Leaseholders: Service Charges - Question

– in the House of Lords at 3:08 pm on 20th July 2022.

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Photo of Lord Kennedy of Southwark Lord Kennedy of Southwark Shadow Chief Whip (Lords), Deputy Chairman of Committees 3:08 pm, 20th July 2022

To ask Her Majesty’s Government what steps they propose to take to ensure service charges paid by leaseholders are fair and reasonable.

Photo of Lord Kennedy of Southwark Lord Kennedy of Southwark Shadow Chief Whip (Lords), Deputy Chairman of Committees

My Lords, I beg leave to ask the Question standing in my name on the Order Paper. In doing so, I declare my interest as a leaseholder.

Photo of Baroness Bloomfield of Hinton Waldrist Baroness Bloomfield of Hinton Waldrist Baroness in Waiting (HM Household) (Whip)

My Lords, by law, service charges must be reasonable and, where costs relate to work or services, the work or services must be of a reasonable standard. Leaseholders may make an application to the appropriate tribunal to challenge the reasonableness of their service charges. We are committed better to protect and empower leaseholders by giving them more information on what their costs pay for. This will help them to challenge their landlords more effectively if they consider their fees unreasonable.

Photo of Lord Kennedy of Southwark Lord Kennedy of Southwark Shadow Chief Whip (Lords), Deputy Chairman of Committees

My Lords, leaseholders are seriously disadvantaged in disputes with freeholders and management service companies about the service charges, ground rent or any other aspect of their tenure. The present arrangements are not fit for purpose. When will the Government take action on this matter?

Photo of Baroness Bloomfield of Hinton Waldrist Baroness Bloomfield of Hinton Waldrist Baroness in Waiting (HM Household) (Whip)

The Government do indeed recognise that the existing statutory requirements do not go far enough to enable leaseholders to identify and challenge unfair costs. The Government have said that they will take forward further legislation on leaseholds in the next Session.

Photo of Lord Young of Cookham Lord Young of Cookham Deputy Chairman of Committees

My Lords, would not the problems mentioned by the noble Lord, Lord Kennedy, and other problems faced by leaseholders be addressed by the promised leasehold reform Bill, originally planned for this Session but now delayed until the next? On 20 June, my noble friend Lord Greenhalgh told me that the delay would be used to draft the Bill. Would it not expedite the eventual passage of the Bill if it was published in draft and subjected to scrutiny by this House?

Photo of Baroness Bloomfield of Hinton Waldrist Baroness Bloomfield of Hinton Waldrist Baroness in Waiting (HM Household) (Whip)

I can only agree that it would indeed expedite the eventual passage of the Bill. I know that my noble friend appreciates that the former Secretary of State said that it was unlikely, and that my noble friend Lord Greenhalgh also said that a draft Bill would be ideal but was dependent upon the capacity of parliamentary counsel. Everyone is looking forward to this legislation, and it has already been announced for the next Session. I can only relay to the department the oft-stated opinion of many Members on all sides of the House that this draft Bill will be welcomed.

Photo of Baroness Uddin Baroness Uddin Non-affiliated

My Lords, what are the Government doing to ensure that not only experts on these matters in this House but long-suffering leaseholders and their representative organisations are consulted prior to any draft Bill being published?

Photo of Baroness Bloomfield of Hinton Waldrist Baroness Bloomfield of Hinton Waldrist Baroness in Waiting (HM Household) (Whip)

A number of consultations have taken place, including that of the noble Lord, Lord Best. As to the specific consultation to which the noble Baroness refers, one may well be happening but I am not aware of it. I will write with further clarification.

Photo of Viscount Hanworth Viscount Hanworth Labour

My Lords, management companies are buying up leaseholds in order to impose exorbitant charges. At what stage does this become a criminal activity?

Photo of Baroness Bloomfield of Hinton Waldrist Baroness Bloomfield of Hinton Waldrist Baroness in Waiting (HM Household) (Whip)

As I have said, service charges are governed by law and must be reasonable. I do not think I can go much further in that regard.

Photo of Baroness Fookes Baroness Fookes Deputy Chairman of Committees, Deputy Speaker (Lords)

My Lords, can my noble friend help with a particularly invidious situation? A leaseholder may feel that he is being charged extortionate fees for gas and electricity by his supplier, but the supplier also happens to be his landlord.

Photo of Baroness Bloomfield of Hinton Waldrist Baroness Bloomfield of Hinton Waldrist Baroness in Waiting (HM Household) (Whip)

My noble friend makes a very good point. Tenants who purchase their gas and electricity from their landlords, including when it is bundled with other service charges, are protected from excessive charges by the maximum resale price provisions from the regulator Ofgem. The provisions prevent landlords reselling energy to tenants at a higher price than they paid to the licensed energy supplier. Tenants are entitled to receive a breakdown of the landlord’s costs, on request. That should include details of the cost of electricity and/or gas, standing charges and the VAT paid.

Photo of Lord Best Lord Best Crossbench

My Lords, exorbitant and disproportionate fees, charges and commissions were a key reason why the Government’s Regulation of Property Agents Working Group, which I had the pleasure of chairing and which reported three years ago almost to the day, wanted there to be a regulator for property agents, including the managing agents of leasehold property. The Government have specifically promised this on many occasions. Is somebody within the Department for Levelling Up, Housing and Communities specifically working on the creation of a regulator for property agents? If someone is, I live in hope. If not, I go away very frustrated.

