Wednesday 1st May 2024
(2 weeks, 2 days ago)
Lords ChamberLeasehold and Freehold Reform Bill 2023-24 View all Leasehold and Freehold Reform Bill 2023-24 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 50-IV Fourth marshalled list for Committee - (30 Apr 2024)
Lord Khan of Burnley
“Requirement to establish and operate a management company under leaseholder control(1) The Secretary of State may by regulations make provision—(a) requiring any long lease of a dwelling to include a residents management company (“RMC”) as a party to that lease, and(b) for that company to discharge under the long lease such management functions as may be prescribed by the regulations.(2) Regulations under subsection (1) must provide—(a) for the RMC to be a company limited by share (with each share to have a value not to exceed £1), and(b) for such shares to be allocated (for no consideration) to the leaseholder of the dwelling for the time being.(3) Regulations under subsection (1) must prescribe the content and form of the articles of association of an RMC.(4) The content and form of articles prescribed in accordance with subsection (3) have effect in relation to an RMC whether or not such articles are adopted by the company.(5) A provision of the articles of an RMC has no effect to the extent that it is inconsistent with the content or form of articles prescribed in accordance with subsection (3).(6) Section 20 of the Companies Act 2006 (default application of model articles) does not apply to an RMC.(7) The Secretary of State may by regulations make such provision as the Secretary of State sees fit for the enforcement of regulations made under subsection (1), and such provision may (among other things) include provision—(a) conferring power on the First-Tier Tribunal to order that leases be varied to give effect to this section;(b) providing for terms to be implied into leases without the need for any order of any court or tribunal.(8) The Secretary of State may by regulations prescribe descriptions of buildings in respect of which regulations may be made under subsection (1).(9) In this section—“dwelling” means a building or part of a building occupied or intended to be occupied as a separate dwelling, together with any yard, garden, or outhouses and appurtenances belonging to it or usually enjoyed with it;“long lease” has the meaning given by sections 76 and 77 of the Commonhold and Leasehold Reform Act 2002;“management function” has the meaning given by section 96(5) of the Commonhold and Leasehold Reform Act 2002.(10) The Secretary of State may by regulations amend the definition of “management function” for the purposes of this section.”Member's explanatory statement
This new Clause would ensure that leases on new flats include a requirement to establish and operate a residents’ management company responsible for all service charge matters, with each leaseholder given a share.
Lord Khan of Burnley (Lab)
My Lords, I will speak to Amendment 92 on behalf of my noble friend Lady Taylor of Stevenage. This new clause would ensure that leases on new flats included a requirement to establish and operate a residents’ management company responsible for all service charge matters, with each leaseholder given a share. The amendment has dual purposes. It would remedy two significant current flaws in the leasehold system that the Bill does not address, and it would provide a step forward to commonhold, without doing so in a piecemeal way.
I turn to the current flaws. First, unless leaseholders in blocks of flats acquire the right to manage, collectively enfranchise and then establish a residents’ management company, or buy a property in a development where a residents’ management company has already been set up, they have no control whatever over how their money is spent. This is despite having to pay all the costs to maintain and manage their buildings. Secondly, the rights that leaseholders do have to exercise control over how their buildings are managed—whether through a tribunal, the appointment of a manager or the right to manage—are locked behind difficult and often costly legal processes to which many will not have access.
Our amendment would address both these problems by requiring that when a new residential block of flats was constructed and its units sold the development should be a three-way lease between the freeholder, the leaseholder and the new residents’ management company. Each leaseholder in the block would then own a share of the residents’ management company, and it would be under their exclusive control, giving them full responsibility for services, repairs, maintenance, improvements, insurance and the cost of managing their building. This would give them control over how their money was spent. This ability to influence the management of their building would come at no additional cost.
The Minister will no doubt say that our amendment leaves no space either for limited cases in which a mandatory residents’ management company is not appropriate or where leaseholders simply do not want this responsibility. The Government have said many times that they are keen to give more home owners control over the management of their buildings, and we welcome that the Bill is moving in the right direction. Would it not make sense to have leaseholder management of their buildings to be the default?
Where mandatory residents’ management companies are not appropriate, could the Government not put forward such cases to be incorporated as exceptions? In the case of leaseholders not wanting to be compelled to manage their buildings, could there not be a provision for leaseholders to use the power of the management company to appoint a manager or simply return management to the freeholder? I would be keen to hear the Minister’s thoughts on these alternative options.
The real importance of this clause, however, comes from it being a key way of laying the groundwork for a future where commonhold is the default and leasehold becomes obsolete. It would help to create a cohort of leaseholders who have experience in running their buildings, as they would under a commonhold arrangement, even if that experience is limited both in time and the extent to which they have carried it out.
This is certainly not a perfect solution. It would do little for leaseholders who have already purchased their flats and do not currently have a residents’ management company. We need other solutions, building on measures already in the Bill to address the challenges they will continue to face. I look forward to the Minister’s response and beg to move Amendment 92.
Baroness Thornhill (LD)
My Lords, I support Amendment 92 in the name of the noble Baroness, Lady Taylor of Stevenage, and explained so well by the noble Lord, Lord Khan of Burnley. The right to manage was first introduced in the leasehold reform Act of 2002. From the start, it was, as the noble Lord said, intended as a simple and cost-effective alternative to collective enfranchisement, but, despite the happy intentions of that Act, the reality was quite different. Take-up has not been what we would all have hoped for or expected, because the right to manage has proved incredibly problematic in practice.
These problems culminated in the Law Commission’s final report in 2020—time has marched on—on exercising the right to manage. It summarises the difficulties as follows:
“The ‘simple’ RTM process envisaged in the original consultation which led to the 2002 Act has not come to pass. The requirement for strict compliance with the statutory procedures, such as the service of certain notices on particular parties, can be unforgiving to leaseholders. In many cases, small mistakes made by the RTM company have afforded landlords opportunities to frustrate or delay otherwise valid claims. The Court of Appeal has noted that while the procedures ‘should be as simple as possible to reduce the potential for challenges by an obstructive landlord’, in fact they ‘contain traps for the unwary’”.
This is not a good advert for anyone seeking to exercise the right to manage, which we believe is fundamental to the change we need. The Law Commission subsequently made 101 recommendations, of which the then Government adopted two.
Whole swathes of actions could be happening to make this process simpler and to encourage residents to take this up. We have no doubt that the process is not an easy one and that the provisions in the Bill as it stands are actually quite limited. The uplift from 25% to 50% is welcome, as are the beneficial changes in cost provision, and minor changes to courts and tribunals. They are all positive but underwhelming—a far cry from the 101 recommendations.
In debates throughout the course of the Bill we have heard numerous instances of excessive charges and unfair practices, from both Houses. The Law Commission summed it up best when it said that
“the landlord and leaseholder have opposing financial interests—generally speaking, any financial gain for the landlord will be at the expense of the leaseholder, and vice versa …Their interests are diametrically opposed, and consensus will be impossible to achieve”.
This amendment is quite realistic: it is starting only with new build, but what it does is symbolic, in that it draws a line under the past and clearly points the way forward. Noble Lords will notice that I am not wearing rose-coloured spectacles, and we are not saying that the residents’ right to manage will be any easier—but it will be fairer. Those paying the bills control the bills and can remove any poorly performing providers. We believe that a leaseholder-controlled resident management company with an elected board, accountable to all leaseholders, is a far more democratic arrangement than one middleman freeholder controlling block management, spending leaseholders’ money freely and not involving them in the decision-making processes. It is fundamentally a better way to go, and there seems to be widespread support for it.
We support this amendment because we believe that it is a step in the right direction and could reinvigorate right to manage with the right support. It seems that the Government are finding reasons not to do something instead of working to enable something better to happen.
Lord Gascoigne (Con)
My Lords, I thank the noble Lord, Lord Khan of Burnley, for speaking to Amendment 92 in the name of the noble Baroness, Lady Taylor of Stevenage, and I am grateful for both contributions in this brief discussion.
The amendment seeks to require the establishment of leaseholder-owned management companies for all leasehold flats. I understand the intention to ensure that, by default, all leaseholders of new flats would be responsible for the management of their buildings. The Government support the desire to give more home owners control over the management of their buildings. This Bill is intended to do just that, and will make it cheaper and easier for more leaseholders to own and manage their homes should they wish to.
In some cases, developers have voluntarily set up residents’ management companies to transfer management responsibility to leaseholders. We welcome this, and encourage the industry to adopt this model where appropriate. However, we believe that the best way in which to achieve resident-led management for new buildings is not for government to mandate change to leasehold but to reinvigorate and improve the uptake of commonhold. Commonhold does not require involvement from a third party.
We will reinvigorate commonhold so that it is a genuine alternative to leasehold for new flats. However, there are limitations in the current legal design of commonhold which can limit its use in some settings. We must get any changes right, and preparing the market for the widespread uptake of commonhold will take time. Existing leaseholders can already use the right to manage to take over management responsibility for their building. This is an established, no-fault right that allows leaseholders to take over management responsibility when a majority of leaseholders wish to do so.
There are some situations where the right to manage is not available because leaseholder-led management is not considered appropriate—for example, in largely commercial buildings or where there are social tenants. We believe that it would not be appropriate to apply a blanket provision requiring residents’ management companies for all new buildings without considering where equivalent protections should apply.
Further practical challenges include determining at what point during development and the sale of units management responsibility would be transferred; what position the freeholder would have in the management company if they retained non-residential units or those on short leases; and what protections would be required should leaseholders not wish to take up management responsibilities. Answering these questions would require significant additional consideration—consideration that is ultimately unnecessary because a reinvigorated commonhold is the answer for new buildings, and the right to manage for existing leaseholders makes sure that home owners can already control the management of their building.
Lord Khan of Burnley (Lab)
My Lords, I thank the Minister for his response, although it does not satisfy exactly the issues that we have raised. I thank the noble Baroness, Lady Thornhill, for saying that this
“draws a line under the past”
and is a
“step in the right direction”.
It is a fairer process when those who are paying the bills have control of the bills.
We would not need this amendment if the Government had followed the Law Commission recommendations to move to a commonhold system now. This is a missed opportunity. That is why we have argued that this is a limited Bill. I wish that the noble and Lancastrian Lord had gone for the Lancastrian approach and been absolutely candid and answered the questions. In the meantime, I accept his reasoning and beg leave to withdraw the amendment.
