. Yes, it provides greater security, stability and permanence, but what about what Professor Hopkins calls the “x-factor” benefits—the idea that you buy a property, make it your own and personalise it? Do noble Lords remember those symbolic new front doors that everyone put on their council flats after right to buy came in? It was like saying, “I bought mine, so I’ve got a red door”—it meant something. I am not saying that in a sniffy way; it did mean something. It was about saying, “I’m going to take pride in maintaining this. I’m going to improve it”. People were in control over their houses, how and when to dispose of them, and so on—they had taken that grown-up responsibility. The notion that there is no landlord controlling your home is very important, but it is an illusion in relation to leasehold.

When the Commons Select Committee did an inquiry into leasehold in 2018 to 2019, it

“found a system which stacked the odds in the favour of developers, freeholders and managing agents, leaving leaseholders with all the financial responsibilities and without matching safeguards to protect them. Leaseholders were too often treated not as homeowners or customers, but as a source of steady profit”.

That is exactly what it feels like, but they do not tell you that at the estate agents. They do not say that the leasehold form of home ownership means that, while you pay for the maintenance of your home, you have no control over the amount, quality or cost of work undertaken. The whole experience is disempowering. You are being done to—the object of other people’s decisions.

I will give an example. When Storm Eunice battered Britain a few years ago, the roof of one lady’s top-floor two-bedroom leasehold flat started to leak badly. She said that rain was coming down through the light sockets and switches. Most home owners would try to get someone in as soon as possible to identify the leaks and get the problem fixed urgently via a claim on their buildings insurance—there is a storm, there are leaks and it is dangerous, so you get it fixed properly. But, because Liz’s flat is leasehold, she had to rely on a managing agent to sort things out. Despite countless calls and emails, she could not get anything done. Eventually, the water stopped—they stemmed the flow—but that failed and mould started to grow in the increasingly sodden flat, so Liz had to move out. There was more pleading with the managing agent to find suitable temporary accommodation, and eventually they did, albeit to a dodgy area in which Liz said she did not feel safe.

The Minister said earlier that one reason she was nervous about giving consultation rights to leaseholders in relation to local authorities was that the leaseholders might hold up works and that, somehow, the freeholders would be rushing to get them done. Is there a historic example of that ever happening? Generally, what has happened is that leaseholders are in a rush to sort out problems in their own homes and would know how to do so, but the freeholders, or their managing agents, are less inclined to.

Mis-selling leasehold properties as property ownership is, in my opinion, a con in so many ways. People who save hard for a deposit, and who budget and work hard to get a mortgage, see their new home as a financial asset: a home to pass on. But, as Professor Hopkins explains, the effect of leasehold, in essence, is to put financial value in the landlord’s hands at the expense of the leaseholders, and

“the more a person’s home is used as a financial asset to benefit their landlord, the less it is an investment for the individual. The more a leaseholder’s money is providing an investment for their landlord, the less their money is providing an investment for their own future, their family and their next generation”.

So, for leaseholders, the question is: would they buy that flat if their home was actually a source of investment for someone else—a profit for someone else—and not even something they could easily pass on to their family?

When you look in an estate agent’s window, there are two sections: for sale and for rent. There is no mention, under “for sale”, that there is a two-tier system of property and that leaseholders do not get sold their homes outright but are tenants of a freeholder who owns the land. Would-be buyers may hear their solicitors mumble the word “leasehold”, but the implications are not spelled out. For example, Natalie Walton explained in an article that, when she bought her new-build two-bedroom flat in Wakefield for £105,000, she had no idea that, on top of her £1,600 annual service charge—uncapped—her ground rent would be increased every 20 years. She said:

“It’s not easy when you’re a first-time buyer to understand all of the implications of ground rents. I had a copy of the lease but the solicitor didn’t go through any of it with me”.

So, yes, I know that the paperwork exists, but, without signposting it, and a regulated demand for honesty and frankness through the buying and selling process, many more people will be hoodwinked until we get rid of leasehold for good.

