Amendment 66

Leasehold and Freehold Reform Bill - Committee (3rd Day) – in the House of Lords am 4:00 pm ar 29 Ebrill 2024.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Baroness Scott of Bybrook:

Moved by Baroness Scott of Bybrook

66: Clause 51, page 59, line 15, leave out “as follows” and insert “in accordance with subsections (2) to (6)”Member’s explanatory statementThis amendment is consequential on the other Government amendment to this clause.

Photo of Baroness Scott of Bybrook Baroness Scott of Bybrook Parliamentary Under Secretary of State (Department for Levelling Up, Housing and Communities)

My Lords, I will now speak to Amendments 66, 68 and 70 in my name. I start by noting that I fully recognise the challenges facing leaseholders, with rising service charges caused by the increased costs in managing and maintaining buildings. The Government are clear, however, that any increase in charges must always be reasonable. We also recognise that the existing statutory protections leaseholders have do not go far enough, which is why we are introducing measures in the Bill to empower leaseholders and help them better scrutinise and challenge the costs they are asked to pay.

Amendment 68 is a technical amendment to Clause 51. It provides further clarification on which parts of the regulatory regime should continue to apply only to landlords who charge and leaseholders who pay variable service charges. These are charges which will vary year on year, depending on the actual cost of providing services.

As currently drafted, the Bill provides such clarity only in respect of measures in the Landlord and Tenant Act 1985. This amendment makes it clear that certain measures and protections in the Landlord and Tenant Act 1987 and the Commonhold and Leasehold Reform Act 2002 should also apply only to leaseholders who pay variable service charges. These include, for example, the ability to appoint a manager and the requirement to hold service charge contributions in trust. Amendments 66 and 70 are minor consequential amendments because of these further changes to Clause 51.

I turn to Amendments 71 to 75 in my name. Amendment 71 clarifies what steps are required to ensure that the written statement of accounts is prepared properly. It follows feedback from and discussions with expert stakeholders after publication of the Bill. We are grateful for their observations. The amendment places an obligation on landlords to provide leaseholders with a report prepared in line with specified standards for the review of financial information. This report must also include a statement by the accountant that the report is a faithful representation of what the report purports to represent.

The amendment also makes it clear, for the avoidance of doubt, that leaseholders must make a fair and reasonable contribution towards the costs of the report. This permits landlords who are unable under the terms of the lease to recover such costs through the service charge to do so, to avoid financial difficulties. This may include right to manage or resident management companies.

Amendment 72 implies a term into the lease where the cost of the preparation of the report is to be payable through the variable service charge. Amendment 73 is a consequential amendment required because of the change to new Section 21D(2)(b).

Amendment 74 allows for the appropriate authority to expand the definition of

“the necessary qualification” in Section 28(2) of the Landlord and Tenant Act 1985. This will allow the Secretary of State and Welsh Ministers to widen the description of people who are deemed capable of preparing the written report. Amendment 75 makes it clear that any regulations made will be subject to the affirmative procedure.

We will work closely with leaseholders, landlords and professional bodies to ensure we prescribe the right standards to be applied and the right level of detail. I beg to move Amendment 66 and hope noble Lords will support the other technical and essential amendments in my name. I look forward to hearing from noble Lords on their amendments relating to service charges.

Photo of The Earl of Lytton The Earl of Lytton Crossbench

My Lords, I do not think I am actually the next in line to speak on this, but I have Amendments 78C to 78G and 80A and 80B standing in my name. The intentions behind the Bill in relation to greater transparency and fairness are welcome, but, in my view, they do not go far or fast enough to deal with the current crop of egregious monetising schemes, where there seems to be no end to the inventiveness of the worst offenders.

My amendments go further than the Government’s proposals, for this reason. Some of what is in the Bill will take time to work through and, during that time, the same old abuses—or variants of them—will continue. I want the worst ones to stop immediately the Bill receives Royal Assent. It is part of an essential consumer protection package.

Amendments 78C to 78G, which I will deal with first, seek to close loopholes in the current law, require landlords to achieve value for money in the management of their buildings, promote competition in the property management sector and clamp down on the charging of unnecessary ancillary fees. Amendment 78C clarifies that the costs are to be treated as incurred as soon as there is an unconditional obligation to pay them, even if the whole or part of the cost is not required to be paid until a later date.

The moment when costs are incurred is particularly important in relation to Section 20B of the Landlord and Tenant Act 1985. That section prevented tenants being charged costs incurred more than 18 months before a demand for payment was made, unless they were informed that costs had been incurred and therefore would be payable.

Surprising as it may seem to your Lordships, there are conflicting decisions as to when costs are incurred for the purposes of Section 20B. In Jean-Paul v Southwark London Borough Council in 2011 in the UK Upper Tribunal, Lands Chamber, reference 178, it was held that costs are incurred only when payment is made; but, in OM Property Management Ltd v Burr in 2012, in the UK Upper Tribunal, Lands Chamber, reference 2, it was held that costs are incurred on the presentation of an invoice or on payment. Both leave it open to landlords to ask a supplier to delay the presentation of an invoice, or themselves to delay payment, to postpone the commencement of the 18-month time limit. I do not see this amendment as controversial, as it prevents abuse of the system and brings landlord and tenant law into line with accepted accounting practice.

Amendment 78D covers a situation under Section 19(1)(a) of the Landlord and Tenant Act 1985, where service charge costs are payable

“only to the extent that they are reasonably incurred”.

This amendment replaces the “reasonably incurred” test in relation to service charges with a stricter one of providing “value for money”.

It is established case law that, if a landlord has chosen a course of action that has led to a reasonable outcome, the costs of pursuing that course of action are reasonably incurred even if there was another cheaper outcome that was also reasonable. This wide margin of appreciation leaves leaseholders at risk of overcharging. A value for money test would require landlords to interrogate all options before spending leaseholders’ money. It is not an unreasonable test; it is one that most people use in daily life when considering any significant purchase.

Amendment 78E requires landlords to provide tenants with a range of information, and to update it regularly. It goes further than the Government’s Clause 55, under which landlords are required to provide information only on request. If leaseholders are to be encouraged to take greater interest in the management of their buildings, I do not think we should place obstacles in their way. It should not be difficult for a landlord of a well-manged building automatically to provide and keep up to date a data room of information.

Amendments 78F and 78G continue the consumer protection theme of these amendments by promoting competition in the property-management sector. Amendment 78F prevents landlords contracting with related parties or connected purposes, thus removing an obvious conflict of interest. The danger for leaseholders if a landlord company places contracts with its subsidiary is well illustrated by the Charter Quay case, in which the managing agent, which happened to be owned by the landlord company, was roundly criticised by the tribunal for placing onerous service contracts with other subsidiaries.

