Consumer Rights Bill

Baroness Gardner of Parkes Excerpts

Wednesday 26th November 2014 Lords Chamber

Moved by

[Baroness Gardner of Parkes]

50G: After Clause 86, insert the following new Clause—
“Lettings and property management disputes: costs
In the Landlord and Tenant Act 1985, after section 20C (limitation of service charges: costs of proceedings), insert—“20D Unenforceable service charges: costs of proceedings
(1) Every contract or leasehold agreement between a landlord and a tenant, who is not leasing property in the course of business, is to be treated as including a term that all or any of the costs incurred, or to be incurred, by the landlord in connection with proceedings before a court, residential property tribunal or leasehold valuation tribunal or the First-tier Tribunal, or the Upper Tribunal, or in connection with arbitration proceedings, are not to be regarded as relevant costs to be taken into account in determining the amount of any service charge payable by the tenant.
(2) Unless there is express provision to the contrary, this section shall apply to contracts or leasehold agreements that were made before the commencement of this section and the provisions of this section may not be excluded in any extensions, variations or renewals of such contracts and leasehold agreements or in any subsequent contracts of leasehold agreements.””

[Baroness Gardner of Parkes (Con)]

My Lords, this amendment seeks to correct an injustice from which a number of leaseholders are suffering at present. The leasehold valuation tribunal—LVT—set up years ago has now been abolished and replaced by a tribunal. An aggrieved leaseholder who has not managed to receive any satisfactory response from their landlord, be it for repairs to be carried out or any other problem of non-compliance with the terms of his lease, has to take his case to the First-tier Tribunal. I opposed this change when it was debated in Grand Committee.

It was interesting to read in the past week—I think it was in the Evening Standard—that as yet there has not been one single application to the First-tier Tribunal relating to the redress scheme in the new regulations. That is not surprising. Everyone is waiting to see how heavy the costs are and what the procedures are. I have asked questions in the House as to how people are able to find out exactly what the new procedures are and what steps they need to take. In reply, I have been assured that efforts are being made to see that this information is readily available, but I have not seen anything other than that piece in the press.

As a tribunal application is now a much more expensive process than the LVT process, where costs were intended to be limited to a maximum of £500, the present reaction is not surprising. No one wants to plunge in at what looks like the deep end but someone will be forced to dip a toe in the water sooner or later, and I expect that then we will eventually have a deluge of applications. It was always understood that if a case needed to move on from the LVT to the Lands Tribunal and was to be financially within the reach of any leaseholder, much higher costs would be involved. I opposed the move to close the leasehold valuation tribunal and the move to the new tribunal and I will be very interested to see how it will work. It was debated in Grand Committee at the time the change was proposed.

This change of tribunal, however, makes my amendment even more necessary. A most unfortunate practice has developed in the leasehold valuation tribunal, whereby leaseholders bringing their cases personally found that they were confronting capable and expensive solicitors, in some cases QCs. That might seem to be a free choice of the landlord, and I have no objection to it. What I believe is totally immoral and unjust is that some less scrupulous landlords are charging these costs, even when they lose the case, back to the very leaseholders who were right in their claims. Those costs come disguised as service charges.

Whenever I have raised this question in your Lordships’ House, the reply is always that it depends on the terms of the lease. My amendment covers that situation for now but would prevent such a new clause being inserted into any new lease or extension of an existing lease. Too many leasehold terms and conditions are not understood by leaseholders and it is time that the many Acts, made over very many years, should be reviewed and a consolidation Act was brought forward. This House would be the ideal body to set up a committee to consider this in detail. There are too many Acts, each changing the preceding Acts and making these laws very difficult to follow. Even highly experienced lawyers have to spend their time referring from one Act to another, backwards and forwards. I was very grateful to the noble and learned Lord, Lord Lloyd of Berwick, who has long experience in consolidation, for supporting the principle of a consolidation Bill when it was raised recently in the House. I beg to move.

[Baroness Hayter of Kentish Town (Lab)]

My Lords, we are very happy to support this amendment, which would ensure that tenants do not end up being charged a share of the landlord’s legal costs which were perhaps incurred when he was challenging those very same leaseholders, as the noble Baroness has said. That makes sense and I hope the Government will accept the amendment.

While I am standing, perhaps I might report to the House the outcome of our discussions in Committee on the rights of leaseholders. In that case, the discussion was on insurance and the difficulty which leaseholders have in seeing the underlying information in the insurance policy, as the contract is actually between the landlord and the insurer. Partly because of that and partly because the cost is passed onto tenants by the landlord, there is no incentive for the landlord to shop around for a better deal.

