Clause 31 - Limitation on ability of landlord to charge insurance costs

Leasehold and Freehold Reform Bill – in a Public Bill Committee at 3:30 pm on 25 January 2024.

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Amendment made: 49, in clause 31, page 50, line 24, leave out from beginning to “insert” in line 25 and insert

“After section 20F of the LTA 1985”.—(Lee Rowley.)

This amendment is consequential on Amendment 51.

Photo of Barry Gardiner Barry Gardiner Labour, Brent North

I beg to move amendment 151, in clause 31, page 50, line 32, leave out from beginning to end of line 32 and insert—

“(a) exceed the net rate charged by the insurance underwriter for the insurance cover, and”

This amendment would define an excluded insurance cost as any cost in excess of the actual charge made by the underwriter for placing the risk, where such cost is not a permitted insurance payment.

Photo of Clive Efford Clive Efford Labour, Eltham

With this it will be convenient to discuss the following:

Amendment 135, in clause 31, page 50, line 34, at end insert—

“(2A) Costs for insurance are also ‘excluded insurance costs’ where—

(a) a recognised tenants’ association has not been provided in advance with three quotations from reputable insurance companies or brokers, or

(b) the recognised tenants’ association has not had the opportunity to submit a further quotation (in addition to the quotations required by paragraph (a)), which the landlord must consider prior to placing the insurance.”

This amendment would require a landlord to provide a recognised tenants’ association with three insurance quotes before placing the insurance, and provide an opportunity for a recognised tenants’ association to submit an alternative quotation.

Amendment 152, in clause 31, page 50, line 35, leave out from beginning to end of line 6 on page 51.

This amendment, to leave out subsection (3) of the proposed new section 20G of the Landlord and Tenant Act 1985, is consequential on Amendment 151.

Amendment 153, in clause 31, page 51, line 18, at end insert—

“(5A) The regulations must specify a broker’s reasonable remuneration at market rates as a permitted insurance payment.

(5B) The regulations must exclude any payment which arises, directly or indirectly, from any breach of trust, fiduciary obligation or failure to act in the best interests of the tenant.”

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

Amendment 137, in clause 31, page 52, line 24, leave out third “the” and insert “a reasonable”.

This amendment would ensure that the costs which a landlord can recover from tenants in making “permitted insurance payments” are reasonable.

Clause stand part.

Amendment 154, in clause 32, page 51, line 3, leave out “Sub-paragraph (2) applies” and insert

“Sub-paragraphs (1A) and (2) apply”.

This is a paving amendment for Amendment 155.

Amendment 155, in clause 32, page 53, line 5, at end insert—

“(1A) Within six weeks of the insurance being effected, the insurer, or, where the insurance has been arranged by a broker, the broker, must provide all tenants with a written copy of the contract of insurance.”

This amendment would ensure that tenants are provided with the contract of insurance which covers their building.

Amendment 136, in clause 32, page 53, line 12, at end insert—

“(2A) Regulations under sub-paragraph (2) must specify the contract of insurance containing the full extent of the protection afforded by the insurance, and the associated costs.”

This amendment would require a landlord to provide a tenant with the contract of insurance containing the full extent of the protection afforded by the insurance, and the associated costs.

Amendment 156, in clause 32, page 53, line 22, leave out from beginning to the end of line 23.

This amendment, to remove sub-paragraph (7) of new paragraph 1A of the Schedule to the LTA 1985, would remove the landlord’s right to charge tenants for providing them with information about insurance.

Amendment 157, in clause 32, page 54, line 20, leave out from beginning to the end of line 21.

This amendment, to remove sub-paragraph (7) of new paragraph 1B of the Schedule to the LTA 1985, would remove the right of a person required to provide information about insurance from charging for providing that information.

Amendment 138, in clause 32, page 54, line 21, after “the” insert “reasonable”.

This amendment would ensure that the costs payable by a landlord for information requested by him from another person, under paragraph 1A(2)(a), are reasonable.

Clause 32 stand part.

New clause 41—Building insurance and section 39 of the Financial Services and Markets Act 2000—

“A landlord may not manage or arrange insurance for their building under the protections of section 39 of the Financial Services and Markets Act 2000.”