In the same vein, to promote competition through regular retendering, Amendment 78G places a maximum contract duration of five years. Although under current law landlords must consult leaseholders before entering into a qualifying long-term agreement—that is, a contract of more than 12 months—there is no limit on its duration. In practice, even limited consultation requirements are relatively easily avoided. Contracts between a holding company and one or more of its subsidiaries, or two or more subsidiaries of the same company, are not qualifying long-term agreements; neither are contracts for a year or less, even if they have been regularly renewed.

Amendment 78H seeks to reduce costs on leaseholders by setting out in statute details of cosmetic works that can be undertaken without approval from a landlord. Most leases contain very tightly drawn provisions in this respect, which are against undertaking virtually any type of work, no matter how insignificant, without the landlord’s consent. Provisions such as a prohibition of the

“cutting, maiming or injuring, or suffering to be cut, maimed or injured, any roof, wall or ceiling”, are very common. The fees for consenting to some minor works often run into hundreds of pounds, so this amendment attempts to find a way to streamline that.

One may debate at length the areas where a more relaxed regime might impair the amenity of other residents, but I seek to establish the principle of getting away from the monetisation of consent for every mortal thing—from pets to paint colour, and light fittings to lino floors—and putting it in the past. There ought to be greater freedoms for leaseholders but, in noting that the Law Commission report implied that consent for floor coverings should be relaxed, I would only observe from experience that engineered timber floor finishes in particular are often a potent source of noise transmission affecting other residents—so the matter is nuanced. At this stage, I simply wish to sound out the Government’s willingness to draw up, say, a code of practice, or otherwise take steps to free up this area.

I now turn to Amendments 80A and 80B, which are really rather different. I would have had them disaggregated had I been a bit more alert on Friday afternoon, because they relate to insurance moneys. Amendment 80A requires landlords to pay the proceeds of a building insurance policy into a separate fund that is held on trust for leaseholders. It also requires landlords, on receipt of insurance proceeds, to begin immediately to repair or rebuild a building, as far as reasonably practicable.

Service charge funds already have to be held on trust for leaseholders and I contend that building insurance payouts should be treated in the same way. As noble Lords are aware, I have raised my concerns about the risk of landlord insolvency. It has been suggested to me that, if a landlord became insolvent, any insurance proceeds held by the landlord on entering insolvency would form part of the company’s insolvent estate, leaving leaseholders in a damaged or destroyed building as unsecured creditors. Holding insurance proceeds on trust would go some way to protect them from risks relating to landlord borrowings—of which more in relation to Amendment 80B.

Most leases require landlords to reinstate damaged buildings—as, I think, does statute in the case of damage caused by fire. Subsection (3) of the proposed new clause in Amendment 80B places that duty beyond doubt. It requires landlords to move quickly to repair or rebuild the damaged or destroyed building. It goes some way to closing a loophole commonly found in leases that gives landlords the right to terminate where it is not possible to reinstate a building within a certain period. That is often three years, which is likely to be insufficient time to effect reinstatement of a larger or complex building.

Amendment 80B closes what I consider to be another loophole for insurance. Most leases require that the landlord insures the building, with the cost charged to leaseholders. However, what concerns me is the ability of landlords to assign the proceeds of insurance policies as security for their borrowings.

For instance, leaseholders in properties owned by subsidiaries of the three Long Harbour fund holding companies—a landlord to over 103,000 homes—are likely to be concerned that their subsidiaries have assigned the

“rights in each Insurance Policy, including all claims, the proceeds of all claims and all returns of premium in connection with each Insurance Policy” to the Irish holding companies as part of an intercompany loan agreement. They will be even more concerned to learn that, according to the same standard insurance contract:

“All monies received or receivable by a Borrower under any insurance policy maintained by it (including all monies received or receivable by it under any Insurance Policy) at any time (whether or not the security constituted by this deed has become enforceable) shall at the option of” the holding company

“be applied in making good or recouping expenditure in respect of the loss or damage for which those monies are received or”— this is significant—

“towards … discharge or reduction of the Secured Liabilities”.

Similar assignment provisions can be found for companies with loans from Rothesay Life. When leaseholders challenged those provisions, the excuse was that they formed part of a standard form of finance agreement. Lenders apparently insist on the provision so that they can have control of the funds and stop the landlord taking the insurance proceeds and walking away. In this case, somebody else walks away with the money, but the leaseholder still does not get the benefit of that being paid to their building. Some insurance policies note a lender as the priority payee so that it will receive the insurance proceeds instead of the insured party—you could not invent this stuff.

It seems to me that such provisions conflict with the terms of most leases that require a landlord to reinstate a building. Lest leaseholders in a damaged building are forced to fight a holding company or lender, possibly overseas, for the funds needed to repair, this clearly needs addressing. Even if the funds were made available to leaseholders, the holding company or lender could withhold that element of the proceeds relating to its subsidiary’s or borrower’s interest in the building, leaving leaseholders with a shortfall. I am sure that noble Lords will agree with me that this situation cannot be allowed to persist.

I will make one more comment on—

Photo of The Earl of Lytton The Earl of Lytton Crossbench

I will be very brief. Some of the costs that have arisen are as a result of Fire Safety Act and Building Safety Act provisions set up by the Government. Some time ago, I asked the people I work with to set up an online resource, which I commend to noble Lords. It is I hope that it will help a number of people to unpick what is a very complex situation.

Photo of Baroness Jones of Moulsecoomb Baroness Jones of Moulsecoomb Green

My Lords, the number of amendments discussed today highlights just how many issues there are with the exploitation of leaseholders. The noble Baroness, Lady Taylor, mentioned the option of some pre-scrutiny with people who have expertise in this area—although I am not suggesting that I am one of them. That might have benefited this legislation.

Normally, with leasehold properties, people think that they are buying a house or a flat, but then they are laden with decades of financial obligations to a landlord who can charge a ridiculously long list of things to the leaseholders. That does not seem to be a very fair system. There are far more problems than your Lordships’ Committee will be able to resolve, so there is clearly a need for further legislation when a new Government come to power. I hope that the new Government will consider the issues raised in Committee, including my Amendment 78B, which shines a light on the growing trend of public assets being funded by leaseholders. For example, green spaces, play areas and roads are often being charged to leaseholders, even when they are freely accessed by the wider community.

These leaseholders are facing a double taxation: they are paying their council tax, which is used to fund play areas and roads provided by the local authority, and they are also being charged by their landlord for play areas and roads that are within the estate. There seems to a case for these publicly available assets to be brought into local authority management, ownership and funding. I would appreciate it if the Minister, and any budding future Ministers, could give their thoughts on the issue and perhaps undertake to look at it further.