The Minister might reply that the Government’s How to Lease guide has been updated, and I was delighted to read that it had, because it was very unclear before but is now clear and honest. It says, on the Government’s own website:

“When you ‘buy’ a leasehold property, you do not become the owner of the property: you acquire the right to occupy it for the amount of time that is remaining on the lease … If the property you are interested in is leasehold, this means you, as the buyer (i.e. the ‘leaseholder’) will be signing a contract which grants you the right to occupy a property for a fixed number of years … (i.e. the ‘lease’). The building structure and any common parts will be owned by the freeholder who is likely to be your landlord”.

Hurrah for that—for once, the Government are totally clear. But who in the public reads a GOV.UK publication before they buy a house or a flat? It just does not happen.

I am suggesting that this definition should become the standard for well-advertised descriptions, used by estate agents, freehold and development sellers, and solicitors. I am not suggesting that estate agents all go off and do degree courses, as somebody did recently, but updating them, so that they know what “leasehold” means, would be helpful. This amendment ensures that this will happen, until we at last move away from this iniquitous tenure and commonhold becomes the norm. In the meantime, at least let us be honest. I beg to move.

My Lords, I support Amendment 84, in the name of the noble Baroness, Lady Fox of Buckley. There is no doubt that mis-selling of leasehold homes is going on. Indeed, some developers insist that you can buy a flat from them only if you go with one of their approved solicitors. These solicitors will most likely not alert you to the negative aspects of that lease. Public awareness and understanding are low, as the noble Baroness showed from personal experience. The noble Baroness mentioned estate agents. I went on to Rightmove’s website and found that it provides buyers no search function to differentiate between freehold and leasehold homes, which I mention because, apart from this feeling disingenuous, it highlights that the problem starts at the very beginning of the process.

As has been mentioned, the Levelling Up, Housing and Communities Committee did an inquiry into leasehold in 2018-19. Its report said:

“Many leaseholders reported that they were surprised to learn that they did not own the properties they had purchased in the same way as they might have owned a freehold property. One leaseholder, Jo Darbyshire of the National Leasehold Campaign, told us there was ‘a fundamental lack of understanding about what leasehold tenure means to consumers out there.’ Shula Rich, from the Federation of Private Residents’ Associations, described leasehold as ‘the fag end of a timeshare … it is not owning anything’ and called for greater clarity from the Government and industry that purchasing a leasehold should not be sold as the ‘ownership’ of a property in the same way as freehold”.

They are leaseholders, not home owners, and they did not get help to buy or anything other than the right to live in a building for the term of the lease.

It is important that key information is provided in ways that are accessible and easily understandable for consumers. We believe that managing agents and landlords should provide key information about leasehold properties at the marketing stage in a standardised format. The information should include the lease length, estimates of enfranchisement costs, the ground rent and service charging information, as required by National Trading Standards for marketing a property.

There are clearly significant differences between freehold and leasehold tenures, but these are not always apparent to prospective purchasers at the point of sale. It has been mooted that it would be more appropriate to refer to this tenure as “lease rental”. We agree with that—it would at least be honest.

My Lords, I rise briefly to thank the noble Baroness, Lady Fox of Buckley, for introducing Amendment 84. The arguments that the noble Baroness made were the very reason why we should end leasehold and move towards commonhold. I hope the Minister can clarify some of the important concerns that she has raised.

My Lords, I thank the noble Baroness, Lady Fox of Buckley, for her Amendment 84, which seeks to ensure that potential property purchasers understand the ongoing obligations of a leasehold property they are thinking of purchasing. I share the noble Baroness’s concern that purchasers should know about service charges and ground rent before they move into their home. Speaking personally, I completely understand the stress and frustration when you receive a bill that you knew nothing about.

The National Trading Standards Estate and Letting Agency Team has developed guidance for property agents on what constitutes material information when marketing a property. This information should be included within property listings to meet their obligations under the Consumer Protection from Unfair Trading Regulations 2008. The guidance specifies that tenure and the length of the lease are material and therefore should be included in the property listing. Ongoing charges, such as service charges and ground rent, are also considered material, as they will impact on the decision to purchase. This means that purchasers get information on the lease and expected level of ongoing financial obligations when they see the property particulars, so before they have even viewed the property, let alone made an offer. In addition, the measures that we are including in this Bill to require leasehold sales information to be provided to potential sellers mean that conveyancers acting on behalf of sellers will be able to quickly get the detailed information they need to provide to potential purchasers. This would include information about service charges and ground rent, as well as other information to help a purchaser make a decision, such as previous accounts.