The Earl of Lytton
“SCHEDULEBUILDING SAFETY REMEDIATION SCHEMEDuty to establish the scheme
1 (1) The Secretary of State must establish, or make arrangements for the establishment of, a Building Safety Remediation Scheme (“the BSRS”).(2) The purpose of the BSRS must be to ensure that residential blocks of flats with building safety risks are made safe, mortgageable and insurable at no cost to leaseholders or landlords. (3) For the purposes of this Schedule “building safety remediation principle” is the principle that—(a) so far as reasonably practicable, remediation costs for relevant buildings with building safety risks arising from defective construction or additional building work should be met by the developer, the principal contractor or both, and(b) where that is not reasonably practicable, or where building safety risks do not arise from defective construction or additional building work, costs should be met by the building industry.Scope of the scheme
2 The BSRS must be framed so as to apply to relevant buildings which—(a) were constructed, or subject to additional building work, on or after 1 June 1992, and(b) present building safety risks.Operation of the scheme
3 (1) The BSRS must provide for persons (including freeholders and leaseholders) to apply—(a) for a building to be recognised as a relevant building, and(b) for a relevant building to be recognised as eligible for grants in respect of the cost of remediation works.(2) The BSRS must provide—(a) for the appointment of persons (“BSRS adjudicators”) with appropriate expertise to determine, on behalf of the Secretary of State, applications under sub-paragraph (1)(a) and (b), and(b) for BSRS adjudicators to be required to exercise operational independence in making determinations under the scheme.(3) For the purposes of sub-paragraph (2), the BSRS may provide for appointments to be made by the Secretary of State or by one or more persons designated for that purpose by the Secretary of State under the scheme.(4) The BSRS must provide that determinations of BSRS adjudicators in respect of building eligibility for the scheme under paragraph 4 are final (but nothing in this sub-paragraph prevents the exercise by the High Court of its judicial review jurisdiction).Scheme supplementary regulations
4 (1) The Secretary of State must make regulations (“scheme supplementary regulations”) in respect of the BSRS.(2) Scheme supplementary regulations, in particular—(a) may make provision for determining what is to be, or not to be, treated as a relevant building for the purposes of the scheme;(b) may make provision for determining the date on which buildings were constructed or subject to additional building work;(c) may make provision for determining who is entitled to make an application under the scheme in respect of a relevant building;(d) may specify criteria to be applied by BSRS adjudicators in determining whether a relevant building presents building safety risks as a result of defective construction (and the criteria may, in particular, make provision wholly or partly by reference to building regulations or other enactments in force at the time of construction or by reference to specified classes of document);(e) may make provision permitting or requiring BSRS adjudicators to conduct tests, and requiring owners and occupiers of relevant buildings to cooperate with BSRS adjudicators in conducting tests; (f) may make provision permitting BSRS adjudicators to require local authorities or other specified classes of person to provide information or documents, and requiring persons to comply with any requirements imposed;(g) may make provision about the timing of applications and determinations;(h) may make provision about evidence to be adduced in support of an application;(i) may require or permit BSRS adjudicators to operate a rebuttable presumption of defective construction where specified classes of fact have been proved (for which purpose the regulations may make provision similar to, or applying with or without modification, any enactment);(j) may make provision about the making, processing and determination of applications under the scheme;(k) may make provision about the giving of notice to developers and others;(l) may make provision about the payment of awards;(m) may make provision about monitoring expenditure on remediation works;(n) may set a threshold for the estimated or quoted cost of remediation works below which an application for recognition cannot be made;(o) may make provision for determining, having regard in particular to the need for proportionality, the nature and extent of remediation costs which may be funded by the scheme (for which purpose “remediation costs” means any class of expenditure related to building safety risks, including, in particular, repair costs, the costs of interim mitigation or safety measures and reimbursement of or compensation for increases in insurance premiums);(p) may make provision for account to be taken of grants provided in respect of remediation works by any other scheme established by enactment or by a public authority;(q) may make provision for financial assistance provided by any other scheme established by enactment or by a public authority to be repaid out of grants under the remediation scheme;(r) may permit or require the amalgamation of multiple applications in respect of one relevant building, or of applications on behalf of the residents of one or more relevant buildings;(s) may permit or require representative applications on behalf of the residents of one or more relevant buildings;(t) may make provision about the qualifications, appointment, remuneration and conduct of BSRS adjudicators, and the regulations may, in particular—(i) provide for adjudicators to be remunerated from BSRS funds;(ii) provide for indemnities in respect of decisions taken by adjudicators (for which purpose the regulations may apply an enactment (with or without modification));(u) must include provision requiring the maintenance and publication of records of applications and determinations under the BSRS;(v) must confer a right to appeal to the First-tier Tribunal in respect of determinations as to whether a building safety risk arose from defective construction or additional building work.Scheme funding regulations
5 (1) The Secretary of State must make regulations about the funding of the BSRS and of grants made under it (“scheme funding regulations”).and of grants made under it (“scheme funding regulations”). (2) Scheme funding regulations must aim to apply the building safety remediation principle so far as practicable.(3) For that purpose, scheme funding regulations must aim to ensure that a grant awarded under the BSRS is funded—(a) so far as possible where building safety risks arise from defective construction or additional building work, by the developer or principal contractor of the building in respect of which the grant is awarded, and(b) failing that (whether by reason of the dissolution of a developer or principal contractor, insolvency or otherwise), or where building safety risks do not arise from defective construction or additional building work, by money paid into a fund maintained through a levy on the building industry in general, or specified parts of the building industry.(4) For the purposes of achieving the objective in sub-paragraph (3)(a)—(a) the reference to the developer of a building includes a reference to any person who arranged for its construction or additional building work and for the sale of units in the building;(b) the reference to the principal contractor is a reference to the person who was responsible to the developer for the construction of a building or undertaking additional building work;(c) scheme funding regulations must permit a BSRS adjudicator to provide for an award under the scheme to be paid by one or more persons specified by the adjudicator (and awards may, in particular, provide for joint and several liability);(d) scheme funding regulations must confer a right to appeal to the First-tier Tribunal;(e) scheme funding regulations may include provision permitting a BSRS adjudicator to permit or require an award for payment by a specified person to be satisfied wholly or partly by a person connected to that person (within the meaning of the regulations, for which purpose the regulations may apply, with or without modification, section 121 of the Building Safety Act 2022 and any enactment relating to joint ventures);(f) scheme funding regulations may include provision about enforcement of liability to satisfy awards, which may, in particular—(i) provide for collection of awards as a statutory debt,(ii) include provision for interest or penalties,(iii) provide for liability to make payments pending appeal or review, and(iv) create criminal offences in connection with evasion.(5) For the purposes of achieving the objective in sub-paragraph (3)(b), scheme funding regulations—(a) must establish one or more levies to be paid by specified businesses or classes of business;(b) must make provision for determining liability to pay the levy;(c) may confer functions on BSRS adjudicators or other specified persons (which may include the Secretary of State) in respect of determination of liability to pay the levy;(d) must confer on a person determined to be liable to pay the levy the right to appeal to the First-tier Tribunal;(e) may provide for different amounts of levy to be paid by different classes of person;(f) may provide for the levy to be paid by way of one-off payments, periodic payments or both; (g) may include provision about enforcement of liability to pay the levy (which may, in particular, provide for collection of the levy as a statutory debt, include provision for interest or penalties and create criminal offences in connection with evasion);(h) must include provision about the administration of the levy by the Secretary of State, including provision as to the maintenance and publication of estimates, accounts and other records;(i) may include supplemental provision about the levy.(6) In making regulations under sub-paragraph (5), and in particular in assessing the proportionality and other fairness of any levy imposed by regulations under sub-paragraph (5), the Secretary of State must—(a) have regard to any other levy or similar imposition that appears to have a similar purpose as a levy under the scheme funding regulations, and(b) must consult persons appearing to him or her to represent the interests of persons affected by other relevant levies and impositions.(7) Scheme funding regulations may include provision about—(a) application of awards, levies and grants, including provision for holding (or return) of surplus funds;(b) the nature and extent of obligations imposed by awards (which may, in particular, provide for payments in money or services or money’s worth);(c) processes and procedures to be applied in determining applications for grants and questions of liability to awards (which may, in particular, include provision for determination wholly, partly, absolutely or contingently by arbitration, mediation or any other kind of process or procedure the Secretary of State thinks appropriate);(d) terms and conditions of awards, levies and grants;(e) appraisals, appeals and enforcement.Apportionment
6 (1) Scheme funding regulations may make provision about apportionment of liability for defective construction.(2) In particular, scheme funding regulations may provide that where a person is required to pay an award under the BSRS, that person may bring proceedings to recover a contribution from one or more persons who share responsibility for the defects in respect of which the award is made.(3) Provision made by virtue of this paragraph may—(a) confer jurisdiction on the First-tier Tribunal or on any other specified court or tribunal;(b) apply (with or without modifications) any enactment about third- party liability.Interim payments
7 (1) The Secretary of State may make interim grants to persons whom the Secretary of State believes are likely to be entitled to benefit from the remediation scheme.(2) Interim grants may be made on such terms and conditions (including as to repayment) as the Secretary of State may specify.(3) Scheme supplementary regulations—(a) may include provision for account to be taken of interim grants under this paragraph, and(b) may include other provision about interim grants under this paragraph (including provision about applications for grants, eligibility for grants and determination of applications for grants). Interpretation
8 For the purposes of this Schedule— “building safety risk” has the meaning given in section 120(5) of the Building Safety Act 2022;“building industry” has the meaning given in section 127(7) of the Building Safety Act 2022;“construction” includes any kind of building work (whether part of the original construction of a building or not) including works of improvement, repair and extension;“class” includes description;“defective construction or other building work” means construction or additional building work that—(a) contravened building regulations or other enactments in force at the time of the construction or additional building work, or(b) satisfies any other criteria specified in the BSRS or in scheme supplementary regulations;“BSRS funding regulations” has the meaning given by paragraph 5;“BSRS scheme” has the meaning given by paragraph 1;“BSRS adjudicator” has the meaning given by paragraph 3;“grant” includes loans and any other form of financial assistance (for which purpose a reference to payment includes a reference to the provision of assistance);“building safety remediation principle” has the meaning given by paragraph 1;“landlord” means means the landlord under the lease or any superior landlord.“remediation costs” has the meaning given by paragraph 4;“relevant building” means a self-contained building, or self-contained part of a building that contains at least two dwellings;“scheme supplementary regulations” has the meaning given by paragraph 4.Consultation
9 Before making the scheme, the scheme supplementary regulations and the scheme funding regulations, the Secretary of State must consult—(a) persons appearing to represent the interests of freeholders, leaseholders or occupiers of blocks of flats with building safety risks;(b) persons appearing to represent the interests of the construction industry and related industries, and(c) such other persons as the Secretary of State thinks appropriate.Regulations
10 (1) Scheme supplementary regulations and scheme funding regulations—(a) may make provision that applies generally or only for specified purposes,(b) may make different provision for different purposes,(c) may confer functions (including discretionary functions) on specified persons or classes of person, and may provide for the Secretary of State to appoint persons to exercise functions under the regulations or the remediation scheme (whether or not on behalf of the Secretary of State), and(d) may include supplemental, consequential or transitional provision.(2) Scheme funding regulations may not be made unless a draft has been laid before, and approved by resolution of, each House of Parliament.(3) Scheme supplementary regulations are subject to annulment in pursuance of a resolution of either House of Parliament.” Member's explanatory statement
This new Schedule would implement a building safety remediation scheme to ensure that buildings with building safety risks are put right without costs to leaseholders.
The Earl of Lytton (CB)
My Lords, in moving Amendment 93B I will also speak to linked Amendment 107 and Amendments 105C to 105G standing in my name. These amendments offer a range of proposals to enhance the protection of leaseholders from the costs of remedying fire protection or other structural defects.
I make no apology for returning, once again, to this matter of basic consumer protection for leaseholders and for going over some old ground. My mailbox tells me that the issues are far from resolved. Too many leaseholders remain seriously encumbered by the defects in the original construction of flats that they occupy or own. The plain truth is that the Building Safety Act—I shall refer to it as the BSA—is not delivering the protection that leaseholders ought to expect as a basic right, and this Bill serves to undermine it further in certain material respects.