This new clause precludes a landlord from operating as an appointed representative under the licence of Broker, where the landlord has no such licence themselves.

Photo of Barry Gardiner Barry Gardiner Labour, Brent North

Gosh, that is quite a mouthful of a group! I draw the attention of the Committee in the first instance to amendments 151 to 153. I welcome the fact that the intention behind the Bill is to improve the situation with regard to insurance charges; I make it clear to the Minister that I do recognise that. Together, however, those amendments would prevent the Bill from excluding different descriptions of the type of costs that are excluded. Amendment 151 would change the definition of the actual cost that is permitted to a much tighter one, namely that which the underwriter has charged. Amendment 153 would add that the reasonable brokerage that the broker is charging the client, who is the landlord, is recoverable at prevailing market rates.

There is also the issue of fiduciary duty. Fiduciary duty and breach of trust are important, because the leaseholder on whose behalf the insurance is being arranged by the landlord has an insurable interest in the property. That means that the landlord, in affecting the insurance, is doing so not only on his own behalf but on behalf of the leaseholders; otherwise, the leaseholders would not be paying for it. The landlord is technically an agent of the leaseholder, and the law of agency in common law is specific about the duties of an agent to their principal. In particular, they may not do anything against their principal’s interest, as that would be a breach of trust. That means that should a landlord do anything improper to increase his own revenues against the leaseholder’s interest, he would be guilty of a breach of trust, and the leaseholder would and should be able to recover under common law and have a remedy for it.

Together, the amendments would provide a tight circumscription of what should be permitted as the recoverable costs when placing insurance, but of course I have left wiggle room for the Secretary of State, who is still able to specify in the secondary legislation anything that he or she thinks reasonable, so it is not a straitjacket. I hope that the Minister will understand that this gives much greater clarity to the notion of permissible insurance costs and much greater clarity, which I think is what he seeks in the Bill, to that which properly ought to be excluded. I have not constrained it so greatly that secondary legislation could not come into force to make something else permissible.

Amendment 135 would require a landlord to provide a recognised tenants association with three insurance quotations before placing the insurance, and to provide an opportunity for a recognised tenants association to submit an alternative quotation. In its multi-occupancy buildings insurance investigation, the Financial Conduct Authority found evidence of at least £80 million in insurance kickbacks going to landlords and their managing agents paid for by leaseholders. The amendment would bolster the rights of a recognised tenants association, which successive Governments have supported and sought to protect. Although it would not give the RTAs the power to place the insurance policy, it would help them to close the informational asymmetry with the landlord and pressure them to get a competitive deal by submitting their own quote.

I point out to the Minister that where capital works are being done under a section 20, that is exactly the procedure that would be in operation. The landlord would provide quotations, and the RTA would have the opportunity to submit its own quotation for the work to be done. It seems to me that introducing that same procedure for insurance would be extremely helpful.

Amendment 137 would ensure that the costs that a landlord can now recover from tenants in making permitted insurance payments are reasonable. Although the reasonableness of the cost of buildings insurance can be difficult to prove, especially in a market where brokers are often loth to quote to anyone who cannot place the insurance, the reasonableness test for service charges is the last line of defence for many. I do not think that the insurance scheme in the Bill can fail to make reference to the reasonableness of the permitted insurance payments. The Minister may well say that that will be prescribed in secondary legislation, but I seek to probe him on the point.

Amendment 136 is an important amendment that would require the landlord to provide a tenant with a contract of insurance containing the full extent of the protections afforded by the assurance and the associated costs. In the Bill, we have gone to great lengths to ensure that the leaseholder, as the assured, is able to access information from the landlord, but we heard in the evidence submitted to us by the witnesses in the evidence sessions that there should be a shortcut. The FCA rules already state that, if approached, an insurance company has to provide the information, although we then found out that the landlord did not have to tell leaseholders who the insurance company was; and we know about the difficulties in securing information from a landlord.

Would it not make sense to the Minister to have amendment 136 on the face of the Bill? This information is in the schedule of insurance. The underwriters want to know, “What is it I’m insuring?” They know exactly which units are in that block and exactly what is going on in that block. Therefore, they have the information to do it directly. It seems to me that the amendment would be a far more efficacious way of achieving the objective that the Minister has rightly set out in giving powers to acquire the information from the landlord; it would be far easier and far cheaper simply to say that the insurer has to do it.