The Government support significant provision of advice for leaseholders through the Leasehold Advisory Service, an arm’s-length body providing free, high-quality advice to leaseholders and other tenures by legally trained advisers. The Government have also published a How to Lease guide aimed at those thinking of purchasing a leasehold property, to help them to understand their rights and responsibilities, providing suggested questions to ask and suggesting how to get help if things go wrong. This guide will be updated to reflect the provisions in this Bill.

Is my noble friend the Minister comfortable that that information is freely distributed? It would take only a very cursory conversation with leaseholders to find out that they know nothing of most of leasehold law—anything from ground rent to the fact that your service charge can be changed from underneath you. That means that the information that is there has clearly not been absorbed. What attempt will be made to make that information universal? People are talking about changing what leasehold is called, but this is the first time that I have heard that. I think it is a good idea—but all that information is good for nought if people are not compulsorily seeing it before they sign to buy the property.

My noble friend asks for clarity. I can completely understand some of the circumstances that people face; that is something on which we share the concerns of the noble Baroness in what she is trying to do, and it is something that we will continue to look at—ways of ensuring that people are aware of the information when they are purchasing a property. We will continue to look forward to engaging with all noble Lords in this House. With that reassurance in mind, I hope that the noble Baroness, Lady Fox, will agree with me that this proposed new clause is not necessary, and I respectfully ask that it is withdrawn.

My Lords, the proposed new clause is totally necessary—I disagree with the Minister on that—but I understand the need to withdraw. The only thing that I would just clarify is that all the organisations that are run for leaseholders are no good to people who do not know what a leaseholder is when they buy their flat and then find out that they are leaseholders. You do not think of yourself as a leaseholder; you think that you are a home owner. The only people who call themselves leaseholders any more are activists who have discovered how awful it is to be a leaseholder, who then get a different identity. That is what I am getting at.

The Government’s information is very good, and they should make more of it. That is what the noble Lord, Lord Bailey, was saying—why do they not plaster it around a bit? It is not fair on first-time buyers, who are the people who are being sold out by this. I know that the Government do not want to do that, but they should do something about it. I beg leave to withdraw.

Amendment 84 withdrawn.

Amendment 85

Moved by

85: After Clause 69, insert the following new Clause—

“Prevention of leaseholder abuse in retirement housing(1) Within one year of the passing of this Act, a Minister of the Crown must publish a report assessing the state of the United Kingdom’s retirement leasehold sector with special regard to the treatment of elderly and vulnerable leaseholders.(2) The report must consider whether the government should introduce legislation on retirement housing to address consumer detriment while encouraging downsizing, a larger, healthier retirement housing sector and a better functioning property market.(3) The report must also include—(a) an assessment of the extent to which the following factors harm leaseholders in retirement housing—(i) service charges not subject to resident control;(ii) inability to easily switch managing agents to remove predatory or poorly performing service providers;(iii) license and permission fees;(iv) short leases;(v) shared ownership structures;(vi) exit and event fees;(vii) resale values, and(b) an update on the government’s implementation of the recommendations in the Law Commission report “Event Fees in Retirement Properties”, published on 30 March 2017,(c) the Older People’s Housing Taskforce report and a statement on the government’s implementation of its findings,(d) legislative options to address the significant financial loss and emotional distress of leaseholders in retirement housing and those of their families, and(e) a recommendation as to whether the housing-with-care model, license to occupy schemes and commonhold developments should be promoted by the government as preferred alternatives to leasehold tenure in the retirement sector.”Member's explanatory statement

This new Clause would require a Minister of the Crown to publish a report to establish the experience of leaseholders in retirement housing and to outline legislative options to improve consumer outcomes in this sector.

My Lords, I am bored of my own voice, too, so bear with me. It is just that I think that this is an important issue. Through this amendment, I am asking the Government to bring out a review of the specific leasehold property market for pensioners and the elderly, which I would have thought would be of particular interest to all of us in this House who might be looking in that market area.

