Amanda Gourlay gave evidence.

Good morning. Would our last witness like to introduce herself?

Amanda Gourlay:

I am Amanda Gourlay. I am a barrister at Lazarev Cleaver LLP and I am an associate member of Tanfield Chambers. I have been in practice for nearly 20 years—I think it is 18.

Q Amanda, thank you for coming to talk to the Committee. You have expertise in a number of areas, but I wanted to probe you on something that we have not gone into the details of—the service charge provisions in clauses 26 to 30. Lots is left to regulations, but these clauses are potentially quite transformative—particularly clause 27, as most leaseholders will experience that clause as it relates to service charge demands. In your view, looking to improve the Bill further, what are the flaws, inconsistencies, deficiencies and problems with these clauses, albeit the regulations are coming, and what stipulations might we look to put in the Bill about what those regulations must look like?

Amanda Gourlay:

I would like start by quickly saying that while the Bill is welcome—as far as I am aware, we have been working towards leasehold reform for about six years now, from a service charge perspective—in an ideal world, although I appreciate that we are not starting with an ideal world, the best starting point would be to repeal everything we have so far so that we can codify and consolidate everything. I say that in relation to service charges, which apply only to leasehold properties, but also to bring all the charges relating to services and works that homeowners, occupiers and residents might pay within one regime, so that we are not looking at a separate regime for estate management charges or for estate management schemes, which are different from estate management charges, but we bring everything into one place. If I receive a demand for payment of maintenance of a park on my estate, it matters not to me whether I am a leaseholder or a freeholder—the money that I pay is exactly the same.

I wanted to set that out as my starting point, if I had a blank piece of paper and endless parliamentary time and patience. Having said that, we are where we are. I have made notes and, with your permission, I will run through them as quickly as I can, while still providing some degree of detail. I am a lawyer—I am one of those people whose living is derived from working with leasehold. I am one of the people who is often criticised in this arena.

I have had a good look at the clauses of the Bill. There are good things: there are time limits and an enforcement provision, and we are undoubtedly attempting to achieve some transparency. I wanted to put that out there as the good news to start off with.

From an improvement perspective, I want to start with clause 28, which deals with the provision of the written statement of account and the report the landlord will be required to provide. I have very little to say about clauses 26 and 27. Clause 26 brings the fixed service charge into the service charge regime. Clause 27, as you say, relates to the service charge demand. We do not know what the regulations are going to say. We do have an existing framework—a relatively limited one—for service charge demands, so there is something there, but we will need to see what the regulations do. What we would really benefit from is consistency in the regulations, so that across the board, as a leaseholder moves from one flat or property to another, they can expect to see the same charges set out in the same way, broadly speaking—so that they know what to look for when they go from one place to another.

The clause I have had quite a look at, with the benefit of some accounting input, is clause 28. It will insert two new sections into the Landlord and Tenant Act 1985, which is the framework we are looking at when looking at the Bill from the perspective of these clauses. It is good that we have a time limit for the provision of service charge accounts. I have come across many cases where leaseholders are repeatedly asked to pay on-account service charges and they never receive a reconciliation at the end of the year, so there is no real knowledge of what is being spent.

We could do with looking at a template for the provision of service charge accounts. That may be a matter for regulation, rather than the Bill, but I want to explain to you why I say that is important. When the service charge accounts come over, they have often been prepared by the managing agent, who has then instructed an accountant to review them in some shape or form. Often, the accountant will simply say, “I have agreed a set of procedures that I am going to follow in relation to the service charge accounts. I am going to check that the numbers have been properly extracted and check a small sample of the invoices to make sure that what is said has been invoiced has found its way into the accounts.” What we do not find for leaseholders, unless the lease requires something like an audit, is a proper review of service charge accounts with a balance sheet, an income and expenditure report, and notes to the accounts.

The first thing I must say as I am explaining this is that I am not an accountant—far be it. If I may make a suggestion, it would be extremely helpful for the Committee to engage with either a firm of accountants or, in fact, the Institute of Chartered Accountants in England and Wales; the Committee could then ask how they would go about formulating a proper system—probably in conjunction with the Royal Institution of Chartered Surveyors, under the fourth edition of the code, hopefully—in order to bring service charge accounting into the arena that it is currently in in the commercial code, or the professional statement that the commercial environment has in it.