There is cross-party consensus that the BSA needs amendment. I pay tribute to colleagues who, with me, continue to press the Government to make changes. I support the other amendments in this group for reasons that will become apparent. The BSA is convoluted. It complicates, excludes, creates uncertainty and risk, and delays remediation. It leaves some leaseholders—and their lenders—with permanently impaired assets. Where before there was one market, the BSA creates three tiers of flat ownership, with such complex rules that conveyancers frequently decline instructions and, increasingly, insurers are unwilling to offer professional indemnity cover to practitioners.
The Government have placed substantial remediation obligations on landlords. The courts should be the last resort, yet the BSA and the Bill force landlords to take legal action as a first resort on initial unfunded remediation and, thereafter, to recover the costs of defects that they did not cause from the developers. Where the developer no longer exists, they must fund it themselves. There is no automatic developer liability to meet any of the costs in the 85% of buildings not covered by the developer contract. There is no legal obligation on any contracting developer to cover non-life-critical fire defects and structural defects. Landlords are the backstop if public funding for cladding costs happens to prove insufficient. Construction inflation, moreover, has risen by a quarter since the announcement of the building safety fund in March 2020, so my first question is: what assurance exists that all eligible claims on the building safety fund and the cladding safety scheme will be met even if they exceed those historic cost budgets?
More broadly, this model seems to be based on little more than political bias and destined to fail, and fail in a way that will ultimately harm leaseholders and the leasehold market. I have questioned previously whether the major landlord groups can afford to fulfil their remediation obligations as demanded. I was therefore surprised to learn that under the Bill, and despite relying on landlords to fund non-cladding remediation works or related legal action, the Government proposed to eliminate or reduce the ground rent income. I was further surprised to learn from the noble Baroness, Lady Swinburne, in a letter last week, that the Government have no estimates of the risk of freeholder insolvency.
The main asset of many landlord groups is ground rent income, as we have heard before in discussions on the Bill. It is used to repay the long-term bonds or loans over many decades. If the income is removed, some will likely declare insolvency: the Government acknowledge this risk in their own impact assessment. I mention this again because it is critical to the remediation obligation. So that leaseholders are not left completely exposed if their landlords are insolvent, I trust that the Minister will regard as an essential lifeline my amendments, which are the only ones providing for alternative remediation funding sources. I would like to know what contingency plans the Government have in place apart from this, should buildings with remediation obligations escheat to the Crown, an eventuality the Minister alluded to on Monday.
Valuers are already marking down portfolio valuations because of material uncertainty. Permanent impairment of leaseholder and lender assets is also risked under the Government’s model. Basel III pillar 1 standards come into force next year. Lenders will have to revalue a loan if an
“event occurs resulting in a permanent reduction of the property value”.
Leaseholders will also be hit by these provisions; specifically the unprotected and partially protected—that is, the capped liability leaseholders—and those leaseholds covered by the developer contract. The contract allows combustible materials, now banned, to remain on buildings so long as they do not cause that “life-critical fire safety risk”. I put that in quotes: it is a non-statutory definition and my Question for Written Answer on this still awaits a response. But leaving these in place gives rise to a B1 category of building risk rather than the fully remediated A1 classification. At the same time, these flaws are evident to the market, which values an asset not according to life safety but according to the risk of material loss. The result is permanently higher insurance premiums. Ministers may wag the finger at the FCA in relation to its insurer members but, in truth, the market has spoken on the BSA and on building and professional indemnity cover risks, and no amount of political manipulation is going to alter that.
There is one group that faces a very bleak outcome, unless the Government change course, and that is in enfranchised leaseholders. Theirs are, in the terms of the BSA, “not relevant buildings”, a point that the noble Lord, Lord Young, makes in his amendments. The limit of any new protection afforded to resident management companies is the cost of obtaining a remediation contribution order, so can the Minister explain how enfranchised leaseholders will deal with non-cladding defects or effectively force the original developer to make a contribution, especially if it happens not to exist any longer?
Better policy is clearly needed. Simply, the BSA should be amended to protect all leaseholders, regardless of circumstances, in buildings of all heights. A separate, dedicated funding stream is needed so that leaseholders are not left in limbo, particularly when their landlord becomes insolvent.
The Committee will be familiar with Amendments 93B and 107 from the debates on the levelling-up Bill and the then Building Safety Bill, so I will try not to labour the point too much. Amendment 107 requires the Government to establish a building safety remediation scheme and Amendment 93B proposes a new schedule setting out the scheme’s key features. The scheme would serve to protect all leaseholders, without exclusion, from building safety remediation and interim safety costs. As drafted, it is fully funded.
Joint and several liability for remediating building safety defects is placed on the developer and principal contractor where a building did not comply with regulations at the time of construction. If neither can pay, or if the regulations have moved on and a building is retrospectively deemed unsafe, remediation funding comes from a levy across the wider building and materials industry. That approach has been extensively scrutinised by a range of legal and other professionals. In particular, I thank David Sawtell KC, of 39 Essex Chambers, for making himself available when I recently met with the Minister, whom I thank for facilitating the meeting.
I have added a second option for good measure. Amendments 105C to 105G amend certain arrangements already in the BSA. The developer contract limits developer responsibility to undefined “life-critical fire safety defects”. That means that all other defects are excluded. Amendment 105C closes that loophole by requiring developers to remedy all defects defined in the BSA. That brings all fire and structural defects within the scope of the developer contract—and, therefore, the responsible actors scheme—and puts that in line with primary legislation. It ends the arrangement whereby Parliament set in legislation one definition of defects requiring remediation while the Secretary of State entered into some side agreement with the industry for something rather different. At present, the government scheme requires developers only to remediate their own buildings. The Secretary of State has not given effect to Section 126(4)(b) of the BSA on the costs of remediating other buildings. Amendment 105D would put that right by amending the responsible actors scheme regulations.
Amendments 105E and 105F set out to end the three- tier system of leaseholder exclusions from remediation cost protection. Amendment 105E removes the exclusions according to building height and type of lease set out in the BSA. Amendment 105F removes the conditions and exclusions around remediation cost protection in Schedule 8 to the BSA.
The risk of major landlord insolvency is real. Amendment 105G reinstates and expands the original BSA provisions on insolvent landlords. It obliges insolvency practitioners and Law of Property Act receivers to commence or continue remediation work. Remediation costs are to be considered part of their expenses and therefore paid ahead of other creditors. It also reinstates their power to apply for a remediation contribution order, which the Government seek to remove through the Bill. But—this is a very big “but”—insolvency practitioners need secure funding if that is to work.
In closing, I draw attention to the great gulf between the Government’s self-praise about what they are doing—although, to a great degree, there is a lot of good in the Bill—and the reality. That reality is measured in the anguish and distress of hundreds of thousands of leaseholders who bought properties in good faith and now cannot sell them, get mortgages or move on with their lives. It is measured in the 15,000 people evacuated from their homes, as reported three days ago in the Sunday Times and referred to by the noble Baroness, Lady Thornhill, on Monday. It is measured in the 37% defect rate found in developer-contract buildings; in the glacial progress of remediation revealed in the Government’s most recent progress statistics; and in the FCA’s frank warning that insurers price risk not according to the loss of life, as the Government may wish, but according to the stronger test of total loss of asset. It is measured by the fact that this debate continues to play out seven years after the Grenfell fire.
This inequitable scattering of liability across innocent parties begs the question: why do the Government not make the wider construction industry, which designed, built, sold and banked the profits from these defective properties, the primary backstop for the damage done? We do not have an answer to that.
I have provided in these amendments two possible routes to effective protection of leaseholders, the most vulnerable group in this sorry tale of shame. I ask the Minister and noble Lords: if not by these proposals, how? When will the Government act to protect all innocent, home-owning consumers from market failure, and are they content to risk their reputation and legacy on simply making this a problem for the next Government? I beg to move.
Lord Young of Cookham (Con)
My Lords, it is a pleasure to follow the noble Earl, Lord Lytton, who has been at the forefront of the campaign to extend protection to leaseholders since the Building Safety Act was passed. I say at the beginning that I will miss the contributions to our debates from the noble Lord, Lord Stunell, who was a regular contributor to housing debates and spoke with great authority.
This group of amendments is for many leaseholders the most important, and it differs from the rest of the Bill. The rest of the Bill gives rights to leaseholders that they did not have when they bought their lease. This group restores rights that leaseholders thought they had when they bought the lease but have now discovered that they did not. That right was to live in a building that complied with the safety regulations at the time. These leaseholders took all the necessary precautions, employing professional people before buying, but now find that they are faced with unaffordable bills, unsaleable properties and, quite often, repossession. As the noble Earl referred to, the Sunday Times revealed that more than 15,000 residents have been forced to leave homes due to fire or fire safety defects. These decants are on the rise, with residents decanted from 21 buildings last year. Until these injustices are addressed, the Bill, with its new rights, is meaningless to those leaseholders.
I welcome the steps the Government have taken through the Building Safety Act, and I am grateful to my noble friend the Minister for patiently listening to me during our many meetings. But despite the steps forward in recent years, there is still a gap between what the Government promised at the outset and where we are now. I will not repeat the quotes I gave at Second Reading but here is one I did not use, from Michael Gove:
“Most importantly, leaseholders are shouldering a desperately unfair burden. They are blameless, and it is morally wrong that they should be the ones asked to pay the price”.—[Official Report, Commons, 10/1/22; col. 283.]
I will come back in a moment to those who fall outside the protection.
Amendment 102 asks for a progress report. It covers the same ground as my Amendment 101, which was down for Monday but which I was unable to speak to owing to an aggressive Covid jab over the weekend. I am grateful to Giles Grover and the team at End Our Cladding Scandal for their briefing.
According to the department’s own figures on overall remediation, of the 4,329 buildings identified with unsafe cladding, over half had not started remediation at the end of March this year—seven years after Grenfell. Only 23%, 976 buildings, have completed remediation works. Within that overall figure there are 1,501 buildings 11 metres and over in height that have life-critical fire safety defects and where developers have committed to remediate or pay to remediate, but over half have not started remediation. Some 1,001 of the developers’ buildings have not even been assessed.
Looking at the cladding safety scheme, there are now 1,105 buildings within the scheme after the pilot was launched in November 2022. Work has been completed on not one. Work has started on two and the rest are in various stages, the largest number being in “pre-application”. Nor am I reassured by the statement by the department:
“All residential buildings above 11 metres in England have a pathway to fix unsafe cladding, either through a taxpayer-funded scheme or through a developer-funded scheme, protecting leaseholders from these costs”.
Having a pathway is like a traveller having a map. It does not follow that he has begun his journey. Where there is grant funding, the money is not being disbursed at pace. Because of these delays, the department had to surrender nearly a quarter of a billion pounds to the Treasury last year. We need a firm grip and oversight of remediation through the available schemes—which have no visible oversight or co-ordination—and that is what Amendment 102 provides.
The rest of my amendments have broadly the same objective as those tabled by the noble Earl, Lord Lytton, while getting there by a slightly different route. They would ensure that the Building Safety Act operates as intended, as was the Government’s stated objective in the King’s Speech last year. On Amendment 96, on buildings under 11 metres, the department’s view was set out by the Minister, Lee Rowley, on 22 April:
“Of those, we can count on one hand where there has been a problem. We are working with each of those three buildings to make the progress we need to make”.—[Official Report, Commons, 22/4/24; col. 636.]