Photo of Lord Bailey of Paddington Lord Bailey of Paddington Ceidwadwyr

My Lords, my main focus so far has been boosting leaseholder control over service charges by removing barriers to the right to manage. However, we must dramatically reform the law for leaseholders who cannot gain this control and who wish to stand up to their freeholder on service charges. It is positive that the Government are enforcing service charge transparency and disclosure with the new right-to-inform scheme in Part 4, Clause 55, which makes changes to the Landlord and Tenant Act 1985, but I believe we need to go further and make it easier for leaseholders to challenge rip-off freeholders with their service charge.

Tribunals are very stressful: they take a long time and often do not have the power to enforce their decisions. This leaves leaseholders in a very strong predicament. Leaseholders normally have to file another application with the county court to get their money back for any overcharging, at least as they see it. My Amendment 78A is all about enforcement and giving teeth to tribunals’ decisions, where it has been determined that the service charges that the leaseholders have paid were not payable or were unreasonably incurred.

Various rules in Parliament have been passed in an attempt to regulate this behaviour of freeholders; again, I mean poor freeholders—the whole market is not like this. Often, these work only when leaseholders have the time, money and energy to enforce them at tribunal, which then is not always guaranteed when residents are up against armies of layers. Freeholders often hold many freeholds and have a big financial backing behind them and can just tire out leaseholders—they can work them into the ground and threaten them with forfeiture, for instance, should something go wrong. The Secretary of State was right to say that we need to put the squeeze on freeholders, but that means making freeholders actually fear leaseholders bringing cases against them at tribunal.

In my Second Reading speech, I mentioned that research from Hamptons has shown that leaseholders paid £7.6 billion in service charges. Many of those service charges were overcharge, and we want to create a situation where leaseholders can fight back. The annual service charge for flats in England and Wales has increased by 8.4% since the beginning quarter of 2023. Around 270,000 leaseholders are now paying more than £5,000 a year in service charges, which could quickly become a second mortgage for many leaseholders.

My Amendment 78A seeks to amend the Landlord and Tenant Act 1985 regime for service charge disputes to try to make service charge tribunals against freeholders more serious by taking three important steps. One is by providing an opt-out. At the moment, leaseholders have to sign up for a case to benefit. Even if the tribunal determines that they have been overcharged, unless they have signed up their neighbour may receive a payment but they will not because they did not sign up. That is unfair in modern life: you could be elderly; you could have children; you could just be away when all these things are going on. Your neighbour would receive benefit and you would not, even though you would also have overpaid. That is why we need an opt-out, not an opt-in, to make it more serious.

Secondly, after a successful Section 27A challenge by any leaseholder in a block, the freeholder would be under a duty to account to all leaseholders within a two-month period of the decision being handed down. This means that any money overpaid would have to be paid back within two months, because leaseholders—many of them owning a place for the first time, many of them young people, many of them elderly people on fixed incomes—have paid out this money which they often could not afford. They should get it back in a speedy fashion.

Thirdly, there should be interest after a two-month period if the freeholder has not paid back money owed to the leaseholders. This is to give the sanction some bite and to make sure that a freeholder does not just wait out hapless leaseholders because they have all the power and the financial power.

I would like to see some more action in this Bill to deter and punish bad behaviour by freeholders and ensure that leaseholders can swiftly get their money back where overcharging has been determined by a tribunal. My Amendment 78A gets us closer to that position.

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

My Lords, Amendment 78 is about one part of service charges that sometimes gets neglected: the lack of consultation about major works that remain uncapped, opaque and difficult to challenge. This mainly affects those who have brought homes where the landlord or freeholder is a council. The amendment is also about the failed attempts by the law to help them in the past and whether we can use the Bill to rectify that.

In Committee last Wednesday it was implied that leaseholders are mainly wealthy home owners of luxury flats. These leaseholders deserve fair treatment, however wealthy they are, and they should not be ripped off, but many leaseholders do not fall into that category, with 49% of leaseholders being first-time buyers. We also have right-to-buy leaseholders who bought their own council homes, and leaseholders who bought former council homes because they were cheaper and therefore home ownership was within their grasp, rather than them being priced out of the market. I declare an interest as one of those people.

Leaseholders living in former council homes now face enormous refurbishment bills of tens of thousands of pounds, despite a legal cap being introduced 10 years ago, which is being circumvented by local authorities. The reason for major works is no doubt exacerbated by years of weak investment and cuts. Social housing estates do need to be maintained, and I understand that councils have difficulty doing that. However, neglect builds up and leaseholders end up being the ones who pay the price. The bill for entire blocks has been divided between the local authority and individual leaseholders because council tenants cannot be charged. Therefore, we end up with situations such as that of George and Alma, a couple who were suddenly landed with a £45,000 bill for windows in the roof of the estate, which do not even affect them, making them sick with worry. As has already been discussed, the disrepair that accumulates on estates ends up not just increasing service charges but coming as one large bill. George said, “I pay a service charge and I have not seen any work being done on a yearly basis—then suddenly we get this big bill”.

I am a Haringey leaseholder of a maisonette. I noted one extreme case that came to light during lockdown, when 76 leaseholders in Wood Green were told to find between £56,000 and £118,000 to cover Haringey repairs and improvements. One young woman, when she bought her maisonette in 2015, was told that major works planned would cost £15,000. Instead, after losing her job because of lockdown, she ended up with a bill of £110,000. Another couple, when buying their property, were given an estimated bill for major works of £12,500. Mid-completing buying their house, that had swelled to £25,000 with no explanation whatsoever for the increase, and they could not find out why. There was then stalling for five years, again with no explanation. Haringey then added in some other major works—roofs, windows and door replacements—so now the final bill is a whopping £108,450. To quote them, “We will be ruined”. The bill will be a third of what they paid for their home.

This is happening all over London, and councils’ responses have been complacent. Lambeth Council said: “We appreciate that major works can place a financial burden on leaseholders, which is why we offer a number of repayment options”. However, even those which break it down over five years, for example, which is one of the options available, can almost double some people’s mortgage, and this is even beyond increasing service charges.

What is frustrating about all this is that the shocking problem has been known and, indeed, legislators tackled it 10 years ago. In 2014, the then Communities Secretary, the noble Lord, Lord Pickles, introduced Florrie’s law. It was named after pensioner Florence Bourne, who was mortified by a £50,000 repair bill from her local authority landlord and panicked about the noisy works which—and this is key—a tribunal later ruled were completely unnecessary. Sadly, Florence Bourne died of a heart attack. Florrie’s law introduced a £15,000 cap on major works in London and a £10,000 cap outside London over a five-year period. But it applies only if central government money is involved. Guess what? There has not been much central government money involved in helping councils with their social housing stock. It is not clear at all whether Florrie’s law has ever been used, but I would like the Minister to look into a dormant law that was meant to tackle a problem that is still going on.