Amendment 138 would ensure that the costs payable by a landlord for information requested by him from another person are reasonable. I am sorry that that was a lot, but it is a big grouping. Absolutely at the heart of the issue are amendments 151 to 153 and, ultimately, new clause 41, but we do not get to that until later, I understand.

Photo of Clive Efford Clive Efford Labour, Eltham

Order. We are debating new clause 41 now.

Photo of Barry Gardiner Barry Gardiner Labour, Brent North

Fine. In that case, let me speak to new clause 41, which

“precludes a landlord from operating as an appointed representative under the licence of broker, where the landlord has no such licence themselves.”

The whole point of this new clause, which goes to that issue of fiduciary duty and agency, is that at the moment, landlords can operate under the licence of a broker to provide brokerage services. If we were to take away that capacity from them by passing new clause 41, we would then have circumscribed the way in which a landlord would be able to game the system, because they would not be able to operate under the protections that the Financial Services and Markets Act 2000 affords them, operating under somebody’s licence when they themselves do not have those qualifications.

I am unsure whether this is a proper interest to declare, but I am an associate of the Chartered Insurance Institute. That was many, many years ago; I am not practising now, but I have mentioned it just in case. I think that landlords are getting away with murder by operating in this way, and it would be good to close that loophole to bring it all very tightly together. I appreciate that amendments 151 to 153 and new clause 41 have to be seen as a unit, but they really do give the Minister the opportunity to do what I think he is attempting to do through the Bill, but in a tighter and more effective way.

Photo of Matthew Pennycook Matthew Pennycook Shadow Minister (Levelling Up, Housing, Communities and Local Government) 3:45, 25 January 2024

I will be fairly brief, because my hon. Friend covered a lot of detail. He is right to do so, because these are important clauses. We welcome the intent behind them, and we think they have the potential to address a very serious problem that has plagued leaseholders across the country for many years. Not just those in buildings with fire safety defects who have seen their insurance premiums soar in the aftermath of the Grenfell fire, but across the board, we are seeing leaseholders face unreasonable and in many cases extortionate buildings insurance commissions that the property managing agent, landlords and freeholders have charged through the service charge. We discussed this in our evidence sessions last week. The Financial Conduct Authority’s report of September last year on the subject of insurance for multi-occupancy buildings found evidence of high commission rates and poor practice, which were “not consistent” with driving fair value to the customer.

The FCA also found—I put this question to one of the witnesses in our evidence sessions, because I find it quite staggering—that the mean absolute value of commissions more than doubled between 2016 and 2021 for managing agents and freeholders of buildings with fire safety defects. Put simply, in far too many instances, managing agents, landlords and freeholders have been gouging leaseholders in this area with impunity. In practice, the effectiveness of this clause will hinge almost entirely on whether the definition of “excluded insurance costs” is sufficiently tightly drawn, and how we define “permitted insurance payments” for the purposes of specifying what payments can be charged.

I appreciate fully that the Minister will be bringing the necessary detail forward through regulations and we will scrutinise them very carefully when that happens. My right hon. Friend—sorry, just hon. Friend, but it is only a matter of time—the Member for Brent North is right to try to strengthen the clauses, because although the permitted insurance payments must be attributable to a permitted insurance, there is nothing on the face of the Bill to ensure that they or the cost of providing information in relation to them is reasonable to the leaseholders. As far as we understand the clause, there is no guarantee that leaseholders will be able to transparently scrutinise quotes or the agreed contract. We fully support my hon. Friend’s amendments 151 to 153, 157, and particularly new clause 41, which attempt to address some of these omissions and deficiencies. I hope the Minister will give them due consideration.

Specifically on my hon. Friend’s amendment 136, clause 32 introduces a new duty to provide specified insurance information to leaseholders. Again, it will be for regulations to fill out the detail about how the new duty will operate in practice, but I would like to briefly probe the Minister on it. During our evidence session with Matt Brewis of the Financial Conduct Authority, it became clear that although the FCA’s new rules mandate that a contract of insurance must be provided by an insurer or broker to the freeholder, and although the leaseholder will be able to write to the insurer to request a copy of the contract, there is nothing that we can see in either the FCA’s rules or the Bill as drafted that will permit a leaseholder to know who that insurer is in the first place. I would like to press the Minister, as my hon. Friend has, to confirm that the Government’s intentions when regulations are made under this clause is for the specified information to include a copy of the contract with the relevant insurer.

