First-tier Tribunals and Freeholders

Petition - Home Education: Draft Guidance and the Consultation – in the House of Commons at 7:07 pm on 24th July 2018.

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Motion made, and Question proposed, That this House do now adjourn.—(Andrew Stephenson.)

Photo of Jim Fitzpatrick Jim Fitzpatrick Labour, Poplar and Limehouse 7:09 pm, 24th July 2018

I am delighted to be here this evening. There have been several obstacles to the debate taking place, but we are here none the less, and I am pleased to see the Minister in the Chamber.

I secured the debate to highlight some of the things that seem to have gone terribly wrong with the property tribunal procedures. We know that the Ministry of Housing, Communities and Local Government is committed to reforming the law in respect of leasehold tenure, but the Ministry of Justice needs to do more in respect of first-tier tribunals. I am grateful to Martin Boyd of the Leasehold Knowledge Partnership for his extensive assistance with this speech, and I am glad to see other colleagues who take an interest in these matters in the Chamber.

The property tribunal, or first-tier tribunal, is described as “quite informal” by the Government-funded Leasehold Advisory Service, which states:

“Tribunal hearings are quite informal. You can state your own case or have a friend or professional to speak for you. The Tribunal normally sits as a panel of three consisting of one legally trained member, one surveyor and one lay person to provide a balanced perspective. The Tribunal panel have control over the hearing and will decide in which order things are dealt with…You may require the services of a solicitor.”

That might be a correct statement in respect of some smaller cases involving smaller landlords, but in almost all large cases, or in cases involving large landlords, the tribunal process can be not only horribly complex, but formal and expensive.

Photo of Jim Shannon Jim Shannon Shadow DUP Spokesperson (Human Rights), Shadow DUP Spokesperson (Health)

This is an important issue. Does the hon. Gentleman agree that the Law Society must do all that it can to encourage firms to provide pro bono legal advice so that help is available for tenants if they are in a tribunal facing a big-firm opponent that is lawyered up?

Photo of Jim Fitzpatrick Jim Fitzpatrick Labour, Poplar and Limehouse

The hon. Gentleman makes a good point about the advice available to individuals who seek redress in law and where they might seek it. As I will go on to explain, the playing field is not at all level in these tribunals. I hope that the Minister will comment on that later.

Photo of Bob Stewart Bob Stewart Conservative, Beckenham

I was under the impression that first-tier tribunals were meant to be informal. We do not really want lawyers there; we want tribunals to look at the case and to give a decent, sensible, honest judgment.

Photo of Jim Fitzpatrick Jim Fitzpatrick Labour, Poplar and Limehouse

The hon. Gentleman make a good point. He is quite correct that these tribunals are supposed to be an informal means of dispute resolution, although it is thought appropriate for people to have some legal advice if they need it. However, we now regularly see highly specialist barristers and even QCs appearing for landlords before what are often part-time solicitor judges in what are meant to be our lowest form of court. Cases often go on for days, with landlords’ counsel ponderously reviewing the most basic elements of a lease and the simplest issues of law. In some cases, tribunals seem to allow counsel to pontificate on the rights supposedly provided to leaseholders, which can be either uneconomic or impossible to apply. It may be true to say that the tribunal procedure rules are less formal than the civil procedure rules in the main courts, but this often seems to work to the benefit of well-represented landlords rather than leaseholders. Landlords are often able to ignore tribunal procedure rules with impunity.

There is a total costs imbalance at the tribunal. What was meant to be a low-cost forum has now become a costs regime that benefits only one side, and that side is the landlord. It is a one-sided arms race. In almost all cases, the landlord now arrives at the tribunal knowing full well that they will probably have a right to their costs under the terms of the lease. The tribunal has some powers to limit costs, but those powers are often ineffectual and may not be applied, even if the leaseholders win. Conversely, the leaseholder arrives at the tribunal knowing that they have no right to recover their costs under almost all circumstances.

Let us take a hypothetical situation in which a landlord overcharges 1,000 leaseholders £250 each. If the individual leaseholders want to dispute those charges, a single letter from their solicitor will probably cost them more than they could ever recover, but the landlord can afford to invest a substantial amount of the £250,000 that they may have overcharged to defend their position.