Those three require full remediation but leaseholders are now reliant on the good will of their developer, without any mechanism in place to compel work to take place to the necessary standard. In Inside Housing on 26 April, it was reported that there are 586 homes under 11 metres in Barnet with defective cladding. One 25% shared owner has a bill of £23,000, and this falls outside the Building Safety Act. The other 75% is owned by a housing association, Notting Hill Genesis, which has said that under the terms of the lease the shared owner is responsible for all remediation costs. Mortgage lending on buildings under 11 metres is still inconsistent. Based on data from four or five mortgage lenders, an EWS1 certificate was deemed to be required for mortgage valuations on approximately 2,000 low-rise flats last year, although the Government have said that it is not necessary.
Insurance in low-rise buildings is another quagmire, with several insurers mandating work as a requirement of providing cover. There are many cases of difficulties with insurance; I cite only one. Aviva was the only insurer that would give cover on one low-rise block, but on the condition that HPL cladding would be removed within an urgent timeframe of four months. The judge at the First-tier Tribunal hearings was satisfied that this was the case, having seen the correspondence. There was no means of funding other than leaseholders. Cladding was removed in 2022 as instructed. It has taken two years to raise funds to replace the cladding, with the replacement due to begin in February 2024. The total cost will be £45,000 per leaseholder.
I remain concerned over resident-owned—or enfranchised —buildings, which were referred to by the noble Earl, Lord Lytton, and are covered by Amendment 99. Last November the department issued a press release confirming that this Bill would
“include measures to amend the Building Safety Act 2022 to make it easier to ensure that those who caused building-safety defects in enfranchised buildings are made to pay”.
Five months later, it remains unclear what measures these will be. Those who were encouraged by the Government to take ownership and control of their buildings remain beset with uncertainty on how and when their homes will be made safe. They do not have the protection afforded to those who did not enfranchise. The same press release also said that the Government would ensure that
“the leaseholder protections are not unfairly weighted against those who own properties jointly”.
This is addressed in Amendment 100. This is known as the marriage penalty, whereby a couple owning four properties together do not have this part-ownership accounted for in the leaseholder protection, despite tax law recognising this pro rata weighting. A call for evidence on this was opened in early April. However, time seems to be running out for the Government’s commitments to be kept in respect of joint-owner leaseholders—unless my noble friend can tell me otherwise.
The Secretary of State has repeatedly expressed his desire to ensure that
“those with the broadest shoulders must pay”,
so Amendment 100 would also help those who invested in buy to let but whose shoulders are not broad. It would ensure that all received protection for the first three flats that they owned, rather than the current cliff edge, and introduce a leaseholder wealth criterion, which is the same basis on which freeholders and developers are tested to assess whether they have the means to pay. The department is well aware of the case of Malcolm in Salford, a leaseholder of a number of properties with a total value below £1 million, who asked the department for help two years ago but has now been forced to enter into bankruptcy. Who will now pay his share of the remediation costs?
Finally, that amendment would end
“the distinction between qualifying and non-qualifying leases once prescribed conditions are met”—
once remediation is complete. This would ensure that the value of flats owned by leaseholders who are still deemed to be non-qualifying would be returned to somewhere near their market value without the severe impairment that non-qualifying leases currently suffer, even where no work is required.
Without this set of amendments, ordinary people across the country will still shoulder a desperately unfair burden, still face financial ruin and still be no closer to moving on with their lives, all at odds with the assurances that Ministers have given. I know my noble friend is sympathetic and I look forward to her reply.
The Lord Bishop of Lincoln
My Lords, I stand to support the amendments in the name of the noble Lord, Lord Young of Cookham. My right reverend friend the Bishop of Manchester has put his name to the amendments and regrets that he cannot be in his place today. As we have heard, the Building Safety Act 2022 contained welcome measures to address historic building safety defects, but the fact remains, as other noble Lords have noted, that it does not go nearly far enough. Seven years on from the Grenfell fire, only 21% of high-rise blocks have been fully remediated—and they are the ones that are eligible; there remain gaps in provision where leaseholders are disqualified for such arbitrary reasons as their block being 10.9 metres tall rather than, say, 11.1. The Act disqualifies huge numbers of people who are now trapped in potentially unsafe flats which they will struggle to sell. They might face very high bills through service charges and insurance premiums.
My right reverend friend’s diocese of Manchester has been identified, as mentioned by the noble Lord, Lord Young, as one of the areas most at risk from inadequate cladding. More than 20 buildings have been identified with ACM cladding in both Manchester and Salford, and in Salford between six and 10 of those are yet to be remediated. The measures are not being implemented fast enough, which is why I also support the amendment from the noble Baroness, Lady Pinnock, which would require a statement to Parliament on progress, because, clearly, more scrutiny is needed. But for those buildings which are ineligible for support entirely, a statement to Parliament does not go far enough. Does the Minister believe that living on the top floor of a block of 11.5 metres is significantly safer than living on the top floor of a block of 11 metres, where both have flammable cladding? Beyond this obvious safety issue, my right reverend friend has received correspondence evidencing the difficulties that some leaseholders face in selling ineligible properties due to the difficulties in obtaining a mortgage on those flats. Will the Minister commit to ending this injustice once and for all?
Lord Rooker (Lab)
My Lords, I support the thrust of the amendments in general. I also much regret the news we had today about the noble Lord, Lord Stunell. The points I am going to raise relate to a previous debate we had on the levelling-up Bill where he followed me and also raised some very practical issues on safety.
I want briefly to follow up the points I raised on 18 September last year during the passage of the levelling-up Bill, at Hansard cols. 1252 to 1255, regarding the issue of electrical safety and what are known as NCDs—neutral current diversions. I have no interest to declare, other than my 60-year membership of the Institution of Engineering and Technology and that I came across this issue via an article in the April 2023 issue of the IET magazine.
Since I raised the issue in September last year, I have been contacted by several electrical engineers. Indeed, I visited one factory involved in preventing neutral current diversions. I will keep the techy bit brief. A neutral current diversion can occur on the network when the combined protective earthing and neutral—PEN—conductor fails. The current is then diverted, making a circuit via exposed metalwork on buildings, including gas, water and oil pipes. This can lead to a significant build-up of heat, because those pipes are not designed to carry electricity, which can lead to fires and gas explosions. These conductors are susceptible to damage, corrosion, and general wear and tear across what is an ageing network. We probably have the second-oldest electrical network in the world—and it will vastly expand due to our net-zero obligations.
Baroness Thornhill (LD)
My Lords, before I get into the detail of these amendments, I will comment on some significant absences from our Benches. First, my noble friend Lady Pinnock is up for re-election tomorrow. She has been a passionate and doughty fighter from the beginning and throughout this tragic journey.
The second absence, as has already been mentioned, is due to the recent shocking death of Lord Stunell. His expertise and attention to detail, often peppered with a gentle sense of humour, were a perfect foil to my noble friend Lady Pinnock: they worked well together. We have missed him significantly during the passage of this Bill; I am truly a poor sub from the bench.
In truth, the significant contributions from the noble Earl, Lord Lytton, and the noble Lord, Lord Young of Cookham, are grounded in solid evidence and reality. We support and endorse them and I have no intention of going anywhere near the detail that they described. I admit openly that I have learned a lot.
All the amendments in this group relate to building safety and to the fallout of the Building Safety Bill and the gaps that were created as a result of it. Noble Lords have outlined them very well and I am certain that the noble Baroness, Lady Taylor, will too.
After the tragic events at Grenfell Tower in 2017, in which 72 people lost their lives, it became clear that millions of leaseholders would need to make their buildings safe and habitable. The campaign group End Our Cladding Scandal—some of its members are here today—estimates that as many as 3 million leaseholders are caught up in the scandal. That is a huge number of families and people and, if you think of the people who they know, care for and love, you will be talking about considerably more.
The Building Safety Act sought to protect leaseholders from the cost of remediating these safety defects but, as has been amplified, the scheme has a glaring issue: a huge number of affected leaseholders are not included. We support the amendments that are clearly designed to widen that pool—if we do not just say “Let’s do the whole caboodle”.
Estimates included in a briefing from the National Residential Landlords Association suggest that there are approximately 1.3 million leaseholders of buildings less than 11 metres in height who are not able to qualify for support. This is in addition to the 400,000 leaseholders in high-rise buildings who are non-qualifying due to other eligibility criteria, such as, as has been mentioned, the enfranchised leaseholders and leaseholders owning more than three flats. On learning about that a little bit more, it seems to me that this is a travesty. As has been stated by others, these leaseholders are facing eye-watering sums and many are living in unsafe buildings that are unmortgageable, uninsurable and unsellable. That they have been abandoned is unconscionable.
Amendments 93B, 96, 97, 99, 100, 105 and 107 seek, in different ways, to expand the number of leaseholders eligible for remediation support. This is the right thing to do. It is also obvious that some small adjustments can be made to make things better for more: for example, simply looking at the wealth—what is known as the affordability test—or the issues of joint ownership.
Amendment 93B, tabled the noble Earl, Lord Lytton, is very clear that only a building remediation scheme will ensure that all buildings with safety defects undergo remediation, irrespective of ownership or building height. We agree with that. Too many people are falling through the gaps that have emerged post the Building Safety Act. Insurance has already been mentioned, so I will not make any more comments on that.
It seems to us that the pragmatic Amendments 96, 97, 99 and 100 from the noble Lord, Lord Young of Cookham, are arguably the neatest way of achieving this aim. They simply amend the Building Safety Act so that these non-qualifying leaseholders are included in the support available to other leaseholders.
Amendment 102, in the name of my noble friend Lady Pinnock, would require the Government to report on progress relating to the building safety remediation. I am sure that she would probably agree with the comments made by the right reverend Prelate. This amendment was drafted in response to concerns raised by End Our Cladding Scandal, namely the speed at which remediation is occurring, alongside the progress in ensuring that leaseholders have access to a robust and independent dispute resolution process, and the fact that not all affected leaseholders are able to access protection.
I note that the Government publish monthly figures relating to the remediation of building safety defects, but there is no clear target for when these works should be completed. It would be appreciated if the Minister could perhaps clarify this. I am reminded of the saying that you do not fatten a pig by simply weighing it. To us, the lack of speed or a plan or any sense of urgency is clearly the impetus behind the amendments from the noble Earl, Lord Lytton. It seems that no one is holding anyone’s feet to the fire.
The Government also promised a robust and independent resolution process that would allow leaseholders to challenge building assessments or remediation. This has arguably not come to pass, with the process being more ad hoc and without sufficient leaseholder representation. It is vital that leaseholders are able to hold developers to account and ensure that remediation is completed safely, in a timely manner and at good value, but they need more government clout.
There was something mentioned only briefly that I would like to expand on a little. It seems to me that developers are getting all the flak. We all agree that lease- holders are blameless, but developers are not the only party to blame. Many of us still need to be brought to the table, preferably with cash, to provide the funding that will fix the problem. I am talking about product manufacturers, architects and designers, contractors, building control, testing houses and insurers. They all have a part to play and they should all play their part.
I suspect that, when the Grenfell Tower Inquiry reports later this year, the role that successive Governments, to be fair, have played will also be unavoidable. We feel that it is time that the Government really stepped up and gripped this problem comprehensively. They are the ringmaster, after all.