Accounts is a big area, and it would be immensely helpful to have more involvement all round from accountants. I will not say accountants are the elephant in the room, as that would be a discourteous metaphor. They are the people who are never seen in tribunals. They are the people who do not speak loudly to Committees such as these. Yet, service charges are as much about the money as they are about the services. A balance sheet will give completeness. Income and expenditure will tell you what has come in and what has gone out. It makes sense.

While we are there, might I also invite the Committee to consider trying to bring together the differing understandings of “incurred” in the 1985 Act, as against what an accountant will understand. An accountant will understand a cost being incurred when that service is effectively provided. When I consume electricity, I incur a cost from an accountant’s perspective. From a lawyer’s perspective, I do not incur that cost until either, as a landlord, I receive the invoice, or I pay that invoice. So, they are very different dates and times. Some consistency between those professions would be helpful.

We would very much benefit from cost classifications that would support the provision of service charge accounting. It would also support the tribunal in understanding where to look for certain costs in relation to service charges. Cost classification would simply be some headings, some detail beyond that and then detail of the service that has actually been provided.

I am stepping entirely outside my area of comfort, but I confess I am married to a chartered accountant who specialises in commercial service charges. I have some wonderful Sunday morning conversations with him over breakfast. Those are points that, between us, we have come up with—looking at the way that service charge accounts have been prepared.

Further, in clause 28, there is a word I have not seen before in relation to service charges. That is that there is an obligation to provide leaseholders information about variable service charges “arising”. I am not sure what that means, and it would benefit from some explanation. That is the sort of word that will find its way into tribunals, I would expect. If “incurred” did, and found its way to the Court of Appeal, “arising” could do with some explanation.

The report, which is the second element in clause 28, which a landlord is required to—

May I interrupt?

Amanda Gourlay:

Of course you may, with great pleasure.

The point is not to make a long speech. The purpose is to answer questions. You might want to draw your remarks to a conclusion, so that my colleagues can ask you questions.

Amanda Gourlay:

Certainly. I was asked a question and the only way I could answer was by taking you through the detail, because general comments are not going to help the Committee in formulating its way forward.

I am a lawyer, too; I know that we manage to speak quite a lot.

Amanda Gourlay:

I am grateful, thank you very much.

Thank you for comprehensive run-down so far. I am sure there is more to comeQ .

Amanda Gourlay:

I am going to try not to go too far. I have been described as enthusiastic and I find I have to pull back slightly.

Q We need that level of enthusiasm, and the granular information really helps us to formulate our views. You were sitting in on the previous evidence session, when we heard some strong, and in some ways harrowing, evidence from the brilliant campaigners from the National Leasehold Campaign, particularly around transparency, not just on service charges but with regard to the sale of leases, and the lack of information on that, and the increased cost for leaseholders who wish to enfranchise.

What did you make of that? Clearly, the Bill contains a number of provisions, particularly on consumer rights. From my perspective, the most interesting is around transparency. Do you think the Bill goes far enough? You have already given examples on service charge accounts, but are there other ways that the Bill could go further to improve that?

Amanda Gourlay:

What I would say, to start with, is that my area of expertise is service charges. I know the Committee will hear from Philip Freedman KC (Hon) and Philip Rainey KC on Thursday. I would defer to them on all matters on enfranchisement. That is my preface to your question. Transparency is going to come from consistent information being provided in the service charge arena. Thinking specifically about the sale of properties—the assignment of leases and the sale of leases—one issue that comes up quite regularly is the provision of information on the position on service charges, including questions like, “Has the leaseholder paid all the service charges?”, “Are there any works proposed for the future?” and those sorts of general questions that we all want to know the answers to if we are going to buy a property. There is no regulation of that whatsoever at the moment, and it is quite a sticking point.

I have had one or two cases where I have been involved in those sorts of issues—where a leaseholder has wanted to sell on their lease and has simply not been able to obtain the information from whoever it is who should be providing it and to whom the request has been made. That information is really something that we need to see pushed forward.