Photo of Chi Onwurah Chi Onwurah Shadow Minister (Department for Business, Energy and Industrial Strategy) (Industrial Strategy)

My hon. Friend is raising an important point in his very important speech. Does he agree that this disparity of resources and funds is particularly iniquitous when the landlord is a charity and is using the funds not to give the leasehold to their tenants? That is the case with the St Mary Magdalene and Holy Jesus Trust in Newcastle.

Photo of Jim Fitzpatrick Jim Fitzpatrick Labour, Poplar and Limehouse

My hon. Friend makes an interesting point. It is very dispiriting to see charities and other institutions that one imagines would be on the side of morality and fairness being caught up with offshore tax evaders and individuals who are unscrupulously taking money from leaseholders hand over fist and not actually looking after the building. Some institutions and individual organisations that are freeholders and landlords aid and abet developers to make this an unlevel playing field, and that is most dispiriting.

Let me go back to the point that I was making. If leaseholders want to take joint action, and that is if they can actually find each other—in multiple developments, there are investors who own the properties and people who sublet the properties, so it is not always easy to find them—someone will have to take on the burden of the work, knowing that they will never be paid for their time and effort. Almost inevitably, the leaseholders will recover only part of the £250,000, given that the test of reasonableness for costs at the tribunal has no concept of “good value”, let alone “best value”. Even if the leaseholders win, and the tribunal limits the landlord from passing on costs, it may not happen. With many developments, leaseholders have found that it is heads the landlord wins, and tails the leaseholders lose.

Under the Landlord and Tenant Act 1987, a badly managed development can apply to the first-tier tribunal for the appointment of a manager independent of the landlord who has mismanaged the site. This is known as a section 24 appointment. Removing a landlord’s management can be difficult. It can take more than one attempt, and each time costs are awarded against the leaseholders. Those costs can run to several hundreds of thousands of pounds—more like Supreme Court costs than those of first-tier tribunals. Freeholders can try to obstruct the court-appointed manager from doing his or her job. Some have been known to try to block residents from forming their own association to represent them. I have residents who have successfully resorted to the tribunal system to force the freeholder to recognise them. In one instance, the landlord appointed a Queen’s Counsel to fight their case, and they compared residents’ associations to 1970s militant trade unions—in this instance, the leaseholders were City professionals. Incidentally, as a 1970s trade union member myself, I feel a bit insulted that that was said as some kind of disparaging comment. Despite losing, the freeholder and landlord sought costs for a half-day hearing totalling £74,560, which the leaseholders had to pay. It is surreal.

Landlords in the social sector have also started to use highly expensive counsel. The Government could and should do something to stop this practice when the process should be about the facts of the case, rather than convoluted arguments about the law. I give as an example a social landlord in my constituency who also happened to be trying to stop a residents’ association from being recognised. The landlord went so far as to take a group of residents to the tribunal in three separate cases. The landlord presented a bundle of documents only on the day of the hearing in the second case, which was put down to “an internal reorganisation”, but also registered errors of fact from the original hearing. Only after a third hearing in the upper tribunal was the matter finally settled, with the residents gaining their formal recognition. Even though the leaseholders won in the second hearing, the landlord still sought to obtain not just a costs award, but a wasted costs order against the leaseholders. The net outcome of the case is that the social landlord will have less to spend on their buildings, their tenants and their residents, having spent large amounts on third-party lawyers.

That brings me to the main issue that I want to raise today: section 24 appointments. When the tribunal appoints a section 24 manager, that manager acts as an officer of the court. He or she is required to act impartially in the best interests of the building. In theory, they are meant to report to, and to be supported by, the tribunal that appointed them. The reality seems to be that, once appointed, the tribunal has little interest in supporting its manager, who may face challenges from the landlord. In one case in my constituency, the court-appointed manager sought advice from the tribunal. The tribunal has repeatedly declined to support its manager.

The purpose of a section 24 appointment is to replace the landlord’s failed management, and then effectively to set out the business plan for the management of the site. The tribunal has wide powers in drafting this order, which can go wider, giving the manager powers beyond those provided for in the lease. The first-tier tribunal has powers to move problem cases to the upper tribunal, but that does not seem to happen, and certainly not in the experience of a number of my constituents. Furthermore, there appear to be many in the legal profession who are only too happy to take advantage of a system that charges leaseholders costs whether they win or lose. That cannot be right and sounds like very unprofessional conduct. There are millionaires with fortunes to protect, and cash cows such as developments in my constituency that keep them rich.