To be serious about it, I became interested in the issue after watching a “Pensioners Against Leasehold” video, one excellent example in a series of investigative campaign films produced by Free Leaseholders. Jane, who presented the video, made me realise that leasehold is especially devastating for those selling their family home and downsizing into a flat then realising that, rather than doing the sensible thing, they have potentially bought into a debt trap. I have just been talking about first-time buyers, and I am now talking about buyers who are very experienced home owners but who are buying into a new type of home. For example, there is Nick from Bournemouth, who is in the film, who bought into a retirement block of 61 flats and who described having a toxic relationship with management agents.

The other reason why I raised this was that the mother of a friend of mine made that big decision to move later in life and into an Anchor property—and Anchor’s motto is “later life is for living”. All I can say is, “If only”. Having made that big decision to move into a special category of living accommodation and selling up her house, she is faced suddenly with huge service charges and the burden of worry. One resident facing all this said, “We just feel as though they’re waiting for us to die, because we’ve become a nuisance”. Somebody else made the point, “The whole point of selling up and moving into this retirement home was because I didn’t want the burden of worrying about things—and now we spend all of our time checking on our management committee, because they keep ripping us off”. So I think there is something going on.

Retirement properties in Britain are typically made up of individual flats with communal areas and access to emergency health support. They are almost always sold as leaseholds by builders, who then sell the freehold to a management company. Those companies are entitled to charge leaseholders fees for upkeep along with ground rent. They are a novel form of tenure, which I am quite enthusiastic about in some ways, but the system is open to misuse—and, over recent years, there have been a number of scandals, suggesting that we need a close look at this sector. It is taken as a given that retirement homes should be granted exemptions from leasehold reforms in a lot of the discussions, but actually a lot of the problems in this sector are created in exactly the same way as leasehold creates problems.

Newspapers have been full of tales of exploitation of those buying retirement homes. They are sometimes seen as easy targets, perhaps because they are older and suffering bereavement or illness. They certainly see these homes as appropriate for the latter part of their life, and we would be scandalised in any other circumstances if older people were being exploited.

It is shocking to hear of some of the scandals. Exploitative service charges and ground rents feel that much worse when they are imposed on the elderly. Families have reported that their elderly relatives have been persuaded to use solicitors proposed by a housebuilder, rather than an independent one, to advise them on a purchase. There are stories, for example, of a retirement home bought for £197,000 in 2009 from a FTSE 250 company being sold for £26,000 six years later; by the time the flat owner died, she was paying the management company almost £8,000 per year in service fees. There are residents who need to borrow against their new homes to fund further care only to discover that no bank will assist them because their asset is so depleted in value. There is even the story of a resident who was told that she had to pay £300 to put up a satellite dish, in addition to a £95 annual maintenance fee, even though Sky installs the dishes free of charge. We have disdain for the kind of people who knock on elderly people’s doors and rip them off, but this is happening in the housing sector and needs to be looked at.

Such stories are giving the sector a bad name, but it is worth noting that Michael Voges, the chief executive of the Associated Retirement Community Operators, rebutted his own members’ criticism of the media for reporting these scandals, saying:

“Unfortunately, these stories are largely true”.

The situation was summed up in the Times in an editorial in 2019.

“If the measure of a civilised society is the way it treats its vulnerable citizens then our investigation into the experiences of elderly people when they purchase retirement homes from certain developers paints a depressing picture of modern Britain”.

The Times notes that this is not just a rebuke of bad practice by bad apples and so on. It suggests that the Government need to intervene to regulate. My amendment suggests that we do not leave investigations up to the media, but that we actually commission a detailed analysis and, rather than simply revealing scandals, we look at the systemic problems associated with leasehold and this specific part of the housing sector.

The Government are already involved in one way, because the noble Lord, Lord Best, has done invaluable work in the past drawing attention to the problem of retirement homes sold as shared ownership—specifically, how private sector developers have received billions in taxpayer grants via Homes England towards the cost of building new retirement flats. There have been some egregious abuses in terms of blocking staircasing and so on.

I assume that the Government, like many of us, are broadly enthusiastic about specifically built retirement homes. These retirement homes, on paper at least, are an ideal situation to downsizing, allowing valuable housing stock to be freed up for new generations, and to allow people as they get older to have access to a new community and support, while retaining independence and autonomy. At present, including social housing, the retirement sector is around 300,000 units.