Lord Empey (UUP)
I am most grateful to the noble Baroness for giving way. She mentioned a list of people who had a degree of responsibility. One of them, of course, is building control. My experience of building control in local authorities is that they can be extremely pernickety and difficult, and can enforce very high standards. All of us, in our different cities, will have seen examples of absolutely grotesque omissions and failures. But is it not the case that a local authority has a statutory liability, through building control, and that that, in and of itself, could and should be a source of remedy for a person who finds themselves in this position? On top of that, is there not an incentive for a developer, having built a structure and sold on the units, to wind up and move on to a different company to build the next one? We end up with people slipping out of the net entirely.
Baroness Thornhill (LD)
The noble Lord has hit on a point; in some estates, you build one building that might just meet the requirements, and then more and more are built, and it expands the problem. I agree with a lot of what he said. I was trying to point out that we tend to say it is all on the developers, but I think this is a systemic failure of a series of accountable people. That is what I am trying to say.
Ultimately, I am saying that, sadly for democracy, this is yet another state failure—like WASPI, blood contamination and Windrush, to name but a few. The harsh reality is that the impact of this is felt every day by some people, and is growing: when a leaseholder decides that they want to reinsure or somebody decides that they want to sell, suddenly they are faced with, “Wow, I didn’t realise that there was all of this”. Therefore, the number of people affected is actually growing.
I will end on what my noble friend Lady Pinnock always says: leaseholders have done nothing wrong and everything right. Excellent campaigning from groups such as End Our Cladding Scandal and the non-qualifying leaseholders group has helped us achieve the progress we have made on remediation support. We owe it to them to keep pressing the Government on making sure that all leaseholders are protected from the costs of a situation they did absolutely nothing to cause.
Baroness Taylor of Stevenage (Lab)
My Lords, I add my tribute on the sad and sudden passing of Lord Stunell. We worked very closely with him on the levelling-up Bill, and he was such a great asset during the passage of that Bill. Looking at his record over the years, his was a life dedicated to public service, to both national and local government. I hope the noble Baroness will take our condolences back to the Liberal Democrat group, and we will pass them on to his family as well.
The noble Earl, Lord Lytton, is right to call this issue a sorry tale of shame. It is clear from the number of building safety amendments in this group and this Bill, and previously in the levelling-up Bill, that there appears from our debates to be a cross-party consensus from most of us, except the Government Front Bench, of such deep dissatisfaction with building safety in general and the glacial progress on remediation in particular. It was carefully calculated in the recent Times article by Martina Lees, referred to earlier, to show that only 8% of buildings in need have been remedied, not the 21% that the Government claim, and which was mentioned by the right reverend Prelate the Bishop of Lincoln.
As important is the huge number of non-qualifying leaseholders whose dreams of property ownership have turned to nightmares, as the horror of their uncertain financial position, the escalating costs of remediation and the impossibility of selling homes—I have seen evidence of this, as valuers are currently placing values at zero or negative—snatch away their aspirations and leave behind only extreme anxiety. Numbers vary, but the Times estimates the number of affected homes to be up to 1.5 million and, as other noble Lords have said, upwards of 4 million people are affected.
An excellent briefing from the National Residential Landlords Association points out that data remains lacking and estimates that there are approximately 1.3 million leaseholders in buildings less than 11 metres in height and 400,000 leaseholders, referred to by the noble Baroness, Lady Thornhill, in high-rise buildings who are non-qualifying because of other eligibility criteria. Many leaseholders are unaware of their non-qualifying status or are alerted to it only when they receive an invoice for remediation works or attempt to sell their property. It is important to remember that many leaseholders are understandably reluctant to speak out on this issue for fear of further devaluing what they thought was going to be a very valuable property asset.
The scale of this problem is eye-watering. I agree with comments made previously by Members of your Lordships’ House that, unless this is addressed urgently, as more and more leaseholders discover their liability, another enormous injustice scandal will unravel, which will scar whole generations of home owners. The noble Earl, Lord Lytton, referred to the fact that this will escalate over time to the detriment of freeholders and leaseholders, but with the balance of personal financial risk sitting with leaseholders.
The system the Government put in place, which was subject to an update in your Lordships’ House at the end of March, may have made some progress, but as a spokesperson for Grenfell United said:
“Government’s shockingly slow progress towards remediation shows a complete lack of political will to keep people safe in their own homes”.
Giles Grover, of the excellent group End Our Cladding Scandal said:
“The majority of unsafe buildings across the country still don’t have plans in place to fix all issues”.
The 7,283 mid-rise buildings that the Government have estimated to be unsafe are missing from any plan for remediation as they are deemed non-qualifying, and the unbearable pressure of remediation is falling on the ordinary people who make these flats their homes. While the Government have brought forward legislation and statutory instruments to deal with this situation, progress has been slow because issues are being dealt with piecemeal as they arise. Even when legislation has been considered, such as the Building Safety Act 2022, which should have been a comprehensive solution, too often amendments were rejected with serious impacts and consequences for leaseholders only now becoming more apparent.
The noble Earl, Lord Lytton, proposes a comprehensive and detailed framework to encompass the whole situation around building safety remediation that would give more structure to the current piecemeal approach. While I understand that the level of detail that he proposes in this scheme will almost certainly not be greeted by the Minister with the wholehearted approval that it probably deserves, I hope the principle of having such a framework in place and the thorough approach set out by the noble Earl will at least be a matter for reflection and future consideration as the Bill progresses.
Amendments 96 and 97, tabled by the noble Lord, Lord Young of Cookham, his Amendments 99 and 100, to which I have added my name, and Amendments 105E and 105F, tabled by the noble Earl, Lord Lytton, are aimed at ending the iniquitous distinction between qualifying and non-qualifying leaseholders. We cannot simply allow the nightmare that many non-qualifying leaseholders are enduring to continue.
We totally support the aim of Amendment 102, in the name of the noble Baroness, Lady Pinnock, in terms of holding the Government to account for the building safety remediation programme. The reporting mechanisms so far do not appear to have accelerated progress on remediation, although it has to be said that the bringing to justice of some of the worst developer offenders, such as those involved with Vista Tower in Stevenage, is welcome. I hope the Government will accept this amendment and bring regular updates before your Lordships’ House, but it would be even better if there could be target dates for outstanding work to be completed. The fact that remediation has dragged on for so many years is a cause of great frustration, anxiety and financial hardship to those affected. Do the Government have a view about a projected end date for these works to be completed? A deadline, even if it is not met by everyone involved, is great for concentrating the minds of those involved in remediation.
In response to the points made by the noble Baroness, Lady Thornhill, and the noble Lord, Lord Empey, I agree with the noble Baroness that it is not just developers who are responsible for this issue. But a big problem here has been the deregulation of the building control function, taking it away from local authorities and allowing developers to pick and choose who their building control inspectors will be. That has been greatly responsible for some of these issues.
Our Amendment 105 is simple and straightforward in its aim. It would bring the beleaguered non-qualified leaseholders, who are in desperate need of remedies for their building defects, within the remit of the Building Safety Act 2022. Surely, if we are concerned about ensuring that people feel safe and are safe in their homes, we can all support that. It remains our position that it should not be the responsibility of leaseholders to suffer the financial consequences of defective building. Amendment 105C in the name of the noble Earl, Lord Lytton, has a similar aim.
I support my noble friend Lord Rooker in his campaign to highlight the danger of—I was going to call them electricity surges, but I had better not now because I will get into trouble with him—neutral current diversion. I want to come back to the case that Martina Lees quoted of Viv Sharma and his Ukrainian wife Julia, who had to leave their nine-storey block when the fire service deemed it unsafe. It had more than 17 defects, caused by the original developers, which should never have been approved by building control. They have been offered less for their property than they bought it for 15 years ago, and they have had to pay for temporary accommodation. Julia has said:
“I’m now 50. How am I supposed to rebuild my life?”
That situation—which is morally wrong, as the noble Lord, Lord Young, said—remains in place. Such situations should have been remedied by the Building Safety Act but were not. We now have another opportunity to put things right, so I hope the Government will do so by accepting the amendments before us today.
The Parliamentary Under-Secretary of State, Department for Levelling Up, Housing & Communities (Baroness Scott of Bybrook) (Con)
My Lords, I first add my tribute to Andrew, Lord Stunell. I have sat opposite him for many hours in this Chamber and in Committee, being challenged by him in a detailed but always good-humoured way. I am going to miss him. I did not know where he was this week to begin with, and I asked questions. He will be sorely missed, particularly on the issues that we talk about as a group of Peers. I send his family, friends and colleagues our best wishes. May he rest in peace.
I thank noble Lords for the amendments on building safety and for this thoughtful debate. It is an important issue. I will take all the amendments in turn and put the Government’s view. I thank the noble Earl, Lord Lytton, for Amendments 93B and 107. Their aims were debated extensively during the passage of the Building Safety Act 2022 and the Levelling Up and Regeneration Act 2023. I thank the noble Earl for his years of important campaigning on building safety, and for tabling these amendments again and speaking to them in such a detailed way. We continue to consider his arguments and are always willing to listen carefully to the ways in which we could improve the current regime. That is why the Government tabled several clauses in the other place to clarify and extend the protections in some particular areas of this Act.
However, I reiterate that implementing a new building safety remediation scheme would reverse what has been achieved by the regulatory regime set out in the Building Safety Act. Creating a system which mirrored the existing regime would delay essential remediation already being carried out. It would also create uncertainty for leaseholders across the country. The responsible actors scheme, the developer remediation contract, remediation orders and remediation contribution orders are already delivering many of the noble Earl’s objectives, requiring developers to fix problems that they have caused.
Lord Empey (UUP)
On that matter, if a company was responsible for defective property and the company became insolvent, am I to understand that the directors of that company would be capable of recommencing building another property? Or is the Minister saying that the individuals could be followed through the courts for remediation, rather than being able to sidestep their responsibilities?
Baroness Scott of Bybrook (Con)
My Lords, that is an interesting and very legal point. Rather than speaking off the top of my head, I would like to get it right and write to the noble Lord.
I move to Amendments 96, 97, 99 and 100. I thank my noble friend Lord Young of Cookham for these amendments. Amendments 96 and 99 would extend the leaseholder protections to buildings under 11 metres and to collectively owned leaseholder buildings. It is generally accepted that the risk to life from historic fire safety defects is proportionate to the height of buildings. As this risk is lower in buildings under 11 metres, such buildings will require remediation only in very exceptional circumstances. Given the small number of buildings that have required this—it is three across the country; the developers have remediated two of them and we are in negotiations on the third to get that remediation done—our assessment remains that extending the leaseholder protections to these buildings is neither necessary nor proportionate.
Where leaseholders in buildings under 11 metres face remediation costs, it is important, as I have said so many times at the Dispatch Box, that they contact the department immediately and we will look into that individual building on a case-by-case basis. If necessary, we will write to the building owner to seek assurances that any proposed works are necessary and proportionate, and that the rights to redress are being fully utilised.
The Government understand that some leaseholders in these buildings are still facing higher insurance premiums, with insurers citing building safety as the reason for the increase. The Association of British Insurers and its members have stated that premiums should reduce where buildings comply with building regulations. We expect insurers to honour their commitments and make sure that premiums are priced fairly and appropriate to the level of risk.