My constituency has the second highest number of leasehold properties in the country. Some are owned by well-off City professionals who know their rights and will fight for them, no matter the intimidation and the pressure laid against them. Some of these leaseholders are young individuals, couples and families starting out who are compromised by service charge hikes, and unfair and expensive refurbishment costs post-Grenfell. They will defend their homes, but the law is against them. And some of these leaseholders are pensioners who exercised their right to buy, or subsequent buyers of right-to-buy flats and houses who are also at the mercy of a landlord who might be a housing association—a registered provider. The one thing that these people all have in common is that they will find that the first-tier tribunal disputes resolution procedure, which is supposed to be simple, inexpensive and informal, is no such thing.

The Government have recognised that leaseholders need better regulation and that their homes are undervalued and under-protected. Housing, Communities and Local Government Ministers have pronounced in recent months that they are looking at all aspects of tenure, including: spiralling ground rents; hikes in service charges; inflated refurbishment costs; overpriced insurance; outrageous event fees; forfeiture; difficulty securing lease extensions; non-recognition of residents associations; selling of houses as leasehold; and bullying and harassment. If that list was not bad enough, post-Grenfell there are the fire protection costs for the removal and replacement of defective cladding, interim arrangement costs and the rest. The first-tier tribunal is supposed to offer a simple, informal and inexpensive way forward—they wish! I look forward to hearing what the Minister has to say to explain or defend the procedure as it stands because, in the experience of my constituents, it stinks.

The Ministry is on record saying that it will review leasehold tenure and all its failings, and will be bringing forward legislative and regulatory proposals in due course. This has been echoed by the former Secretary of State, the present Secretary of State and the Prime Minister, and those comments are very welcome. Governments have been trying to fix leasehold for 30 years, but both Labour and Conservative Administrations have failed. I will be grateful for some reassurance from the Minister that her Department is signed up to the Government’s reforms and will improve the legal protection available to leaseholders through the first-tier tribunal system and section 24 powers. Indeed, I would be grateful if officers of the all-party parliamentary group on leasehold and commonhold reform could meet the Minister, at some point in the weeks and months ahead—at her convenience—to discuss these issues. I look forward to the Minister’s response.

Photo of Lucy Frazer Lucy Frazer The Parliamentary Under-Secretary of State for Justice 7:23 pm, 24th July 2018

I congratulate Jim Fitzpatrick on securing today’s debate on a subject that is clearly very important to his constituents, as it is to other Members in the House. I thank the other hon. Members present for their valuable contributions, particularly Jim Shannon. I was very interested to hear in the last debate that it was his 44th speech in this Session. I am pleased that he has remained for the final debate before the recess.

It might be useful for me to explain a little bit more about the first-tier tribunal and the matters it deals with. The chamber was created in 2013 following the transfer of the functions of three tribunals—the agricultural land tribunal, the adjudicator for the Land Registry, and the residential property tribunal—into the first-tier tribunal. The residential property jurisdiction deals with a number of matters relating to landlord and tenant law, including leasehold enfranchisement and lease extensions, liability to pay service charges, variations of leases, and the acquisition of the right to manage. It is an expert jurisdiction. The tribunal panels include valuers and, as the hon. Member for Poplar and Limehouse said, lay people with experience of landlord and tenant matters.

I turn to the specific question of the powers of the first-tier tribunal to appoint a manager under section 24 of the Landlord and Tenant Act 1987, and how they are enforced. Section 24 allows the first-tier tribunal to appoint a manager to carry out obligations contained within a management order that is issued by the first-tier tribunal. Although the tribunal makes the appointment, it is often the case that leaseholders apply for a manager to be appointed because the landlord has in some way breached the management obligations that it owes to them. In most cases, before the leaseholders make such an application, they must serve a notice on the landlord specifying in broad terms the landlord’s alleged breaches and what the landlord must do to remedy them. If the landlord does not take remedial action within a reasonable period, the leaseholders may then apply to the first-tier tribunal for the appointment of a manager.