I received a letter today from the ABI, which agreed with the statement that I had made in Committee that leaseholders should have increased opportunities to engage in the process when the managing agent purchases insurance and that the landlord, as the client of the insurer, should request relevant information from the insurer. The ABI supports leaseholders being given clear and timely information about the insurance contract. The letter from the ABI suggests the sort of information that should be provided before the contract is signed, including any commission paid to the agent. While the Government were not able to accept the amendment in Committee, it is very good that the knock-on effect has been that it will become a note of good practice, which should have some impact on leaseholders. I hope the Government will now accept this amendment and help them in that way, too.

[The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Neville-Rolfe) (Con)]

My Lords, I have listened with great interest to the comments made on this important subject and I am very grateful to the noble Baroness, Lady Gardner, for giving up some time earlier today to take me through her points. The purpose of her amendment, as I understand it, is to provide leaseholders and tenants with protection from a landlord seeking to recover the costs incurred through proceedings at court or tribunal through their service charges. This is obviously a sensitive area for both leaseholders and landlords and it is important to get the right balance. It is of course important that leaseholders are provided with protections but also that the law creates parity between the parties.

Section 20C of the Landlord and Tenant Act 1985 enables a leaseholder to apply to the tribunal for an order that the landlord’s costs should not be included in determining the service charge payable by the leaseholder. At any point during proceedings, a leaseholder may make an application to the tribunal to ensure that they do not bear the costs of all the litigation. This ensures that the leaseholder knows where the costs of the matter will lie. The tribunal process is designed to be as cost effective and user friendly as possible. It may be that this could be better communicated so that leaseholders understand their rights. The judiciary has always been aware that, if costs have been awarded against the landlord, they should not get through the back door what has been refused through the front door. Tribunals must make decisions that are just and equitable in the circumstances; they are best placed to make those decisions because they are apprised of the facts.

I am a bit concerned about the perverse effect of the amendment, which could restrict landlords from ever recovering costs of legal proceedings by way of a service charge. This seems wrong. For example, in an insurance dispute resulting in the insurance company refusing to pay out, the landlord would need to instigate proceedings ensuring that leaseholders do not have to pay for repairs through service charges that might be covered by the insurance. However, I am very glad to say that the leasehold sector is large and growing; we have over 4 million dwellings in England subject to a long lease, and the noble Baroness, Lady Gardner, explained to me that there are 6 million leaseholders. Of course, there are also 2.8 million dwellings in flats. I am advised that the amendment could change the leases for flats without consultations with individuals or working with the sector to consider these matters, although I think the noble Baroness was saying something different in her comments. Be that as it may, this is an incredibly important sector, and I know that the changes and new regulations on redress introduced on 1 October may change the market place and need to be allowed to settle. Again, there may be an information problem that we would be keen to address.

Before I finish, I pick up the point that the noble Baroness, Lady Hayter, made about the ABI letter, which she was kind enough to give me a copy of earlier today. DCLG officials are working closely with the Competition and Markets Authority in relation to the remedial measures from its market study on property management services. The final report will be published next week and is likely to ask government to consider most of the points in the ABI letter. My noble friend will also be interested to hear about that report. She identified an important issue, that of legal costs that are incurred by landlords and how they are passed on as service charges. I do not feel able to accept her amendment but I shall write to my ministerial colleagues at the Ministry of Justice and DCLG alerting them to the issue, making sure that they consider the points that she made very carefully. I will ensure that we follow through as a Government and I will see her again if the need arises. There is a willingness to take this forward. In the circumstances, I hope that she will feel able to withdraw her amendment.

[Baroness Gardner of Parkes]

I must thank those who have spoken on this issue and pay credit to the noble Baroness, Lady Hayter, who got her amendment through on the Enterprise and Regulatory Reform Bill. That was extremely valuable and will be most important for many people.

The statement that I welcome most in what the Minister has just said is that she will be in touch with the Justice and Communities departments, because the lack of connection between the two has been a great problem. Whenever I have tabled a Question for one, it has been answered by the other one. Even when the previous Lord Chancellor told me exactly how to word it—he told me, “Justice has to answer that”—it did not do so; Communities answered it. The Minister at that time said, “They just said, ‘You’ve got it, we don’t want it’”. So we really need to bridge those two departments to get anywhere with this matter.

I want to comment on the Minister’s suggestion that my amendment could in any way restrict the landlord from ever recovering his costs. That is not so at all, and I think that if her department looks carefully at the amendment’s wording she will see that it is only when the landlord has lost his case. The tribunal can always award costs in any case. But in a case where it has decided strongly against the landlord, and he has even perhaps gone through an appeal and it has denied that as well, I think it would be very wrong. Disguising costs as a service charge would also be very wrong.