As far as I can tell, everyone wants the sector to expand, because living in retirement housing is potentially an excellent option for many older people. That is why tackling problems should be a priority for us. We know there is a problem, as only 2% of the over 65s live in designated retirement properties in the UK, compared with 12% in the US and in Australasia. This figure was noted in an article in This is Money titled “Retirement home scandal that wipes out life savings”—surely a clue as to the barrier to the growth of the sector. Indeed, as ARCO concluded:

“Reputationally, our members recognise that this sector can never grow if we can’t offer the customer a product that they can really trust”.

A YouGov poll recently revealed that one of the main impediments for the elderly in terms of buying designated retirement housing is a lack of control over ongoing costs, such as uncapped service charges, and a fear of sudden unavoidable capital expenditure demands—such as our old friend major works, which I mentioned earlier, recouped from leaseholders. Michael Voges from ARCO explained:

“They want control over these costs, that they are not going to be hit by things like expensive new electronic phones, new roof or whatever. … people do not want to take on that risk … the leasehold system does not provide what older people really want, which is control over ongoing costs”.

I think an increasingly important barrier is the fear of causing problems in the future for their families too. Bear in mind that many choose retirement homes precisely because they do not want to be a burden on their offspring. How depressing if that very decision causes problems for their children after their death. One son dealt with his father’s flat, which was bought for £163,000 in 2007. He started trying to sell it in 2015 after his dad died, and it took five years to sell. Buyers were put off by the extortionate and rising service charges and it eventually sold for only £30,000. What is more, during those frustrating five years, the son had to pay the climbing service fees of £560 a month, while still paying his own mortgage. He commented bitterly about the irony of his father putting his life savings into a retirement home, only for it to become a huge financial millstone around his son’s neck.

I want to note that I do not want to be prescriptive about the conclusion of the review in this amendment. I am happy to see what we come up with, and there are lots of positive ideas flowing from the sector itself. There are solutions to this. The LKP and have been campaigning for an improved retirement housing sector since 2012. The Associated Retirement Community Operators is also brimming full of innovative solutions. That is what this review should look at, rather than just the problems. I think that we can find a way of solving this. I like the intergenerational idea of students living with older people; I like many of the suggestions. I certainly think that we should look at a particular piece of legislation on this. Whichever way we go, there are lots of ideas.

This review will be a good positive start to identifying both the problems and how to resolve them. The main thing is that older people are being ripped off, and we are not able to develop a potentially lucrative housing sector because of our friend leasehold once more. Let us sort it out, do a review and see if we can come up with something better.

My Lords, I support Amendment 85 in the name of the noble Baroness, Lady Fox. This amendment calls for a government review of the retirement leasehold sector, covering a range of issues of special relevance to elderly and vulnerable leaseholders.

It is possible that some of the questions raised in this amendment will be covered by the forthcoming report from the Older People’s Housing Taskforce referenced in the amendment. This report is expected to be published in the summer, but I understand that it will be ready for Ministers to consider in the next few days. This government-initiated report, which fulfilled a promise to the All-Party Parliamentary Group on Housing and Care for Older People, which I co-chair with Peter Aldous MP, may answer some of the questions implicit in the noble Baroness’s amendment.

The amendment enables us to put on record the need for special support for leasehold housing designed and managed exclusively for older people. For example, I am hoping to see a recommendation in the task force report to tighten up on consumer protection for older people’s shared ownership leasehold schemes. Our APPG has heard horrifying stories of leaseholders, and their heirs and successors, finding themselves trapped into liability for fees and charges that make sales of the property impossible.

It would also be good to hear this evening of any news the Minister can bring us on implementing the recommendations of the Law Commission’s 2017 report Event Fees in Retirement Properties, aimed at developers which have been less than transparent in informing leaseholders of the exorbitant charges for which they would be liable.

A number of the issues highlighted by the amendment could be addressed by my later amendment on the regulation of property agents. The need for a regulator is of particular relevance to leasehold schemes for older people, who may be especially vulnerable to bad behaviour and incompetence of property agents. For all existing leaseholders, creating a properly regulated managing agent sector would weed out cases of poor conduct and ineptitude. The list of factors within Amendment 85, listing possible harms for older leaseholders, provides a helpful checklist for the issues which should be covered by a new regulator.