While we are considering these two clauses, I would like to take the opportunity to raise a separate concern, which I do not believe is covered by my hon. Friend’s amendments, in relation to proposed new section 20H of the Landlord and Tenant Act 1985, as provided by clause 31 of this Bill. This proposed new section would introduce a new right to claim where excluded insurance costs are charged. Again, this has the potential to provide leaseholders with effective means of redress, but its efficacy depends on how it is implemented. I would be grateful if the Minister could confirm that there is no specific requirement for any damages awarded under this proposed new section to credit the service charge accounts of leaseholders not party to the claim, or any service charge fund generally. It stands to reason that if one has been affected—and this follows from the debate we had on a previous clause—the rest of the leaseholders in the building will be too. If so, could the Minister look at how the regime operates to ensure that all leaseholders that have paid excluded costs are reimbursed in the same manner as the claimant?

Photo of Lee Rowley Lee Rowley Minister of State (Minister for Housing)

I turn first to amendment 151, in the name of the hon. Member for Brent North. As someone who has held the building safety portfolio in my Department for the past 16 months, one of my greatest frustrations is that we have not yet made the progress that I would like to see, and that I am sure we would all like to see, with regards to insurance for buildings that have been affected by cladding, having made good progress on lending and other areas.

I think we have made some progress, and the willingness of a number of brokers to come together and voluntarily cap what they are willing to take is a step forward; I would like to see other brokers doing the same. I would also like to see an industry-led solution to be brought forward for those with the greatest exposures at the earliest possible opportunity. That is something I outline to the Association of British Insurers, and other insurers, on a very regular basis—with varying degrees of frustration and emphasis. I hope we will see movement on that in the very near future.

That is a broad discussion about a more specific issue—I will turn shortly to the amendments we are currently debating—although I hope that highlights my interest in this area and my desire to get this right not just for people with remediation and cladding issues, but for the broader community of leaseholders in general. On that basis, I hope that both the hon. Members for Brent North and for Greenwich and Woolwich will appreciate that we have similar ambitions in making sure that transparency in this area is as effective as it can possibly be, and that we ensure the appropriate outcome so as to improve things from where they are at the moment.

I turn to the amendments, specifically amendment 151. We believe that clause 31, which inserts proposed new section 20G into the Landlord and Tenant Act 1985, already achieves the intent behind the amendment by providing powers that allow the appropriate authority to specify the permitted insurance costs that can be passed through the service charge to leaseholders.

From discussions held with the insurance sector itself, and with the FCA, we know that the value chain is a complicated one. Some buildings rely heavily on the reinsurance market—we have seen that increasingly with remediation issues—using a broker for access, and some do not. Some place insurance with numerous insurers splitting the risk, whereas others only use one—the hon. Member for Brent North may know this from his previous engagement with the industry.

Clause 31 is designed to constrain unreasonable costs in all scenarios by defining a payment and allowing us to then separate these costs as either permitted or excluded. Although I understand the intent of the hon. Member for Brent North, the Government’s concern about amendment 151 is that in seeking to tighten the provisions, it may have pulled the strings a little too tightly and become too narrowly focused on certain elements. I hope the hon. Gentleman will consider withdrawing his amendment as a consequence.

Again, although I have great sympathy for the sentiment behind amendment 135, I hope the transparency provisions already in the Bill will help in this regard. Once implemented, they intend to enable leaseholders to have access to details of the policy and the total amount of remuneration being taken on their building's insurance placements. This can be used for a legal challenge if costs have not been reasonably incurred. Our concern with the amendment is the potential for delays in the placement of insurance, which could result in a lapse in cover to the material risks of the building. There also may be instances—although I hope it would be a minor number of cases—where three quotes cannot be obtained, as much as that is possibly unlikely to occur.

We seek to focus the legislation on ensuring that those buildings have insurance that works, with a balance that is appropriate and supported by regulatory changes brought in by the FCA. On the basis of that explanation, I hope the hon. Member for Brent North will withdraw his amendment.