Photo of Baroness Bloomfield of Hinton Waldrist Baroness Bloomfield of Hinton Waldrist Baroness in Waiting (HM Household) (Whip)

The noble Lord asks a very good question. I am not sure whether somebody is working on that specific point, but there is a large group within that department that works on all ways of raising professionalism. We are looking at the report of the noble Lord and his working group on the regulation of property agents and are continuing to work with industry to improve best practice. I will take his plea for a regulator back to the department.

Photo of Baroness Thornhill Baroness Thornhill Liberal Democrat Lords Spokesperson (Housing)

The report of the working group chaired by the noble Lord, Lord Best, provided significant evidence of what I call the theft of moneys from leaseholders. These same companies are about to be handed huge sums, as they are responsible for the remediation of vast numbers of blocks of flats post-Grenfell. This area is ripe for exploitation and dubious practices, as outlined in the report of the noble Lord, Lord Best. Does the Minister share my concerns and those of that working group? If so, what needs to be done about it? Does she agree with me that this is white-collar crime affecting tens of thousands of ordinary leaseholders?

Photo of Baroness Bloomfield of Hinton Waldrist Baroness Bloomfield of Hinton Waldrist Baroness in Waiting (HM Household) (Whip)

My Lords, this is one of the reasons why the Government have brought forward a suite of legislation: to stop these sorts of practices, regulate agents and landlords more effectively and help leaseholders manage large one-off major bills which may be a source of corruption when they are given to a company associated with the freeholder. The existing Section 20 consultation process in the Landlord and Tenant Act 1985 means that where leaseholders are contributing to the upkeep and maintenance of a building, they have sufficient input into how their money is spent. The report by the noble Lord, Lord Best, set out proposals for improving the existing processes, and we are considering those recommendations.

Photo of Lord Campbell-Savours Lord Campbell-Savours Labour

My Lords, is not the reluctance of some freeholders and their agents to provide information to leaseholders about their identity, along with their refusal to discuss leasehold and wider services charge issues, a flaw in the system? Why cannot the law be amended to allow greater transparency over freehold, leasehold and sublease title ownership issues, going further than the proposed Bill mentioned by the noble Lord, Lord Young of Cookham? Without greater access to such information, leaseholders lack leverage and are often powerless to influence service charges.

Photo of Baroness Bloomfield of Hinton Waldrist Baroness Bloomfield of Hinton Waldrist Baroness in Waiting (HM Household) (Whip)

I commend the noble Lord on his often interesting suggestions for the department, particularly on leasehold. I note that in the last series of questions, he suggested rolling up unaffordable services charges for vulnerable groups, and I undertake to take the idea of a debenture against property title back to the department if it has not already been considered. As for his question today, there are a number of existing ways in which leaseholders can obtain details of their landlord. A written statement of the landlord’s name and address must be given on request under the Landlord and Tenant Act 1985. Failure to comply with the request is an offence. In respect of information about service charges, any ground rent or service charge demand must include the name and address of the landlord. If that address is not in England and Wales, it must include an address in England and Wales at which notice may be served on the landlord by the tenant. Her Majesty’s Land Registry can also provide a copy of the relevant lease for a property for a fee.

Photo of Lord Bellingham Lord Bellingham Conservative

My Lords, does it concern the Minister that there is evidence that some insurance companies are charging excessive and non-transparent commissions?

Photo of Baroness Bloomfield of Hinton Waldrist Baroness Bloomfield of Hinton Waldrist Baroness in Waiting (HM Household) (Whip)

It does indeed concern the Government, which is why we have renewed our guidance on insurance. We are aware that some buildings are currently unable to secure adequate and affordable building insurance. The department has called on the Financial Conduct Authority and the CMA to review buildings insurance premiums. The FCA published an interim report on the buildings insurance review on 10 May, and we are exploring all possible interventions to resolve the crisis in the building insurance sector which is affecting a large number of leaseholders.

Photo of Baroness Fox of Buckley Baroness Fox of Buckley Non-affiliated

My Lords, the Minister has said several times that service charges must be governed by law and must not be unreasonable, but they are unreasonable. They are going up exponentially and leaseholders are tearing their hair out. To give the Government credit, some real progress was made under the noble Lord, Lord Greenhalgh, and Michael Gove when he was the Secretary of State, but leaseholders now feel abandoned. At the very least, could the Minister assure leaseholders from the Dispatch Box that they have not been forgotten? Platitudes saying that service charges are reasonable and within the law do not work. Leaseholders are now having to pay far beyond their means.

Photo of Baroness Bloomfield of Hinton Waldrist Baroness Bloomfield of Hinton Waldrist Baroness in Waiting (HM Household) (Whip)

I can of course give that reassurance, and I shall try not to take the noble Baroness’s comments personally; I endeavour to take issues such as this back to the department. By law, if leaseholders feel that their service charges are unreasonable, they can take their case to the appropriate tribunal, which is the First-tier Tribunal (Property Chamber) in England and the Leasehold Valuation Tribunal in Wales. Even if they have already paid their service charge, they can still make an application to that tribunal. Of course, the problem is that the lease will often dictate that if a leaseholder takes a case against their freeholder, the leaseholder is still liable to pay the freeholder’s fees even if they win the case. Again, we are looking to legislate against that.