This amendment seeks to deal with the narrower matter of local authority leaseholders being completely shut out of any consultation about major works. Unlike leaseholders in privately owned buildings, local authority leaseholders have no right to decide on the scope or timing of proposed works or to request alternative quotes from contractors. They have the right only to make observations on plans. We local authority leaseholders live in dread of a series of letters containing estimates for the next high capital expenditure, often for works that do not directly improve our own home, sometimes not even our own block. We cannot do anything but sit in fear of the final bill, knowing that it will not be value for money.

Most council landlords use qualifying long-term agreements with contractors. They are not required by law to find alternative quotes, and with only one tender there is no incentive to compete on price. Worse, contractors often use their own surveyors to determine the scope of works and costings, costs can be inflated, and the work carried out is often not essential. Workmanship can be shoddy—poorly fitted windows, leaks in new roofs and so on. Local authority leaseholders have no say and are forced to foot the bill for substantial work. There is a huge amount of waste, sloth and lack of accountability, as I realised when I was evicted from my own block of flats after fire and water damage. It took three years for us to be returned to that block, and much public money was squandered. Of course, that money is now being recouped from other leaseholders in the local area and, indeed, us.

Leaseholders are the very people who care enough to ensure that major works are efficient and of a high standard. The council has no interest in controlling costs if, indeed, leaseholders cover the bill. That is why the proper consultation called for in this amendment would improve the situation.

Again, this has already been tackled by legislators before us. In the Commonhold and Leasehold Reform Act 2002, Parliament wanted to ensure that proper consultation on major works was introduced into law. It was part of a drive to provide leaseholders with transparency back then, so that they would have the opportunity to influence the cost of a project and have input into who would get the contract. Unfortunately, in 2013, the Supreme Court thwarted the will of Parliament by undermining a key provision, often referred to as the Daejan ruling from the Daejan v Benson court case. This means that freeholders can push through major works by calling them an emergency, or by filing an S20ZA order which, since the Daejan ruling, tribunals generally nod through.

This lack of leaseholder consultation on major works means that freeholders almost always have carte blanche to choose what works need doing and determine their cost. As Professor Sue Bright of the University of Oxford says, with leasehold reform as a political priority, it is a good moment to reflect on the Supreme Court decision in Daejan. Professor Bright also notes that this lack of consultation goes against the spirit of the Building Safety Act and the Hackitt review, which tried to address the problem of residents needing more opportunities to have a strong say and voice and offer their views in decision-making processes. That is why both Barry Gardiner MP and Matthew Pennycook MP raised the problem of the Daejan ruling in the other place. The Housing Minister, Lee Rowley, admitted that he did not know about Daejan but promised to look into the problem and come back to Parliament. Maybe the Minister can respond to this here and we can get on with ensuring that Parliament’s will as expressed in 2002 actually happens.

All this amendment tries to do is restore the intention of the Section 20 major works regime in the 2002 Act to what it was before the Supreme Court’s unhelpful intervention. I hope the Minister will help ensure that occurs.

Photo of Lord Thurlow Lord Thurlow Crossbench 4:30, 29 Ebrill 2024

My Lords, I congratulate the noble Earl, Lord Lytton, on his high-speed gallop through a large number of his Friday afternoon amendments. They were quite technical, and anyone who managed to keep up with them all deserves a prize. It was very good indeed. I will address one of them, Amendment 78F. It is very short but very important.

Much of this Bill is designed to protect leaseholders from freeholders and their managing agents acting in concert in any attempt to inflate service charges. These in-house relationships are ripe breeding territory for dishonest behaviour and abuse, of which the noble Earl gave an example, in the opaque realm of service charges—something we look forward to being reversed or changed by this Bill. It is a money-making business model, albeit morally and actually dishonest. We should ban any close links of this kind between managing agents and their freehold clients, and inflict suitable penalties that are strong enough, or high enough in financial terms, to be a deterrent. If the Government really want to protect leaseholders, connected relationships giving rise to such potential abuse must be banned.

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

My Lords, I will speak to my Amendment 77 and make a few brief comments on other amendments. Amendment 77 would allow leaseholders to apply to the appropriate tribunal to ensure that freeholders who do not provide the agreed estate management services and allow a block to become run-down can be subject to a penalty at the sale of the freehold. There is clearly an issue of absent freeholders and little penalty when a managing agent is not appointed or adequate estate management services are not provided. The amendment would create a mechanism by which a penalty could be placed on the enfranchisement value and mean that leaseholders who have suffered from freeholder failures and consequently had to take the step towards acquiring the freehold should pay a lower cost for the collective enfranchisement of that freehold. This would reflect the freeholder’s dereliction of duty if a tribunal deemed it was warranted.

The Bill aims to remove barriers and rebalance legal costs for leaseholders to challenge freeholders at tribunal. Clause 56 addresses the enforcement of freeholders’ duties relating to service charges, and it includes provisions for tenants to make an application to the appropriate tribunal and the measures tribunals may put in place. As such, the amendment would just add to that. As well as having a power to make a landlord pay damages to a tenant for failure to carry out duties related to service charges, a tribunal would also have the power to apply a penalty to the enfranchisement value at the sale of the freehold to leaseholders. It does not seem fair, after having taken action to gain control of the freehold due to an absent freeholder, that leaseholders then have to compensate the freeholder with no penalty for that dereliction of duty. This is a modest amendment that would leave the judgment in the hands of the appropriate tribunal as to whether a penalty was warranted.

On Amendments 67 and 69, in the name of the noble Baroness, Lady Taylor of Stevenage, it is only right that leaseholders with old leases that have fixed service charges can challenge the reasonableness of those fees at tribunal. Evidence of costs being passed on in service charges is evident. This also ties in with Amendment 98D from the noble Earl, Lord Lytton.

We on these Benches support Amendment 69. We do not agree with the Government having a power to remove certain landlords from being subject to basic service charge transparency rules; all leaseholders are owed clarity on what they are paying for. We do not understand why that should not be the case.

I turn to Amendment 78 from the noble Baroness, Lady Fox of Buckley. We agree that leaseholders should be fully consulted on major works that they pay for; the noble Baroness showed that some of these costs are eye-watering. We agree with her proposal to restore the major works scheme in the Commonhold and Leasehold Reform Act 2002, which was eviscerated by the Daejan ruling by the Supreme Court in 2013, which the noble Baroness mentioned. We agree with the dissenting Lord Wilson in that decision, who said that the majority had subverted the intention of Parliament. It is not right that landlords no longer have to involve leaseholders in the decision-making process. We should use this Bill to at least restore the position to pre-Daejan so that transparency and accountability on major works are increased for leaseholders.