I will address amendments 152 and 153 together. Again, we have are similar ambitions, aspirations and intent, but again, there is a question of narrowness through the amendments, and our view remains that clause 31 will allow full scrutiny of what is to be a permitted insurance payment. The intention is for that to be both through consultation and then subsequently set out in regulations through the affirmative procedure, which will allow hon. Members to debate measures and highlight if there is a better way of doing it. I hope that, with those reassurances, the hon. Member for Brent North may be willing to withdraw the amendments.

Amendment 137 seeks to introduce a reasonable test to permitted buildings insurance costs. At the heart of clause 31 is the need for any costs passed on to leaseholders relating to the placement or management of buildings insurance to be fair and transparent. That is the whole point of it. Section 19 of the Landlord and Tenant Act 1985 already requires for those costs to have been reasonably incurred and for a reasonable service to have been provided. We have obviously seen a whole heap of bad behaviour in this sector; I accept that that is the case. Within the sector, there is ubiquitous use of commissions with poor or no underlying connection to the work undertaken, and I hope that some of the progress made through the Bill will hopefully reduce that.

I do not believe that the amendment would sufficiently protect leaseholders. We seek very clear requirements in the secondary legislation for how permitted insurance fees will be calculated, and that their reasonableness be included in that. We will consult on the measures in due course, and I hope that, with those reassurances, the hon. Member for Brent North will withdraw his amendment.

I turn to clauses 31 and 32, which address insurance, before turning to some further Opposition amendments. Several actors in the procurement of buildings insurance each seek to make a profit in return for their role in supplying insurance, whether they be brokers, managing agents or landlords, who can all take commissions, and that all adds to the overall cost.

Currently, as we have discussed, leaseholders do not have to be made aware of these commissions, and that can hinder the ability of leaseholders to challenge unfair costs. Inflated premiums can be paid through the service charge because there is a lack of transparency and knowledge about what is happening. Clause 31 seeks to ban the placer of insurance on residential leasehold properties from receiving any form of commission that is passed on to leaseholders as a cost, and instead uses a transparent handling fee that must be proportionate to the value of the work done.

Proposed new section 20G provides that excluded insurance costs cannot be charged and enables the Secretary of State and Welsh Ministers to prescribe a permitted insurance payment, which will be the only payment that can be charged. The detail of calculating the fee is to be set out in affirmative secondary legislation, and we will work with stakeholders across the industry and in this place to support that.

Proposed new section 20H sets out what happens should the ban be breached. There is an ability to apply to the tribunal in England and the leasehold valuation tribunal in Wales. It also removes the presumption that leaseholders have to pay their landlord’s legal costs when challenging poor practices, as we talked about earlier. If the tribunal determines that the legislation has not been complied with, damages can be paid. That will be a minimum of the commission taken or the unlawful insurance handling fee, but it will not exceed three times the level of the commission or fee.

Proposed new section 20I outlines the right of the landlord to obtain a permitted insurance payment. The section clarifies how all costs for placing and managing insurance incurred by the landlord must then be charged to the leaseholder. Transparency reforms in the Bill will require the placer of insurance to disclose information about the decision-making processes when purchasing buildings insurance on behalf of leaseholders.

Amendments 154 and 155, tabled by the hon. Member for Brent North, seek to stipulate how the insurance contract is to be provided to leaseholders. We have been working already with the FCA on that area, and it has already produced a number of reports and changed its regulations. The changes allow leaseholders to receive their policy documents and information about the charges within their overall premium. Those changes are important to ensure that the relevant information is available, but they do not remove the necessity for the landlord to supply that information as the placer of the insurance. The amendments tabled by the hon. Member for Brent North remove the focus on the landlord’s responsibility to undertake that activity. Clause 32 is designed to complement the work of the FCA and to provide the powers necessary to ensure that landlords supply the information that will enable leaseholders to scrutinise. With those assurances, I hope that the hon. Member will not press the amendments to a vote.

Amendment 136 requires a buildings insurance policy be provided to the leaseholders to whom it relates. This is an important issue, which the hon. Member was right to raise both last week and today. I am happy to confirm to him that it is the intention that the insurance contract will be required to be shared and that that detail will be provided in secondary legislation. On that basis, I hope that he will have the comfort he needs not to press the amendment.