Regarding collectively owned leaseholder buildings, the Government made the decision that the leaseholder protections in the Building Safety Act would not apply to these buildings. As a result, people would still have to pay to remedy the safety defects in their building as owners. Residents who own the freehold would have to pay not only their portion of remediation costs but for any residents who did not participate in the purchase of the freehold.
Since the Building Safety Act, the Government have continued to examine the situation faced by collectively owned leasehold buildings. For instance, the Building Safety (Leaseholder Protections) (England) Regulations 2022 provide owners in these leaseholder-owned buildings with access to remediation contribution costs. We have listened and we have acted.
I turn to Amendment 97. The existing leaseholder protection package is designed to maintain a fine balance between leaseholders’ and freeholders’ rights. The amendment distorts the balance disproportionately in favour of leaseholders and risks unfairly benefiting one group of investors, leaseholders, to the detriment of another—the freeholders.
Regarding Amendment 100, our intention has always been to protect individuals living in their own homes, rather than those who have purchased property for financial or commercial reasons. Changing the leaseholder protection regime so that it is linked to a share of ownership, rather than individual properties, would also introduce an unnecessary level of uncertainty and complexity into the protections.
Regarding cessation certificates, it is not clear what effect such a certificate would have or how a landlord would know when to serve one. The responsibility for the costs of fixing historical building safety defects should rest with those responsible for creating them. The Building Safety Act was clear that, when this is not possible, responsibility for remediation should be shared between stakeholders in the property. Concentrating responsibility on a single group would risk a number of unintended consequences, including freeholders becoming insolvent. Taken together, the changes made by this amendment would therefore complicate the regime unnecessarily and slow the progress made towards the remediation of buildings.
I thank the noble Baroness, Lady Thornhill, who spoke on behalf of the noble Baroness, Lady Pinnock, to Amendment 102 about the reporting requirement for building safety remediation. The Government are committed to accelerating remediation and protecting affected residents. The total number of buildings reported to have started or completed remediation works in England has more than doubled since the end of March 2023. Along with monthly updates, Ministers have also committed to providing the other place and those interested with regular updates on progress, the latest of which was provided on 26 March.
My noble friend Lord Young of Cookham asked about ACM cladding. Another noble Lord mentioned pathways. I realise that pathways do not mean delivery, but, importantly, all residential buildings in England taller than 11 metres have a pathway to fixing unsafe cladding, either through taxpayer-funded schemes, developer-funded schemes or social housing provider-led remediation. This protects leaseholders from these costs. In addition, 99% of high-rise buildings with unsafe Grenfell-style ACM cladding identified before 2023 have been made safe or have work under way to make them safe. The proportion of buildings remediated continues to shift as more buildings are being identified and 90% of all high-rise buildings with ACM cladding have been made safe or have work under way on them.
My noble friend Lord Young also brought up the issue of decanting. The Government amended the Bill in the other place to make it explicit that the costs of alternative accommodation for residents, when they are decanted from their homes to avoid imminent threat to life or of personal injury, or because remediation works cannot take place while residents are in occupation, can be recovered. They can recover those costs through a remediation contribution order, which is an important change to the Bill.
The department continues to take steps to support applicants to start on site more quickly. Local authorities, fire and rescue authorities and the Health and Safety Executive can take enforcement action against those not progressing remedial works. Where building owners are failing to make acceptable progress, those responsible should expect further action to be taken.
Some 55 of the largest developers signed legally binding contracts committing to remediate, or to pay to remediate, life-critical fire safety defects in 1,500 buildings over 11 metres that they had a role in developing in England over the 30 years to April 2022. Together with the building safety levy, this will see industry contribute an estimated £6 billion. The department publishes information on developer progress based on quarterly returns submitted by developers, and this is available. I make it clear that the introduction of new reporting requirements involves time and cost, which need to be balanced against the need to continue our progress in building remediation. So I ask the noble Baroness not to press the amendment.
I thank the noble Baroness, Lady Taylor of Stevenage, for her Amendment 105. Similarly to Amendment 97, it would open the door to changes which distort that balance disproportionately in favour of one group, to the detriment of another. It is important that legislation provides clarity for leaseholders, freeholders and the courts. The Government believe that having definitions of qualifying and non-qualifying leases in primary legislation provides greater certainty to all interested parties—an important consideration given that this is a pivotal part of the legislation for so many people across the country.
I thank the noble Earl, Lord Lytton, for Amendments 105C to 105G, which seek to make several changes to the building safety regime and, in the case of Amendment 105G, the insolvency regime. Amendment 105C would rewrite the developer remediation contract by statute. This would unfortunately serve to create operational legal confusion about what developers’ obligations are, which buildings need to be identified and remediated, and what standards this should be done to, resulting in delay and litigation. I hope the Committee agrees that the Government should instead focus on holding developers to account for remediating unsafe buildings as quickly as possible.
On Amendment 105D, it is right that the Government have worked with major developers that have built defective buildings to secure binding commitments to remediate, worth an estimated £3 billion. However, I do not believe it would be fair also to target these specific developers to pay a disproportionate share of other remediation costs for buildings that they have no connection with. That is why we are focused on setting up the building safety levy to contribute funds to our programmes to remediate buildings over 11 metres. The levy is estimated to raise a further £3 billion over 10 years, or more.
We have had much debate on the merits of Amendment 105E, and I gave my views on Amendments 96, 97 and 99. As I mentioned, relatively small numbers of residential buildings under 11 metres or five storeys require remediation. These buildings are considered to be at low risk of historical fire defects, and I maintain that this change would disproportionately and unfairly place the obligation for remediation of non-life-threatening defects on freeholders. Meanwhile, extending protection to leaseholders who have not purchased the freehold would place the financial burden of remediation entirely on leaseholders who own a share of the freehold, making it less likely that these buildings will be remediated.
As for providing leaseholder protections to leaseholders who own more than three dwellings, I reiterate the points raised earlier. Landlords owning a number of properties are likely to have these as investments, and a fair balance needs to be met. The Building Safety Act was not designed to benefit investors; it is to help individuals living in their own homes.
On Amendment 105F, removing qualifications for passing on costs for defects in service charges would widen the scope of the leaseholder protections considerably. This would risk the burden of remediation costs falling disproportionately on landlords, whether or not those landlords are also some or all of the leaseholders in the building. The amendment also provides for members of a building industry scheme to cover remediation costs. I have already mentioned my concerns with the similar approach in Amendment 105D.
The Earl of Lytton (CB)
My Lords, I thank all noble Lords who have spoken in this debate. Needless to say, too many further questions arise out of all this, and there are too many points for me to be able to address anything other than the odd one—other than by making a very long speech and incurring the wrath of the Government Whip for the second time in the week.
I preface my further remarks by saying a word about Lord Stunell. His death is a great loss to all of us. He was forensically well-informed and always delivered his contributions with care, tact and supreme authority. I had the great honour of serving with him on the Built Environment Committee and, of course, I was with him throughout the Fire Safety Bill and the Building Safety Bill, as well as the levelling up Bill. He will leave a very great hole in our deliberations.
There is a fundamental common purpose between what the noble Lord, Lord Young, and I are trying to achieve. I simply say that I look forward to working with him to see whether we can find a common way forward—and indeed with other noble Lords, such as the noble Baronesses, Lady Thornhill and Lady Taylor, and the Minister, because there is a consensus that something needs to be done.
The right reverend Prelate and all the Bishops have been fantastic in their support on this—right the way through the passage of the now Building Safety Act and Levelling-up and Regeneration Act, and again on this Bill—in order to get justice for innocent leaseholders.
The noble Baroness, Lady Thornhill, referred to the wider liability and systemic failures. I get that, which is why I keep referring to the wider construction industry. There are lots of people involved there and they all have some responsibility.
The noble Lord, Lord Empey, referred to building control. This takes us back to the Building Act 1984 measures, which allowed for approved inspectors—as privatised entities—effectively to take over the role of local authority building control. The local authority then lost control of the process at that stage. The construction sector gamed the system. Indeed, I know at least one large body that had its own wholly owned subsidiary as its approved inspector. Where is the objectivity there?
The noble Lord, Lord Rooker, was absolutely right on the question of electrical safety, which is a subset of the fire safety issue.
The noble Baroness, Lady Taylor of Stevenage, has always been a fantastic supporter of what I am trying to do; I say to her and to all noble Lords that I am not set on the particular solution that I have put forward, but I am dead set on wanting something that protects consumers and protects leaseholders in their own home—this is the recurring theme. The chickens are going to come home to roost: the bottom line is that this will always end up with leaseholders by default picking up the pieces; they are the most vulnerable. The problems do not go away; whether you kick the political can down the road or whether you do not, it just leads to more grief.
I will not go through the comments of the Minister, but I thank her for them and will look at them with very great care. I am sorry that the argument still seems to be that, because this matter was raised in the passage of the then Building Safety Bill and levelling up Bill, it somehow should not be discussed any more. The point is that the problem has not gone away. The Minister may not want to listen to me—certainly not for much longer this afternoon—but she needs to listen carefully to what leaseholders are saying about their experiences. We in Parliament may start turning a tin ear to what is happening out there, but it is evident in the media and in emails to me and other noble Lords, and it cannot be ignored or avoided any longer. The mercury in this respect is going up the tube quite fast, and this will become more and more of an issue.
If my proposals are destined to slow down the process, all I can say is that, politically, I suspect that this is going to start speeding up very rapidly. The Government may say that they will take further action if the players do not perform, but this is another bit of finger-wagging. We know that something needs to be done and that it needs to be done now.
I end by saying that I will consult with other noble Lords about how we can take this forward. I certainly may return to this matter on Report. None of us wants to delay this Bill but, unamended, the agony for lease- holders will go on and on. On that note, I beg leave to withdraw Amendment 93B.