Amendment 78A, from the noble Lord, Lord Bailey of Paddington, would require a landlord who had lost a service charge determination, and who was meant to return the money to the leaseholders, to pay up in two months or else face compound interest. While Section 19(2) of the 1985 Act requires that overcharges be returned to leaseholders, landlords can and do ignore this. The same applies to similar provisions in leases. Where a tribunal has determined that a service charge or portion of it has been excessive, it should be relatively straightforward for leaseholders to get that money back. We on these Benches support that part of the thrust of the amendment—to ensure that landlords are under pressure to account to leaseholders in a timely manner, or otherwise experience financial penalties, as debtors in other parts of our economy do.

I turn to the mighty avalanche of amendments from the noble Earl, Lord Lytton. For us, Amendments 78D and 78E stand out. Amendment 78D provides for a new, tighter and more objective test of value for money to replace the current test of “reasonably incurred”, which could be open to a wide range of interpretation—obviously, this is in relation to service group charge costs. Amendment 78E pushes the Government to go further in the entitlement of leaseholders to have more and better information. Given the rationale behind the amendments from the noble Earl, Lord Lytton, we believe it is worth the Government giving them serious consideration.

Finally, although we have not yet heard from the noble Lord, Lord Moylan, we are minded to agree with his amendments, as right-to-manage and residential management companies are thinly capitalised. Unlike big freeholders, they will not have lending facilities, so would be unable to pay legal costs up front to take non-paying leaseholders to tribunal or county court. Right-to-manage and residential management companies are non-trading companies and have nothing except the service charges in their coffers. I look forward to the Minister’s responses.

Photo of Lord Khan of Burnley Lord Khan of Burnley Opposition Whip (Lords), Shadow Spokesperson (Levelling Up, Housing, Communities and Local Government)

My Lords, I rise to speak to Amendments 67, 69, 76, 78I and 78J, in the name of my noble friend Lady Taylor of Stevenage. Noble Lords across the House have been emailed and briefed in relation to some very troubling real-life examples in the area of service charges—in fact, we heard earlier from the noble Baroness, Lady Fox of Buckley, about an unscrupulous situation.

In the other place, honourable friends have shared some horrific casework examples which clearly expose the unfit and unjust system leaseholders have been subject to. My honourable friend Matthew Pennycook MP, said:

“Soaring service charges are placing an intolerable financial strain on leaseholders and those with shared ownership across the country. Among the main drivers of the eye-watering demands with which many have been served over recent months are staggering rises in buildings insurance premiums and the passing on of significant costs relating to the functioning of the new building safety regime. Given that many leaseholders are being pushed to the very limits of what they can afford, do the Government now accept that the service charge transparency provisions in the Leasehold and Freehold Reform Bill … are not enough, and that Ministers should explore with urgency what further measures could be included to protect leaseholders better from unreasonable charges and give them more control over their buildings?”—[Official Report, Commons, 22/4/24; col. 636.]

Only last weekend, the Mayor of London, Sadiq Khan, wrote about

“Sky-high service charges … financially crippling for people living in flats or who are shared owners … they amount to the everyday extortion of leaseholders and a shameful abuse of power by landlords and freeholders”.

I thank the Minister for introducing further government amendments, which we welcome. We very much welcome the intention behind them. Much of the detail will await the statutory instruments required to bring them into force, but those measures have the potential to improve tangibly what is without doubt one of the most contentious and, for leaseholders, difficult aspects of the feudal leasehold tenure.

Speaking to leaseholders recently, I heard the clear frustration caused by the setting of service charges. They have been subjected to unreasonable costs, and costs artificially inflated as a result of outright error, such as duplication of charges for the same service. There are large periodic increases that are rarely justified and abusive practices such as the deliberate misuse of funds. Even when leaseholders do not believe that there is a specific problem with the amount of their service charges, most nevertheless feel that they are not particularly aware of, or informed about, what their charges are spent on, or what their future liabilities might be, leading to uncertainty and a lack of clarity.

The noble Earl, Lord Lytton, introduced his amendments eloquently and made perfect sense. We shall listen very carefully to the Minister’s response to what he proposes, especially about consumer protection, closing loopholes and exploring all options to avoid leaseholders being burdened.

I now turn to our amendments. Amendment 67 is an attempt to probe the Government’s decision to exempt fixed service charges from the test of reasonableness. Such charges can and do include all sorts of unreasonable costs, and it strikes us as wrong that leaseholders who are obliged to pay them—not least those living in for-profit retirement developments without care, where they are a particularly prevalent arrangement—will not be able to challenge those costs if they feel that they are unreasonable. We are also concerned that exempting fixed service charges from the test of reasonableness may incentivise unscrupulous freeholders to create more of them, rather than relying on variable service charges, which will be made more transparent by the other changes being made in this part of the Bill. The amendment would delete subsection (4)(a) to ensure that the test of reasonableness applied to fixed service charges, to afford greater protection to leaseholders subject to them.

Our Amendment 69 addresses concerns around new powers that allow negative regulations to exempt certain landlords from the requirement to demand payment of a service charge using a specified form—a requirement that we welcome. The requirement will also ensure, by inserting new Section 21C into the 1985 Act, that where the demand for service charge payments is not in the specified form, containing the specified information and provided to the leaseholder in the specified manner, the lease provisions relating to late or non-payment do not apply to the charge in question, and there is no obligation to pay it until the requirements are met. We very much welcome this, which would ensure that service charge demands and annual reports were provided to leaseholders in a standardised format. If it works well, the provision is likely to have the most widespread practical impact of any provision in the Bill, given that many hundreds of thousands of service charge demands each year will have to be in a prescribed form. We have reservations about the inclusion of exemption powers, because they could be used to exempt entire categories of landlords from the requirements in subsection (1), thereby denying large numbers of leaseholders the benefits they would otherwise secure as a result of their application. If the Government will not consider this, we would be grateful for clarity about what kind of landlords they believe might need to be protected.

Amendment 76 would give the Secretary of State the power to set prescribed amounts, with a view to ensuring that leaseholders are not subject to unreasonable costs should they need to request certain categories of information. The Bill introduces the right for leaseholders to request information and, while it is right for landlords to be able to recover reasonable costs from complying with these requests, this comes with a risk that excessive fees will be charged. This amendment would protect against that risk.

The purpose of our Amendment 78I is to prevent landlords passing on costs from a service charge imposed on them by Ofgem or the Energy Ombudsman in relation to their mismanagement of communal heating systems. This includes Ofgem fines and redress orders, Energy Ombudsman awards and statutory compensation to customers for service failures. Without this amendment, tenants and leaseholders face having to pay their own compensation payments and the fines imposed on their landlord for failing to provide them with a compliant service.