Amendments 156 and 157 seek to remove leaseholders’ ability to be charged for the provision of insurance information. Obviously, there is again an interaction here with what the FCA has been doing. The changes that the FCA has made allow leaseholders to receive their policy documents and information about the overall premium. The hon. Member’s amendments would remove the ability for reasonable compensation to be provided for supplying information. As we have discussed many times both today and previously, the Government’s view is that costs that are reasonably incurred should be borne by leaseholders. Not allowing such costs to be transparently recovered would be logically problematic and may lead to further attempts to transfer money in other ways, which we would not want.

Photo of Barry Gardiner Barry Gardiner Labour, Brent North 4:00, 25 January 2024

I am grateful to the Minister for the way in which he is engaging with the issue and for the points he has made. Given that it would be possible to relay the insurance contract electronically, will it be possible for secondary legislation to stipulate that any additional layers of complexity would be outwith the permitted costs? The Minister will see that I keep coming back to that theme, because unfortunately landlords add additional layers of complexity. We need to be sure that, where it is possible to do something simply, it is not permissible to recover the cost of doing it not simply, if I can put it that way.

Photo of Lee Rowley Lee Rowley Minister of State (Minister for Housing)

The hon. Gentleman raises an important point. I will not try to solutionise in Committee, given the inherent dangers doing so from the Government Front Bench. We have committed to consulting, and there will be lots of experts and interested parties who will want to engage in that. As the hon. Gentleman suggests, transfers of data in an electronic form do not necessarily involve a substantial amount of time or effort, albeit that the provision and creation of the data in the first place may do. Those are exactly the kinds of things that we will want to talk about as part of the consultation, as and when it comes. On that basis, I hope that the hon. Member will consider not pressing amendments 156 and 157.

Amendment 138 seeks to require that charges made of parties where they request information from the landlord are reasonable, and I agree with the sentiment. Reasonableness is already required through section 19 of the Landlord and Tenant Act 1985. As I indicated in relation to amendment 137, reasonableness is not in itself a guarantee that costs will be constrained and proportionate, especially where the test is reliant on the assessment of normal behaviour across the sector. The Government would seek to deal with this area in secondary legislation, to ensure that the priorities of transparency and proportionality are in place. On that basis, I hope that the hon. Member will consider not pressing his amendment.

Before I conclude, I have two further points. Clause 32 confirms the importance of the intention of transparency, which is behind the Bill. The clause places a duty on landlords and managing agents that compels them to proactively provide information on building insurance to leaseholders. That should help leaseholders to better understand what they are paying for, and give them information they need to scrutinise that and take appropriate action, should that be necessary. The required information will be specified in the regulations, but it is anticipated that it should detail the insurance policy that is purchased, including a summary of the cover such as the risks insured, excess costs, premium costs and any remuneration received by the insurance broker. We also anticipate that it will include details of all alternative quotes obtained from the market and any possible conflicts of interest that arose during the procurement process.

Subsection (2) will insert new paragraph 1A into the schedule to the 1985 Act to allow leaseholders to request further information from landlords or managing agents. This could include full contractual documentation and policy wording, as well as the declaration of technical information that may have shaped the eventual premium price. We hope that giving leaseholders this improved information will allow them to challenge the reasonableness of their policy costs, if required. We expect that it will change landlord behaviour by making sure they are more price conscious, as it will be clearer that their movements are being watched. This will ensure that they do not try to pull a fast one on their leaseholders when it comes to insurance.

New paragraph 1B imposes a duty on third parties to provide landlords with any specified information requested within the specified period. Under paragraph 1A landlords will be obliged to provide information that is in their possession, and under paragraph 1B, where a landlord needs to ask another person for that information, that other person will also be required to provide the information within the specified timescales. Again, those timescales will be detailed in secondary legislation.

Clause 32 places requirements on landlords for how the handling fee that will replace insurance commissions will be disclosed to leaseholders. Again, this seeks to ensure greater transparency and allow more scrutiny where the charges are unreasonable.