Meanwhile, those working in this field see a need to go further than the establishment of a regulator of property agents. ARCO—the Associated Retirement Community Operators organisation—which we heard about earlier, points to the different legislative structures in other countries. A Bill to switch future schemes from leasehold to what might be termed commonhold plus would enable new models of retirement housing to flourish; for example, there is a system of licences to occupy that has worked well in New Zealand, Australia and several US states. Indeed, an arrangement of this kind has worked extremely well for the retirement village in York created 25 years ago by the Joseph Rowntree Foundation, for which I had some responsibility.

After the Retirement Villages Act in New Zealand, which heralded a new framework for older people’s housing and care, production rose threefold, achieving all the well-known benefits from encouraging rightsizing: bringing previously underoccupied family homes into use for the next generation and providing an environment for older people that is sociable, affordable, safe and secure. Similar legislation in this country could achieve comparable results.

Sadly, at present, progress towards a major expansion of older people’s housing, preferably with care services on tap, is moving very slowly in the UK. Potential demand is estimated by Professor Les Mayhew at up to 50,000 homes per annum; but actual output is around 7,000 homes this year. The Older People’s Housing Taskforce should raise the profile of the relevant issues, and the review recommended in the amendment of the noble Baroness, Lady Fox, would take the matter forward. It would be great to hear from the Minister that, in the context of this Bill, elderly leaseholders can expect positive and specific changes for the better in the months ahead.

In the interests of time, I shall be very brief. I agree with much that has been said by the noble Baroness, Lady Fox, and, of course, by the noble Lord, Lord Best, who has, as always, put his finger right on the key issues with his considerable expertise. We look forward to the task force report he mentioned. Successive Governments have, quite rightly, promoted downsizing: the freeing up of a house for families who desperately need a larger family property. However, we have not done anything like enough to investigate the state of retirement housing in this country and certainly not yet got policies right.

Many of the problems in the retirement housing sector have already been mentioned: high service charges and management fees actually hit elderly residents hardest. They are also suffering withdrawal or reduction of the in-house resident manager, who is frequently now off-site. Their property is more difficult to sell because prospective buyers are obviously a smaller target group, but mainly because of the so-called exit fees or event fees charged when the house is sold. So people can find themselves in a position where a retiree’s heirs are locked in to paying for the flat years after their parent has died, because they simply cannot sell it. Ultimately, all this is related to the iniquities of leasehold tenure, which should and must be abolished.

My Lords, I agree with the noble Baroness, Lady Thornhill, that this will not finally be resolved until we get rid of this leasehold regime. Some of the most heart-rending cases I dealt with as a councillor were from older leaseholders, often on fixed incomes and subject to the most extraordinary hikes in service charges, ground rents and all sorts of other charges that were imposed on them. I have cited cases in previous debates in your Lordships’ House. The experience of the 90 year-old cited by my noble friend Lord Khan earlier today was from Hitchin in my local area.

Surely these practices, difficult enough to deal with at any age, when imposed on the elderly, who should be treated with the greatest dignity and respect, are really shocking. The fact that this financial stranglehold is placed on older people by the very specialist providers which market themselves as contributing to the security and safety of older residents is totally unacceptable. I hope the extent of this can be explored in detail, either through a commission such as the noble Baroness, Lady Fox, is proposing, or by an alternative route. It is way past time that this legalised preying on older and vulnerable residents was brought to an end once and for all, and I hope that the Older People’s Housing Taskforce report will be taken with the utmost seriousness. Retirement housing needs to benefit from our attention and from the sharing of international best practice referred to by the noble Lord, Lord Best.

My Lords, I thank the noble Baroness, Lady Fox of Buckley, for her Amendment 85, which seeks to commit a Minister of the Crown to publishing a report assessing the state of the UK’s retirement leasehold sector within one year of the passing of this Act.

The Government recognise that leaseholders make up a significant proportion of the retirement sector, and are committed to ensuring that older people have access to the right homes in the right places to suit their needs. That is why the independent Older People’s Housing Taskforce was established in May 2023. The task force has been asked to look at the current supply of older people’s housing, to examine enablers to increase supply and to improve housing options for older people later in life. The task force has been commissioned to run for up to 12 months, and over this period has undertaken extensive engagement with stakeholders and gathered a great deal of evidence to inform its thinking and recommendations. The task force, as we have heard, will make final recommendations to Ministers this summer. I say to noble Lords who say we already have the review that I am not aware of that.