Our final amendment in this group is Amendment 78J. Housing is responsible for more than a 10th of the UK’s emissions, so reform across every tenure needs to be accelerated to meet our net-zero commitments. While progress has been slow across all housing tenures, the rate of progress in Britain’s leasehold buildings has been practically non-existent. Leaseholders and landlords are usually prevented by the terms of the lease from carrying out any works to the building that are considered improvements. That is an important leaseholder protection. Landlords can repair and maintain the existing building but cannot improve it—say by installing cavity wall insulation, a heat network, or double-glazed or triple-glazed windows. Similarly, a leaseholder is prevented from altering common parts within their demised flats—for example, walls or windows—to improve their home’s energy efficiency and reduce their energy bills. This amendment would provide for terms to be implied into leases that permit qualifying energy-efficiency and retrofitted improvements to a building. Furthermore, it would provide a start to ensuring that leaseholders can improve their homes by retrofitting them or allowing them to make energy-efficiency changes. It would allow a variation of leases to allow for a net-zero improvement and would protect leaseholders at the same time.

These Benches appreciate the broad support of noble Lords from across the Committee for a number of the amendments in the name of my noble friend Lady Taylor of Stevenage. Various contributions today have illustrated the depth and breadth of concern that we all feel around service charges.

In concluding on the wider issue of charges, I will share the example of a 90 year-old elderly woman, whom I have been told about today. The important point is that the ground rent charges in her building changed from £25 to £2,350 annually. What is even more shocking about this example is that the increased charges were backdated to more than 10 years, which meant that her charges were £17,000. Furthermore, within two weeks, this elderly woman was threatened with legal action. What advice would the Minister give to that 90 year-old woman with this demand from her landlord?

When will the Government announce the results of the ground rent consultation? There seem to be policy announcements and leaks in the media in relation to ground rent policy, but this has happened without the ground rent consultation even being published. This is severely disappointing, as we are approaching Report in the next few days. How can we possibly scrutinise the consultation now? I look forward to the Minister’s response in addressing the numerous concerns raised in your Lordships’ House.

Photo of Baroness Thornhill Baroness Thornhill Liberal Democrat Lords Spokesperson (Housing) 4:45, 29 Ebrill 2024

My Lords, before the noble Baroness takes the Dispatch Box, I apologise to the Committee and to the noble Lord, Lord Moylan, in particular. Due to lots of pieces of paper, I commented on two amendments that are actually in group 4, so I reassure the Committee that I will not be repeating those comments.

Photo of Baroness Scott of Bybrook Baroness Scott of Bybrook Parliamentary Under Secretary of State (Department for Levelling Up, Housing and Communities)

My Lords, I apologise in advance for the length of my response. This is a large group so I might go on for quite a long time. I apologise for that, but I think it is important that I respond to all the amendments.

I thank the noble Lord, Lord Khan of Burnley, who spoke to the amendments from the noble Baroness, Lady Taylor. Amendment 67 seeks to give the right to challenge the reasonableness of a service charge to leaseholders who pay a fixed service charge. I recognise that leaseholders who pay fixed service charges do not have the same right to challenge the reasonableness of their service charges as leaseholders who pay a variable service charge. However, there are good reasons for that. The main sectors where fixed service charges exist are the retirement and social housing sectors, where households are often on limited or fixed incomes; certainty over bills is paramount for these homeowners. Leaseholders, especially on low incomes, who pay a fixed service charge have more certainty over the amount of their service charge compared with those who pay a variable service charge. They will know about and understand the level of the charge before they enter into an agreement.

Landlords benefit from not having to consider tribunal applications, but in return they have a clear imperative to provide value for money: if they underestimate the costs, they will have to fund the difference themselves. They will still need to provide the quality of service as set out in the lease since, if they do not, they may be taken to court for breach of that lease.

By giving the right to challenge fixed service charges in a similar way to how variable service charges can be challenged, there would likely be operational and practical challenges. For example, if landlords underestimate costs in one year but overestimate them in another, it is feasible and reasonable to be able to challenge the unreasonableness only in the year when costs are overestimated. It is not proposed to give the landlord an equivalent right to apply to seek to recover the balance of an underestimated cost on the basis that it would be reasonable to do so. There is a possibility that landlords may move to variable service charges, and that could have unintended and undesirable consequences for leaseholders with a fixed income who benefit from the certainty of fixed service charges.

Through the Bill, leaseholders who pay a fixed service charge will be given additional rights. Landlords will be required to provide the minimum prescribed information to all leaseholders. I consider that the additional rights given to leaseholders who pay fixed service charges will allow them to better understand what their service charges pay for, and to hold their landlord to account. I hope that, with that reassurance, the noble Lord will not move the noble Baroness’s amendments.

I thank the noble Lord for Amendment 69 in the name of the noble Baroness, Lady Taylor, which seeks to remove the provision that enables the appropriate authority to exempt certain categories of landlords from the requirement to provide a standardised service charge demand form to the leaseholder. I recognise the importance of all leaseholders receiving sufficient information from their landlord to enable them to understand what they are paying for through their service charge. Requiring landlords to provide leaseholders with a standardised service charge demand form contributes to increased understanding. However, I am aware that there could be instances now or in the future where it is necessary to exempt landlords from that requirement. It could be too costly or disproportionate to expect certain categories of landlords to provide that level of information. As the Minister for Housing mentioned in the other place, one example might be the Tyneside leases.

Prior to any exemptions being agreed, we will consult with stakeholders to determine whether an exemption is justified. I emphasise that the list of exemptions is expected to be small—if it is needed at all, in fact—and full justification will be required for any agreed exemptions. I note the noble Baroness’s concerns but I hope that, with this reassurance, the noble Lord will not move the amendment.

I also thank the noble Lord, Lord Khan of Burnley, for Amendment 76, which would create a power for the appropriate authority to prescribe the maximum costs that landlords may pass on to leaseholders for providing information. I recognise that leaseholders can face increasing service charge costs and that not capping costs for providing information could drive landlords to charge unreasonable amounts.

However, introducing a cap would be difficult, as landlords will incur varying costs that are dependent on the information requested and the difficulty of obtaining it. By law, service charges must be reasonable, and measures within the Bill strengthen the requirement for costs included within the service charge demand to be transparent. I consider that these provide sufficient protections for leaseholders to ensure that landlords do not charge excessive amounts and that the costs are reasonable. I hope that, with this reassurance, the noble Lord will not move Amendment 76.

Amendment 77 tabled by the noble Baroness, Lady Thornhill, would allow the First-tier Tribunal in England or the leasehold valuation tribunal in Wales to award damages against landlords at the point that leaseholders buy the freehold of their blocks. We do not think that this amendment is appropriate, and we also think that it is unworkable. Clause 56 expressly refers to consequences for failure to provide information. These damages are awarded following an application to the appropriate tribunal and on the basis of the information available. Therefore, it is not appropriate or consistent with judicial proceedings to delay any award. Any poor behaviour by the landlord during enfranchisement is best dealt with through the normal process for doing so.