Usually, the party applying nominates the individual manager they wish to have appointed, who is then required to prepare a management plan setting out his or her experience and explaining how he or she will manage the property. The first-tier tribunal has wide powers to decide on the matters to be included in a management order under section 24, which will typically deal with initial transfer of information, documentation, money and other items necessary for the manager to be able to perform his duties properly. It will also cover which management matters were transferred to the manager, such as maintenance, repairs, and collection of service and other charges from the leaseholders.

It might be helpful to explain the manager’s status in this type of arrangement. The manager is not a managing agent, nor is he employed or directed by the landlord or the leaseholders, including those who apply for his appointment. The Court of Appeal has stated that the appointed manager carries out the functions required by the tribunal, and he or she carries out those functions in his or her own right as a tribunal-appointed official. He is not appointed as the manager of the landlord or to carry out the landlord’s wider obligations under the lease, unless specified in the management order. In an appeal to the upper tribunal, His Honour Judge Huskinson said that if there is criticism of the conduct of the appointed manager and complaints are brought before the tribunal, those criticisms must and will be examined with care, because they are made against the manager as a tribunal-appointed officer.

To be clear, the manager is appointed by the first-tier tribunal to carry out the duties required by the order appointing him. He is answerable to the tribunal, not to the leaseholders or to the landlord.

Photo of Bob Stewart Bob Stewart Conservative, Beckenham

So who do people who have a complaint about the way that the management is functioning—leaseholders, in particular—go to if the manager is not answerable to them? Do they have to go to the tribunal again, or what?

Photo of Lucy Frazer Lucy Frazer The Parliamentary Under-Secretary of State for Justice

As the manager is a court-appointed officer, people can complain directly to the tribunal about his actions. The manager is a court-appointed officer answerable to the court, and any issues in relation to his conduct would be brought before the tribunal.

The hon. Member for Poplar and Limehouse asked about the support and protection available to managers who are carrying out their duties in what can be very difficult circumstances. As I said, the obligations are set out in full in the management order. It is for the first-tier tribunal to decide how the order is to operate and how the manager is to fulfil his obligations.

If a landlord is being so obstructive that the terms of the management order cannot be fulfilled, the manager can apply to the first-tier tribunal for further directions, and an order under section 24(4) can be made. Such an application can include a request that a penal notice be attached to the management order, and if a penal notice is attached and the landlord disregards it, the manager can apply to the county court for permission to enforce the management order. Enforcement of any provision of a section 24 management order, monetary or otherwise, is a matter for the county court, not the tribunal. That includes enforcement of penal notices that can attach to such orders.

The hon. Gentleman raised an important point about the inequality in some cases in relation to parties in the property chamber. He was right to say, as my hon. Friend Bob Stewart was, that certain features of the tribunal are designed to make it less formal and more accessible than the courts. Where one side has retained legal representation, tribunal members are trained not to permit attempts at oppressive behaviour by legal representatives and will help unrepresentative parties to frame questions where necessary.

The hon. Member for Poplar and Limehouse made some interesting points about inequality in respect of costs. Parties should meet their own costs of litigating in the tribunal system, even when they are successful in their own claim. There are powers, however, for costs to be awarded where there is unreasonable behaviour. The tribunal has powers under its rules if applications are being brought oppressively by those with a stronger bargaining position and stronger powers. It can strike out proceedings that are frivolous, vexatious or abusive under rule 9(d), or if there is no reasonable prospect of an application succeeding under rule 9(e), but I acknowledge that he made interesting points in relation to costs.

The hon. Gentleman mentioned quite rightly that the MHCLG is looking at a wide variety of matters in the area of leaseholds. We are always looking to improve our processes. On 2 July my right hon. Friend the Secretary of State for Housing, Communities and Local Government announced that the Government would issue a call for evidence this autumn, to better understand the experience of people using the courts and tribunals services in property cases, including considering the case for a specialist housing court. My Department is also discussing with MHCLG officials what further work is necessary to speed up the appeals process for housing disputes across the courts and tribunals.

The hon. Gentleman asked to meet, and I would be very happy to meet him, to continue to discuss this important matter. I thank him again for securing the debate. It is right that we look at how we can continue to protect people and their property rights.

Question put and agreed to.

House adjourned.