Lord Best
“The Regulator of Property Agents(1) The Secretary of State shall establish a body corporate known as the Regulator of Property Agents (“the Regulator”) to regulate property agents in respect of—(a) estate management of leasehold properties,(b) sale of leasehold properties, and(c) sale of freehold properties subject to estate management or service charges.(2) Regulations under this section—(a) must be laid within 24 months of the date of Royal Assent to this Act,(b) must be made by statutory instrument, and(c) may not be made unless a draft has been laid before and approved by resolution of each House of Parliament.(3) If, at the end of the period of 12 months beginning with the day on which this Act is passed, the power in subsection (1) is yet to be exercised, the Secretary of State must publish a report setting out the progress that has been made towards doing so.(4) The objectives of the Regulator are—(a) to protect the consumers of services provided by property agents, in respect of—(i) estate management of leasehold properties,(ii) sale of leasehold properties, and(iii) sale of freehold properties subject to estate management or service charges. (b) to set and uphold standards of competence and conduct for property agents in relation to the sale of leasehold properties and freehold properties subject to estate management or service charges.(5) “Property agent” means an individual or body of persons (whether incorporated or not) which carries out the roles of an estate agent as defined in Section 1 of the Estate Agents Act 1979 or of a property manager as defined in Sections 54 and 55 of the Housing and Planning Act 2016.(6) The Secretary of State may provide financial assistance (by way of grant, loan or guarantee, or in any other form) and make other payments for the establishment and maintenance of the Regulator.(7) The Regulator must establish a panel of persons called “the Advisory Panel”.(8) The Panel may provide information and advice to the Regulator about, and on matters connected with, the Regulator’s functions (whether or not it is requested to do so by the Regulator).(9) The Regulator must appoint the following persons to the Panel—(a) persons appearing to the Regulator to represent the interests of—(i) leaseholders of properties managed by property agents,(ii) freeholders of properties subject to estate management or service charges, and(iii) professional bodies and associations representing property agents who manage leasehold properties.(b) the Secretary of State.(10) The Regulator has powers as follows—(a) to monitor, assess, report, and intervene (as appropriate) in relation to the performance of property agents who manage leasehold properties;(b) to determine mandatory qualifications to ensure that those undertaking the activities of a property agent in England have, or are working towards, qualifications that demonstrate competency in respect of the sale or management of leasehold and freehold properties;(c) to enforce compliance with a mandatory and legally-enforceable Code of Practice for property agents selling or managing leasehold properties;(d) to provide guidance to property agents on the regulatory framework for the sale and management of leasehold and freehold properties;(e) to register all property agents complying with the requirements of the Regulator and to revoke the registration of property agents who persistently breach the regulatory framework;(f) to raise a registration fee and an annual fee to pay for the ongoing costs of the Regulator of Property Agents;(g) to review and make recommendations to the Secretary of State for the updating of the statutory guidance that sits alongside the regulatory framework for the sale and management of leasehold and freehold properties;(h) to delegate to designated bodies administrative and regulatory functions in respect of the sale and management of leasehold and freehold properties, as it deems appropriate.(11) The Property Ombudsman and other redress schemes, if any, covering property agents shall provide the Regulator with such information as the Regulator shall request.”Member’s explanatory statement
This amendment seeks to create a Regulator of Property Agents to regulate property agents in respect of estate management of leasehold properties, sale of leasehold properties, and sale of freehold properties subject to estate management or service charges.
Lord Best (CB)
My Lords, Amendment 94 is in my name and those of the noble Lord, Lord Young of Cookham, and the noble Baronesses, Lady Hayter of Kentish Town and Lady Taylor of Stevenage, and I am very grateful for their support. Before I speak to the amendment, I want to add my appreciation of the life and shock at the loss of Lord Stunell. Andrew Stunell was a terrific advocate for better housing, as a notable Construction Minister in the coalition Government and an eloquent speaker on a range of Bills, not least the Bill we are debating today, which he analysed brilliantly just a month ago in this Chamber. He will be very greatly missed indeed.
Amendment 94 represents the grand finale in our Committee debates on the Bill. It would empower the Secretary of State to establish an independent statutory regulator of property agents who sell and manage leasehold property. It would introduce into law the recommendations from the Government’s own Regulation of Property Agents working group, which I had the honour to chair and which reported in July 2019. The twin objectives of the regulator would be to protect consumers and to raise standards. Although the working group recommended a regulator for all property agents covering estate agents, sales agents and letting agents as well as property agents handling leasehold property, the amendment relates only to the leasehold managing agents, to keep within the scope of the Bill. However, many property agents involved in leasehold sales and management also engage in sales of freehold properties and in the management of rented sector lettings, so would be covered. Moreover, a twin amendment in the Renters (Reform) Bill, due in this House shortly, could extend the regulators’ role to cover agents managing rented properties as well.
The need for regulation was spelled out graphically at Second Reading, and many of your Lordships have shared details of agents’ misconduct brought to their attention. The unsuitability of badly behaved agents ranges from simply not communicating with leaseholders to misleading them and taking advantage of their leaseholder status with exorbitant commissions, charges and fees, not least in retirement housing developments. Although there are some excellent agents providing a good service and value for money, there are also inept, incompetent and exploitative agents whose reprehensible behaviour cries out for proper regulation. The urgency for regulating the sector has now increased, following the passage of the Building Safety Act 2023. This legislation has meant managing agents of blocks of flats taking responsibility for spending substantial sums of leaseholders’ money and of taxpayers’ subsidies to cover remedial building works in blocks of flats. It is now more essential than ever that such responsibilities are exercised only by reputable and qualified professional agents.
There is rock-solid support for a regulator of property agents from the professional bodies and trade associations representing the sector: the RICS; Propertymark; and the Property Institute, which comprises the Institute of Residential Property Management and the Association of Residential Managing Agents. Those property agents who are acting honourably are undermined by the unprofessional conduct of too many. Of course, the organisations representing consumers, such as Citizens Advice and the Leasehold Knowledge Partnership, are extremely supportive of the proposals encapsulated in this amendment.
A regulator would establish requirements for relevant qualifications and continuous professional development and would require adherence to an overarching code of conduct and to subsidiary-specific codes covering the different components of property agency. The regulator would have a full range of enforcement powers, from requiring specific changes to levying fines or removing the licence for a firm or individual to operate. That would provide the same consumer protections as for social housing, with its social housing regulator and Housing Ombudsman, and as for the financial sector, with its Financial Conduct Authority and Financial Ombudsman Service.
As with accountants, lawyers or surveyors, property agents deserve to be respected as professionals with expertise and with the proper attributes that go with professional status. Why would the Government resist a measure that is likely to be extremely popular with millions of leaseholders, which is earnestly requested by those who would themselves be the subject of regulation, and which has been given so much support from this House, particularly following the strong encouragement from the cross-party scrutiny of your Lordships’ own Industry and Regulators Committee last month?
Baroness Hayter of Kentish Town (Lab)
My Lords, I declare a non-financial interest in having worked with the Property Institute and other groups that have supported this area for many years. Also, as the noble Lord, Lord Best, alluded to, I chaired a committee working on one aspect of this matter, which I will come to shortly.
As the noble Lord said, it is quite unusual for this call for regulation to come not only from the consumers who would benefit but from the professionals already working in the field. It is virtually unanimous; in fact, among the organised groups, it is unanimous that this is the regulation under which they would like to work. The agencies and their representative bodies are waiting for this to happen.
As has just been described, in a way the reasons are obvious, not only outside but within this House. We know that, as was mentioned, the Best report was welcomed, I think universally; the Select Committee on Industry and Regulators has called for it to happen; and in the world outside there is still an expectation—a hope—that this might happen. A number of us want an election soon but we could even put it off—if that would be the only thing needed to get this through, we will put up with more of this Government.
It is fairly obvious that housing is not just bricks and mortar. Homes are fundamental to people’s financial and emotional well-being. Get this right, and their own quality of life improves dramatically. Get it wrong, and it is debilitating, stressful and expensive. It starts, of course, with the purchase, or indeed the sale, of a leasehold property, which is a more complicated transaction than simply buying a freehold house. So even at that stage, transparency, clarity, openness and proper explanation by estate agents are essential, and so, therefore, is the need for their expertise in these specialist areas of purchase and sale.
However, even once it has happened and you are living in the leasehold property, that can be a particularly fraught arrangement. With leasehold management there is a three-way relationship between the landlord, the resident—that is, the leaseholder or the owner—and the managing agent. Marriages with three in are always a bit complicated, but in this case, of course, you have the managing agent, who is appointed by the landlord but who has duties and, even more importantly, a close working relationship with the leaseholder. That adds an element of necessary expertise in how to handle it.
As important is the complexity of the law involved in this. It covers particular rights that are different from those associated with a freehold house. There are the safety issues, which have been well rehearsed in Committee. There are consumer issues and fiduciary duties, as well as myriad external bodies and requirements that have to be met. Frankly, managing agency is no task for an amateur. Agents need to be trained in ethics as well as the law and building regulations, and they need to be checked to ensure that they are fit and proper to handle both people’s money and their safety, and to prepare all the legal and other paperwork essential for running a complex operation. That is why we require regulation and oversight of this important profession.
As was mentioned, a code of conduct is needed across the industry, not simply to provide the requirements on agents but, importantly, to enable consumers to understand and thus to be able to enforce their rights. As the noble Lord, Lord Best, said, a cross-industry group that I had the privilege to chair and whose outcome was welcomed by the department has prepared the code and it is ready and waiting, so the work in setting up this regulatory body would be less than otherwise. It is there, ready and waiting for the legislation to make adherence to that code a legal requirement. That is the key to professionalising the industry and enhancing the experience of all who deal with managing agents—landlords and leaseholders alike.
It is not sufficient, welcome though it might be, to have an ombudsman to adjudicate and put things right when things have gone wrong. We need to prevent problems arising, which means raising standards, ensuring compliance, requiring training and qualification, and continuing professional development in a world of statutory requirements that seem to be changing, not just year by year but month by month, as is the technology involved in building, which we know about.
The Best way is the only way. Let us give the noble Lord what he has been asking for for so long and just get this report into law—let us get on with it. I am delighted to support Amendment 94.
Lord Young of Cookham (Con)
My Lords, I will add a very brief footnote to the excellent speeches made by the noble Lord, Lord Best, and the noble Baroness, Lady Hayter.
The point I want to make is that the market is changing. We are moving away from a position where the freehold of blocks of flats was owned by the Grosvenor estates, Cadogan Estates, the Portman Estate —professional freeholders—and they were well able to choose responsible managing agents and keep an eye on them. We are moving away from that to a position where more and more of the blocks of flats are owned by the leaseholders. It is a trend that I that I welcome—indeed, the Bill accentuates that trend—and eventually we will end up with commonhold. Against that background, it becomes even more important that the managing agents should be professional. The background is changing and the need for this is now much more urgent than it was a few years ago.
I very much hope that the Government will be able to respond to the eloquence of the noble Lord, Lord Best, and introduce regulation of managing agents. However, if they cannot, he hinted at two intermediate steps, which I think the Government might be able to take. One is requiring mandatory qualifications. As the noble Lord said, these have already been introduced for the social housing sector and could be expanded to protect leaseholders and private tenants. The second thing the Government could do, which the noble Lord also mentioned, is to introduce the mandatory code of practice, drawing on his working group on the regulation of property agents—this case was well made by the noble Baroness, Lady Hayter.
The Government could do one final thing which has not been mentioned so far. There is a government document called the How to Lease guide, and they could make that a mandatory document to be shared with consumers who purchase a leasehold property, in exactly the same way in which landlords and agents must provide the How to Rent guide to tenants. Therefore, if my noble friend cannot go the whole hog, I very much hope that she can smile warmly on intermediate steps, which might then pave the way to the final introduction of regulation of managing agents in the very near future.
Lord Truscott (Non-Afl)
My Lords, I am pleased to follow the noble Lord, Lord Young of Cookham, and I agree with the comments that he just made. I remind the Committee that I have been a leaseholder for around 30 years, and over that time I have dealt with several property management companies.
I wholeheartedly support Amendment 94 in the names of the noble Lords, Lord Best and Lord Young of Cookham, and the noble Baronesses, Lady Hayter of Kentish Town and Lady Taylor of Stevenage. I pay tribute to the dogged determination of the noble Lord, Lord Best, in pursuing the reform and regulation of property agents over a number of years, and, of course, to the sterling work of the noble Baroness, Lady Hayter of Kentish Town.
I fail to see why His Majesty’s Government should not support this amendment in full. I also fail to see why the Government have failed to bring forward their own measures to regulate property agents, which, as we have heard, are long overdue. I know that the Minister will say that this is all very complicated and requires detailed and thoughtful legislation, that she will describe how property managing agents are making voluntary strides to improve their standards and operation, and how there are redress schemes in place. However, I do not really buy that argument. This amendment gives His Majesty’s Government two years to lay down regulations to regulate property agents. That is enough time even for this Government, and if not them, then certainly for the next one.