Amendment 78 from the noble Baroness, Lady Fox, seeks to clarify when a landlord may seek dispensation from the need to consult leaseholders when major works need to be undertaken. Currently, a landlord can make an application to the appropriate tribunal for a dispensation from the requirement to consult on major works or before entering into a qualifying long-term agreement. The tribunal will make a judgment on whether a dispensation from the consultation requirements is reasonable. This amendment would require landlords to prove that there is an urgency behind the need for dispensation from the consultation and would place the onus on the landlord. This would enhance the rights of leaseholders and empower them to have greater influence over major works.

However, there are potential unintended consequences. It might overly narrow the scope of the discretion given to the tribunal since, for example, it may be desirable to carry out works sooner rather than later, in the interests of managing the building. Furthermore, where it is unnecessary, under this amendment landlords would be required to carry out more consultation for no real benefit, and this could come at an increased cost to leaseholders. I believe that the appropriate tribunal is best placed to consider the circumstances of each application for dispensation. The tribunal is able to consider a wide range of matters when deciding whether it is reasonable to dispense with consultation requirements, and we would not want to narrow the grounds for dispensation.

There are already protections for leaseholders, in Section 19 of the Landlord and Tenant Act 1985, that ensure that service charges payable by leaseholders, whether or not they are for “major works”, must be reasonable. There are also measures in the Bill to drive up service charge transparency, including leaseholders being given greater notice of anticipated major works and being provided with more information about the major works that will be carried out on their properties.

I admire the noble Baroness’s commitment to protect leaseholders from unreasonable costs from major works, and I hope that, with this reassurance, she will not move her amendment. I shall certainly look at Hansard tomorrow, because she brought up a number of other issues, which I would like to discuss further with her, if she is willing.

I thank my noble friend Lord Bailey for Amendment 78A, which seeks to strengthen the service charge disputes regime by introducing proposed new Sections 27B to 27E to the Landlord and Tenant Act 1985. Proposed new Section 27B would introduce a requirement for a landlord to notify all leaseholders in their block of any application under Section 27A of the Landlord and Tenant Act 1985 and to assume that all leaseholders in that block are party to the application for a determination unless they opt out.

Proposed new Section 27C would introduce a duty on landlords to reimburse leaseholders for any costs deemed to be unreasonable, if a determination made in favour of the leaseholder is made by the appropriate tribunal. The landlord must account to all leaseholders within two months of the determination. Proposed new Section 27D would introduce a power to enable the appropriate tribunal to award interest on any determination in favour of the leaseholder, when a leaseholder has made an application.

I fully agree with the intention behind the proposed scheme that there must be a robust regime in place to challenge service charges. We are aware that the existing statutory requirements to protect leaseholders do not go far enough, which is why we are introducing measures in the Bill which will enable leaseholders to account for the money they spend. However, I cannot accept the amendment as it stands.

First, this is due to the role of the tribunal itself. Decisions made in the First-tier Tribunal in England and the Leasehold Valuation Tribunal in Wales are subject to the principle that a decision of a lower tribunal is persuasive only in another application. This means that it does not bind another tribunal as an appellate tribunal decision would. Each decision must depend on its own circumstances, even when considering facts similar to those of another application.

Secondly, while in some circumstances it may be beneficial for as many leaseholders as possible to become party to a claim, it may not be appropriate to do so all the time. Leaseholders may have their own reasons not to join the proceedings, so it is not right that the default is to make all leaseholders party to a claim. There is nothing to stop neighbouring leaseholders joining together in the first place using formal means, such as a resident tenants’ association being a party to proceedings, or informal means, such as knocking on doors.

There are also risks in a leaseholder involuntarily becoming a party to proceedings. By joining, they will be bound by the decision of that tribunal and also risk being made liable to pay the landlord’s legal costs of those proceedings where the landlord wins and is permitted by the tribunal to pass on its costs. This will be the case even when the leaseholder does not play a substantive role in the proceedings. There is also a risk that this approach would slow down the system somewhat. Landlords would be required to notify all affected leaseholders, which may hinder the whole process and make tribunal case management unnecessarily cumbersome.

The appropriate tribunals already have adequate case management powers to either add parties to a single set of proceedings or, in England, to direct that one or more cases be specified as a lead case. This is set out in Rule 29 of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013. For these reasons, while I share the underlying sentiment put forward by my noble friend, I cannot accept his proposal and therefore ask him not to move his amendment.

I thank the noble Baroness, Lady Jones of Moulsecoomb, for her amendment, which calls for a review of the municipalisation of public assets funded by leaseholders. However, I do not think these measures are necessary. As the noble Baroness is aware, the services that leaseholders must pay for are set out in their lease, alongside their expected contribution towards such costs. This may cover not only issues directly relating to buildings but, in some circumstances, may include a contribution to the common parts of the wider estate. This may also be the case in respect of social landlords.

The Landlord and Tenant Act 1985, as amended by Clause 51 of the Bill, sets out what is meant by a service charge and what it may cover. By law, the relevant costs that are taken into account in determining the amount of any service charge must be reasonably incurred and the works or services must be of a reasonable standard. Leaseholders may challenge the reasonableness of any such charges in the First-tier Tribunal in England or the Leasehold Valuation Tribunal in Wales. Furthermore, leaseholders may apply to the county court for damages where they consider that the landlord has breached the terms of the lease.

Leaseholders with social housing landlords are also able to complain to their landlord or, if unhappy with their landlord’s response, to the Housing Ombudsman Service if they have concerns about the behaviour of their landlord. This right includes complaints about the calculation, collection or communication of service charges.

Through the Bill, we are introducing measures to empower leaseholders to better scrutinise and challenge unreasonable landlord fees. We consider that these measures provide sufficient protection to ensure that service charge money is used for its intended purposes. I therefore request that the noble Baroness does not move her amendment.

I thank the noble Earl, Lord Lytton, for his Amendments 78C to 78H. Taken together, these measures would represent a total overhaul of the way in which we regulate how buildings are managed and paid for. This overhaul would also introduce in many cases a standard approach for doing so. As the noble Earl is aware, the Government have recognised that the existing statutory regime around service charges does not offer sufficient protection to leaseholders. That is why we are introducing measures to address this and to enable landlords to be better scrutinised and challenged in relation to any charges considered unreasonable.

While I am very keen to listen to ideas on how to improve the regime, I question the merit of doing so at this time. Leasehold law is complex and there are many interactions between various sections that need to be fully understood and considered to ensure that there are no unintended consequences. I will take the amendments in turn.

Amendment 78C seeks to introduce a requirement for costs to be treated as incurred where there is an unconditional obligation to pay them. We do not think that this amendment is necessary as case law has already been established as to when relevant costs have been incurred.