In addition, the Government have previously agreed to implement the majority of the recommendations in the Law Commission’s leasehold retirement event fees report. This includes approving a code of practice as soon as parliamentary time allows, to make event fees fairer and more transparent. The code will set out that these fees should not be charged unexpectedly, and developers and estate agents should make all such fees clear to people before they buy, so that prospective buyers can make an informed decision before forming a financial or emotional attachment to a property.

More widely, the Bill already introduces many elements that will help leaseholders, including those who live in retirement properties. As we move forward, the Government will continue to be mindful of the needs of leaseholders in retirement properties. The Government’s aim is to make sure that older people can live in the homes that suit their needs, help them live healthier lives for longer and, crucially, preserve their independence and their connections to the communities and places they hold dear. To reiterate, we have committed to making event fees fairer and more transparent and will bring forward legislation as soon as parliamentary time allows. With these reassurances in mind, I hope the noble Baroness, Lady Fox, will agree with me that this proposed new clause is no longer necessary, and I ask that the amendment be withdrawn.

Briefly, I thank those who have spoken, as it is the last group of the day. The noble Baroness, Lady Thornhill, has made some excellent contributions throughout, but really summed up why I tabled this amendment in the first place. The noble Baroness, Lady Taylor of Stevenage, has obviously been reflecting on this issue too, as has the Minister. Particular thanks go to the noble Lord, Lord Best, who made the speech I wish I had made and obviously understands the issue in far greater depth than I do: I appreciate it. I hope that, none the less, the amendment has been useful in raising the profile of the issue.

I want to clarify one other thing. There is always a danger when we talk about the elderly as vulnerable people who might be preyed upon. We here are in a situation in which we might notice that people who are older can be the most ferocious and active, and not remotely vulnerable. In the film from the Free Leaseholders I was talking about, it was more that the elderly people interviewed said they had made a decision to be less active in fighting for their rights and maybe relax a bit and go into a lovely flat. They then found themselves in a situation where they had to become civil liberties fighters all over again, or lawyers or whatever, and that took up all their time and drained them. I do not want to want in any way to sound patronising. I want the sector to grow, but I do not think it will with leasehold. I beg leave to withdraw my amendment.

Amendment 85 withdrawn.

Clauses 70 and 71 agreed.

Clause 72: Limitation of estate management charges: reasonableness

Amendment 86 and 87 not moved.

Clause 72 agreed.

Clauses 73 to 75 agreed.

Amendments 87A and 87B not moved.

Clause 76 agreed.

Clause 77: Annual reports

Amendments 88 and 89

Moved by

88: Clause 77, page 97, line 6, leave out “provides” and insert “carries out”

Member's explanatory statement

This amendment would align the terminology used with terminology used elsewhere in Part 5.

89: Clause 77, page 97, line 8, leave out “provided” and insert “carried out”

Member's explanatory statement

This amendment would align the terminology used with terminology used elsewhere in Part 5.

Amendments 88 and 89 agreed.

Clause 77, as amended, agreed.

Clauses 78 to 80 agreed.

Clause 81: Meaning of “administration charge”

Amendment 90

Moved by

90: Clause 81, page 100, line 25, at end insert—

“(1A) But “administration charge” does not include an amount payable by a tenant of a dwelling in a case where all of the following conditions are met—(a) the tenant’s lease specifies that only a person who has attained a minimum age may occupy the dwelling;(b) the amount is payable under a term of the tenant’s lease or is otherwise payable in connection with the tenant’s lease;(c) the amount is payable if—(i) the tenant’s lease is granted, assigned or terminated,(ii) a lease of the dwelling which is inferior to the tenant’s lease is granted, assigned or terminated, or(iii) there is a change in the person or persons occupying the dwelling; (d) the amount is fixed or is calculated by a method determinable in advance;(e) any other conditions specified in regulations made by the appropriate authority.”Member's explanatory statement

This amendment would provide for “administration charge” in clause 81 to exclude “event fees” (which will generally be “fixed” service charges subject to the provisions regulating those charges inserted by Part 4).

Amendment 90 agreed.

Clause 81, as amended, agreed.

Clauses 82 to 95 agreed.

Amendment 91 not moved.

House resumed.