No other sector I know of handles potentially millions of pounds of other people’s money but is unregulated by statute. The City of London looks at property management companies aghast given the lack of oversight. I will give some practical examples of why property management companies should be effectively regulated, following the comments of the noble Lord, Lord Best.
Baroness Hayter of Kentish Town (Lab)
My Lords, I apologise to the Committee. From what the noble Lord has said, I realise that I probably should have said that I was a leaseholder when I spoke.
Baroness Bennett of Manor Castle (GP)
My Lords, I rise briefly to offer Green support for this clear, obvious and essential amendment, which already has strong support across the Committee.
I want to pick up a point made by the noble Baroness, Lady Hayter, about how both buyers and sellers desperately need confidence and how that confidence is utterly lacking at the moment. A lot of our discussion has focused on the problem of estate management, where there are clear and obviously pressing problems, but to focus a little on sales of properties and the need for some oversight there, I note that, last year, trading standards warned that many agents were not passing on the best offers that they had received from purchasers, as they are legally required to do, because they were getting commission fees from mortgage brokers, solicitors, surveyors and other third parties. They were choosing to go with what would produce a better result for them but a lower price for the seller. The only way that this is generally uncovered is if the would-be buyer who did not succeed in purchasing the property happens to look at the Land Registry sales price, says “but that’s less than I was offered” and creates a fuss. That is a sign of just how utterly cowboy the current situation is without regulation.
A report out yesterday noted that for 34% of the “for sale” stock on some major websites there had been an asking price reduction. People often need to sell for all kinds of reasons—including divorce, bereavement or perhaps because they need more bedrooms for extra children. These are all stressful, difficult situations where delays can cause damage and create uncertainty. We have a cowboy situation out there, and as the noble Baroness, Lady Hayter, said, the people in the industry who want to do the right thing know that there are cowboys out there who are a threat to them. Therefore, the amendment is clearly essential to making our housing sector less of a cowboy environment than it is now.
Baroness Thornhill (LD)
My Lords, I too support Amendment 94 in the name of the noble Lord, Lord Best, which was so well outlined by him with his usual clarity and reason. It is an amendment that I was determined to put my name to, but its popularity was such that I was too late. However, I listened intently to the informed contributions from the noble Baroness, Lady Hayter, and the noble Lord, Lord Young of Cookham, and look forward to the contribution of the noble Baroness, Lady Taylor. This will therefore be possibly my shortest and easiest contribution to the Bill, simply saying that, between them, the proposers have nailed this issue with an amendment that should be workable and which we hope that they will take forward on Report.
The noble Lord, Lord Best, listed the broad coalition of support for a regulator and indeed it appears that it is ready to go. This is something which the noble Lord has campaigned on for years. His report was widely accepted and praised for its thoroughness and its remarkably workable plan for the way forward, which he has stated in detail. Interestingly, the recommendations of his working group went much further than this amendment, so the movers of the amendment are being pragmatic and measured because they want to see change now—we support that.
I found the contribution of the noble Lord, Lord Truscott, on redress, particularly interesting. It reminded us that, currently, regulation in the property sector is voluntary and sanctions are limited. This Bill will not change that enough. Do your Lordships not think it is shocking that anyone can set up a firm from their bedroom and very soon be handling hundreds of thousands of pounds of leaseholders’ and taxpayers’ money while being largely unaccountable to the leaseholders who, on the whole, do not choose them to manage their block or control their service charges? This cannot be right. An individual can set up in business as a property manager without any formal qualifications, experience or even insurance.
It seems shocking that there has been so much good legislation to protect much smaller sums, such as deposits for renters, but nothing to protect leaseholders’ funds. We have regulations and regulators for individuals and companies handling much smaller amounts of people’s money. Leaseholders are usually required by the terms of their lease to make advance payments towards the service charge and to contribute to a sinking fund or reserve fund. These sums can be substantial, especially if major works are planned, which is why we supported the amendment tabled by the noble Baroness, Lady Fox, earlier in the Bill on consultation on major works. The Federation of Private Residents’ Associations has asserted that there is no other area in the UK in which money is held by a third party that is not regulated—unless somebody can tell me otherwise. The federation suggests that moneys held by unregulated and unprotected third parties may well exceed £1 billion.
If we want to change the behaviour of such property agents, there needs to be a much more professional approach to training and development, as the noble Baroness, Lady Hayter, exemplified well. Mandatory professional standards should be set, along with the oven-ready code of practice.
Even within the sector, the good guys—and there are good ones—do not want the rogues giving them a bad name and tarring everyone with the same brush. It is clear that the Government are procrastinating on this issue, so much so that several years after the report from the noble Lord, Lord Best, very little has happened. The fact that the Government have not taken the opportunity with this Bill to introduce relevant property agent regulations proves that they have probably yielded to the anti-regulation voices among their ranks, despite their acceptance in principle of the case for regulating property agents, which has also been accepted by the majority of interested and affected parties. We are all seeking a solution, and Amendment 94 is certainly worthy of consideration, and we urge the Government to give it that consideration. I look forward to the Minister’s reply and to Report, definitely.
Lord Thurlow (CB)
My Lords, I have not heard a voice in the Chamber this afternoon against the amendment from the noble Lord, Lord Best. It is such a refreshing amendment, it is long awaited, and we have heard, and we all knew, that his report was kicked into the long grass many years ago by the Government, and that is something of a disgrace. Even in the Levelling- up and Regeneration Bill debates last year, this subject was much discussed. We must not overlook that large cohort of hugely responsible and professional property managers—and there are many—but our focus must be on those who fail to adopt high standards, those who knowingly overcharge, those who take discreet commissions, and those in the pockets of clients with dubious standards.
This subject of rogue managing agents has come up again and again in this Bill; the time has come to act. The amendment clearly has strong cross-party support, and we have heard that the Government want to do it in principle. If the Government really want to do something for leasehold occupiers, this is it: simple regulation of property managing agents and other related property advisers; no one to practise without registration; a no-nonsense, strictly monitored and enforced system of effective supervision; and a simple, advertised complaints procedure for the lessees and rigorous monitoring of those complaints. This amendment has my wholehearted support. I hope the Government will adopt it; if not, I hope it is pressed on Report.
Lord Hacking (Lab)
My Lords, I do not want to jump in front of my Front Bench, but this is not a Bill that I have followed in detail. I did not take part in the Second Reading, and I have not taken part so far in Committee, but I was in the House this afternoon, and that is why I am standing up to very briefly address your Lordships on Amendment 94, which should be fully supported. I declare a personal interest, and your Lordships will see how I can link that to supporting this amendment. My wife and I are both freeholders and leaseholders of five flats, which are in an adjacent house to our own house. We personally manage them and know all the tenants well, and we try to deal with all their needs and circumstances, but the time will come when we have to sell. It is that stage that I am worried about, to ensure that these leaseholds are properly managed under the auspices of the regulator.
Baroness Taylor of Stevenage (Lab)
My Lords, it is a great pleasure to take part in this debate and to hear from such eminent experience across the Committee on this issue. On one of the points made by the noble Baroness, Lady Thornhill, about how far back this goes: one of my very first jobs in the early 1970s was at an estate agent. It was a family business run by somebody who had trained as a journalist and had a career in journalism, but he did, at least in that case, have the grace to train as a chartered surveyor as he carried on his business as an estate agent. You would have thought that things would have changed a bit over the subsequent years—it is quite a long time ago now—and it is ridiculous that it can still happen that people with little experience or qualification can be in charge of huge sums of other people’s money and property, and I hope that we can move matters on, at least in that respect.
Baroness Scott of Bybrook (Con)
I thank the noble Lord, Lord Best, for his Amendment 94, and for his and other noble Lords’ persistence in pushing for the creation of a new regulatory body to oversee property agents. I put on record my sincere thanks to him for his valuable work on regulation over very many years. I note that he is also a member of the Industry and Regulators Committee, which recently concluded that the case for regulation of the property agent sector still remains. Ministers will respond to the committee in due course.
However, as the noble Lord is acutely aware, the Secretary of State indicated in the other place that he did not consider that this was the right time or the right Bill to set up a new regulator for property agents. I know that he and other noble Lords will be disappointed, but perhaps not surprised, by this. However, the Government remain committed to driving up professionalism and standards among property agents. Leaseholders deserve a good service for the money they pay, whether from their landlord or their managing agent, where one is in place.
The noble Lord once again brought up, as he has many times with me, mandating professional qualifications. This was one of the areas that the Government asked the noble Lord’s working group to look into as part of its review. I assure him that that remains on the table.
At this point, I will respond to the interesting idea from my noble friend Lord Young of Cookham about the How to Lease guide. Interestingly, I spoke to officials about this idea not too many hours ago, building on the guide to renting. That is something that could be put in place. I will work further on it and talk to my noble friend more.
Industry plays an important role in driving up standards, and we welcome the ongoing work being undertaken by the industry and others to support this. This includes the efforts of the noble Baroness, Lady Hayter of Kentish Town, and her independent steering group in preparing an overarching code of conduct. I thank her for that. I know that the Government are very interested and looking at it in much more detail. This is an important development to ensure that all consumers are treated fairly and agents work to the same high standards. I echo what many noble Lords have said. We have some excellent agents in this country who do a fantastic job. The agents we are talking about are the rogue agents, who I know noble Lords are trying to ensure come up to the same high standards. I thank the noble Baroness for her work on this.
I should also stress that measures in this Bill, alongside existing protections and work being undertaken by the industry, seek to make managing agents more accountable to those who pay for their services. That includes making it easier for leaseholders to take on the management of their buildings themselves, where they can directly appoint or replace agents.
However, I recognise the strength of feeling expressed on this issue at Second Reading and today by a number of noble Lords, and the ambition of all noble Lords who spoke to drive up the standards of property agents. The noble Lord, Lord Truscott, the noble Baroness, Lady Bennett of Manor Castle, and others spoke about individual cases where managing agents have been either good, as we heard from the noble Lord, Lord Truscott, or extremely unacceptable.
I will continue to engage with the noble Lord, Lord Best, my noble friend Lord Young of Cookham and any others who would like me to on this issue during the remainder of the Bill’s passage. I know I already have a meeting in my diary with the noble Lord, Lord Best, in a week or so. With the assurance that we will keep working on this, and following what I have said, I hope the noble Lord will withdraw the amendment.
Lord Best (CB)
My Lords, I am very grateful to all noble Lords who have spoken—all of them in favour of the concept of a regulator of property agents. I think the case is now unavoidable. My especial thanks to the noble Baronesses, Lady Hayter and Lady Taylor, and the noble Lord, Lord Young of Cookham, for supporting this amendment, and to the noble Baroness, Lady Thornhill, who, if we were allowed one more name on the list, would have been there as well. It was great to hear illustrations from real life from the noble Lord, Lord Truscott, bringing a consumer perspective to the story. The noble Baroness, Lady Bennett, shared stories of cowboy agents. I am afraid they do exist, and we should be doing something about it.
The Minister offered me some consolation. We are going to meet again soon, and she recognises the strength of feeling that everybody has been expressing. I thank her for continuing to engage on the subject and I hope there is something we can salvage, before the Bill finally passes, that will at least make a start on this really important mission of creating a regulator to the benefit of the 5 million leaseholders out there. I beg leave to withdraw my amendment.