Amendment 78D seeks to replace the “reasonably incurred” test of a service charge with a value for money assessment. I am not convinced that this is an appropriate judgment to make, as “reasonableness” is a well-defined term, with considerable case law, whereas value for money is a subjective term that would still be open to considerable debate on the interpretation of the given definition. The use of “reasonableness” already allows the tribunal to consider value for money when determining whether or not a relevant cost is reasonable, while also allowing for wider issues to be considered. I do not think that we should be changing one of the fundamental pillars of the service charge regime at this stage.

I have just been told that time is up. I am very happy to answer all noble Lords’ questions, which will take me another five minutes, or to sit down. I did warn noble Lords that there were a lot of questions and I think it is worth answering them all.

Amendment 78E seeks to require a landlord to provide leaseholders with information and to update the information regularly. I agree that providing more information to leaseholders is vital in order to help them hold landlords more easily to account. However, this is already what Clauses 53 to 55 seek to achieve.

Amendment 78F, supported by the noble Lord, Lord Thurlow, seeks to prevent landlords entering into a contract for the provision of goods or services with a related party or connected person. The landlord is best placed to manage their building, but I do agree that any connections should be well understood. I am particularly aware that this is often an issue regarding “captive insurance”. Under Section 20 of the Landlord and Tenant Act 1985, landlords are required to notify leaseholders if a tender for a major works contract or qualifying long-term agreement is from a connected party. This amendment is therefore not necessary, as appropriate measures are already in place.

Amendment 78G seeks to prevent landlords entering into a contract that is for more than five years. Long contracts are particularly common with local authorities, which tend to procure major works programmes under public procurement legislation. There are measures in place to ensure that leaseholders are consulted in cases where contracts are over 12 months and the cost to a leaseholder exceeds £100. This measure is therefore not necessary, although I recognise the risks associated with long-term contracts.

Amendment 78H seeks to enable a leaseholder to undertake cosmetic work without approval from their landlord. I assume that the noble Earl is referring to works within a leaseholder’s property. Works that leaseholders may or may not carry out to their premises are set out in their lease, and having a prescribed list may not be appropriate in all circumstances. It may also disadvantage some leaseholders and I therefore ask the noble Earl not to press the amendment.

Amendment 78I, spoken to by the noble Lord, Lord Khan of Burnley, seeks to prevent landlords passing on costs imposed on them, whether by the regulator, under a consumer redress order or following an outcome in an alternative dispute resolution, in relation to the landlord’s mismanagement of communal heating systems. Where communal central heating systems are used in leasehold buildings, the obligations of the landlord and the rights of leaseholders will be set out in the terms of individual leases. However, where fines, penalties or compensation payments are imposed on the landlord because of their mismanagement, they are already prevented from passing them on to leaseholders. This is because they are not a relevant cost within the meaning of Section 18 of the Landlord and Tenant Act 1985.

Through measures in this Bill to drive up transparency, we will make it even harder for unscrupulous landlords to pass on unjustified and unlawful costs. Furthermore, where a landlord fails to comply with obligations under the lease, the leaseholder can bring a claim for damages in the county court for the landlord’s breach of the terms of the lease. Leaseholders may also consider applying to the appropriate tribunal for a manager to be appointed in place of that failing landlord. I therefore ask the noble Lord not to press this amendment.

Amendment 78J, also spoken to by the noble Lord, Lord Khan of Burnley, seeks to enable leasehold estates to reduce their carbon emissions and increase their energy efficiency as part of the net zero targets. It would be done through introducing qualifying energy efficiency or retrofit improvements measures to buildings. These improvements would be paid for by leaseholders through the service charge. Improving energy efficiency in our homes is important for keeping homes warm, dry and cheaper to heat. Our ambition, as stated in the 2021 heat and buildings strategy, continues to be that homes should meet EPC 1 by 2035 where reasonable cost-effective practicalities allow. We have been working across government to make the ambition a reality.

I fully support the intention behind the amendment—to help improve the energy efficiency of homes—but introducing statutory improvement work provisions would require careful consideration in order to avoid unintended consequences, not least in relation to costs. While I appreciate that the amendment would enable the Government to set more detail through secondary legislation, there are a range of factors to consider, including potential caps on improvement projects, who pays for ongoing maintenance, and the mechanism through which leaseholders may challenge costs or works if they consider them unreasonable. The amendment could lead to significant additional costs being passed through to leaseholders. It would impose a significant change on all parts of the sector, and we must carefully consider the implications for landlords and managing agents, but mainly for leaseholders.

Of course, the Government support energy efficiency, as I said. Our reforms in the Bill of the right to manage and enfranchisement will empower leaseholders and provide them with greater leverage over their buildings to make alterations in support of net zero. I therefore ask the noble Lord not to press the amendment.

Amendment 80A, tabled by the noble Earl, Lord Lytton, seeks to require that insurance proceeds are held in a separate and dedicated fund. I assure the noble Earl that the landlords’ duties to their leaseholders regarding maintenance, repair and insurance apply regardless of whether moneys are held in a separate fund or not. The amendment also aims to ensure that insurance proceeds for the destruction of or damage to a building be used to carry out repairs and maintenance on the building as soon as reasonably practical. I agree with the noble Earl’s intention to ensure that landlords fulfil their duties in a timely manner. Landlords’ obligations to repair or renew are set out in the lease, and failure to act within a reasonable period would usually amount to a breach of the lease. A leaseholder could apply to the court for an injunction requiring their landlord to perform their contractual obligations and seek damages from them for their failure to do so. However, the amendment as drafted, although well meaning, would not lead to landlords complying with their obligations more quickly.

I also thank the noble Earl, Lord Lytton, for his Amendment 80B, which aims to prevent the misuse of insurance proceeds in the event of a claim. The noble Earl may have a particular case in mind, and I agree with his intentions, but I am of the view that such misuse is already prohibited. The creation of a new statutory offence, therefore, is not necessary. The amendment as drafted, although well meaning, would not lead to rogue landlords changing their behaviour. I hope that, with these reassurances, the noble Earl will not press his amendments.

Photo of Lord Khan of Burnley Lord Khan of Burnley Opposition Whip (Lords), Shadow Spokesperson (Levelling Up, Housing, Communities and Local Government) 5:15, 29 Ebrill 2024

My Lords, I know that the Minister has been speaking for a while, but I want to press her on this important point as we are talking about charges. There is a huge, fundamental area of concern in that the ground rent consultation has yet to be published. I know that it is unreasonable for me to ask the Minister to talk about any leaks or media announcements. However, how will this House be able to scrutinise it at this late stage of the Bill’s passage?

Photo of Baroness Scott of Bybrook Baroness Scott of Bybrook Parliamentary Under Secretary of State (Department for Levelling Up, Housing and Communities)

We debated ground rents last week, and I do not have anything to add. If there are any changes to the Bill, we will give sufficient time for all noble Lords to consider them.

Amendment 66 agreed.

Amendment 67 not moved.