Under paragraph 1C of the schedule to the 1985 Act, a leaseholder may make an application to the appropriate tribunal if their landlord fails to comply with the requirements under paragraphs 1A and 1B. I commend the clause to the Committee.

Finally, new clause 41 would preclude landlords from undertaking regulated insurance activity on behalf of a broker. Although I understand the sentiment behind this new clause, I hope the hon. Member for Brent North will recognise that the underlying point behind clauses 31 and 32, on which I hope we all agree, is transparency and fairness. These clauses will require the disclosure of fees charged for any work, as I have just indicated. We will prescribe what is a permitted cost that can be collected through the service charge, which should ensure that commissions that bear no connection to the work undertaken will not be permitted. It should also ensure that key documentation is provided.

Photo of Barry Gardiner Barry Gardiner Labour, Brent North

The Minister said that all the costs of the broker will have to be disclosed, which is absolutely right. However, where the landlord is operating under the provisions of the Financial Services and Markets Act 2000, he or she would be indistinguishable from that brokerage company and, therefore, the leaseholder will not be able to ascertain what was done by the broker and what was done by the landlord operating under the licence of the broker. What will be revealed is simply “the brokerage.” Unless we can unravel that, we will never get to the issue of kickbacks. As we saw with the Canary Riverside case before Christmas, those kickbacks can be frighteningly large—£1.6 million for one block. The disaggregation of what is the landlord qua broker and what is the broker qua broker is really important.

Photo of Lee Rowley Lee Rowley Minister of State (Minister for Housing)

I will try to reassure the hon. Gentleman. I think we both agree on the intention behind full transparency and clarity, so that things are not being hidden in the “value chain,” to use a terrible expression from my previous life.

The secondary legislation for clause 31 will seek to define the permitted insurance costs, and we will consult specifically on issues around regulated insurance activity. I hope that secondary legislation will cover some of the hon. Gentleman’s points and allow him, and others with concerns, to make their case. We can then determine how best to approach it.

With that, I hope the hon. Gentleman will consider withdrawing his amendment.

Photo of Barry Gardiner Barry Gardiner Labour, Brent North

There is good news and bad news, Mr Efford. The good news is that I am content to withdraw amendments 135, 137, 154, 155, 136, 156, 157 and 138, but I wish to press amendments 151, 152, 153 and 157 to a vote.

Question put, That the amendment be made.

Division number 9 Leasehold and Freehold Reform Bill — Clause 31 - Limitation on ability of landlord to charge insurance costs

Aye: 5 MPs

No: 8 MPs

Aye: A-Z by last name

No: A-Z by last name

The Committee divided: Ayes 5, Noes 8.

Question accordingly negatived.

Amendment proposed: 152, in clause 31, page 50, line 35, leave out from beginning to end of line 6 on page 51.—(Barry Gardiner.)

This amendment, to leave out subsection (3) of the proposed new section 20G of the Landlord and Tenant Act 1985, is consequential on Amendment 151.

Division number 10 Leasehold and Freehold Reform Bill — Clause 31 - Limitation on ability of landlord to charge insurance costs

Aye: 5 MPs

No: 8 MPs

Aye: A-Z by last name

No: A-Z by last name

The Committee divided: Ayes 5, Noes 8.

Question accordingly negatived.

Amendment proposed: 153, in clause 31, page 51, line 18, at end insert—

“(5A) The regulations must specify a broker’s reasonable remuneration at market rates as a permitted insurance payment.

(5B) The regulations must exclude any payment which arises, directly or indirectly, from any breach of trust, fiduciary obligation or failure to act in the best interests of the tenant.”—

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

Division number 11 Leasehold and Freehold Reform Bill — Clause 31 - Limitation on ability of landlord to charge insurance costs

Aye: 5 MPs

No: 8 MPs

Aye: A-Z by last name

No: A-Z by last name

The Committee divided: Ayes 5, Noes 8.

Question accordingly negatived.

Amendments made: 50, in clause 31, page 51, line 36, leave out “A” and insert “For the purposes of this section, a”.

This amendment is consequential on NC7.

Amendment 51, in clause 31, page 52, line 33, leave out subsection (3).—(Lee Rowley.)

This amendment is consequential on Amendment 123

Clause 31, as amended, ordered to stand part of the Bill.