The Bill does provide two clauses about the provision of information. Provided that it is understood that those provisions extend not only to the leaseholder—“Please tell me about my service charges”—but also to the packs that conveyancers will ask for when flats are being sold on, it would be a good thing to move that forward, because it has been a real struggle to impose an obligation or to find a way of obtaining that information in a reasonable time and at a proper price from the managing agent. That would be my answer in terms of sales.

Q What would you consider a reasonable time? I mean, 24 hours would be great, but—

Amanda Gourlay:

Twenty-four hours would be great, but that would probably sow total panic at the receiving end—I know that it would if I received that and I was doing something else. It will depend very much on the nature of the property. There are some very complex developments over in the east end of London. On the other hand, there are Victorian houses that are only two or three flats, and that should be much more straightforward.

I am aware that people have been able to pay for, say, a seven-day or five-day service, and there has been an uplift in the price for that. I am not the best person to ask about what the price should be. What I would say is that if a managing agent to whom this request would normally go is keeping their records up to date, one would hope that with the progress we have in software nowadays, that should very much just be the pressing of a button.

On work that is going to be carried out in the future, I have heard talk about, for example, mandatory planned maintenance plans. I have not seen those in the Bill. If a building or property is being well managed, one would expect there to be a plan for the next five or 10 years—what is needed to be done in terms of decorating, lift replacement and so on. Again, if that is in place, I would anticipate that it should be relatively straightforward to produce the information. I cannot give a specific answer; what I would say is that if we are all keeping our records up to date, that should be a relatively speedy process.

Q I understand that you were involved in the Canary Riverside judgment just before Christmas.

Amanda Gourlay:

That is correct—yes. Forgive me; I was involved in Canary Riverside between 2016 and 2017. My involvement finished in June 2017.

Q Thank you. But you are aware of the judgment that came through just before Christmas in the case.

Amanda Gourlay:

I am not sure that I am—no.

Q Were you involved in relation to the uncovering of the £1.6 million commission for insurance?

Amanda Gourlay:

No, I was not involved in that element of it.

Q In that case, I am probably better putting those questions to a later witness.

In relation to that case, and on the accountable person provisions and section 24 amendments in the Building Safety Act—this relates to a question I asked earlier—the tribunal decided in the Canary Riverside case that the section 24 manager cannot be the accountable person, and that risks the section 24 management order failing, and the failed freeholder coming back to take control of the leaseholders and their service charge moneys. The implications of that decision really are quite dramatic. It means that the lifeline of the section 24 court-appointed manager provision from the Landlord and Tenant Act 1987 has been removed from leaseholders, particularly those who cannot afford to buy their freehold or do not qualify for the right to manage. How should we address that problem in the structure of the Bill?

Amanda Gourlay:

I do not think you need to do that in the structure of the Bill. Casting my mind back to the Building Safety Act, which is now in second place to the Leasehold and Freehold Reform Bill in my mind, my understanding is that there is provision for a special measures manager in that Act. If that were brought into force, one would have a recourse. I am very happy to open my computer and look at the Act, but I do seem to recall that there is provision for a special measures manager to take over the building safety or the accountable person role in a manner of speaking. I say that in the loosest terms, without having checked the law.

Q I am sure Ms Maclean will have details from her past life. Thank you for that—it is extremely helpful. You referred to clauses 27 and 28 and said that the word “arising” was one that troubled you. Could you point us to which clause that is in, so that we can be clear about it? You will have heard the question I put to another witness about making provision in the Bill, as there had been, although it was never brought into play, in the Commonhold and Leasehold Reform Act 2002, for leaseholders to be able to withhold their service charges if all that is set out in proposed new sections 21D and 21E has not been complied with?

Amanda Gourlay:

There is always a concern looking forward as to how things might play out. I will deal your question on “arising” first, then come to your other point. Clause 28(2) inserts proposed new section 21D, “Service charge accounts”. Subsection (2)(a)(i) talks about the variable service charges “arising in the period”.

Ah, “arising in the period”. Gotcha.

Amanda Gourlay:

Turning to the second part of your question, one of the very big difficulties with the reform of leasehold is that good and bad—to put it in very binary terms—do not sit on one side or the other. While it seems to me that in an appropriate situation it would be entirely reasonable for a leaseholder to be able to withhold their service charges, there may equally be leaseholders who consider that this is an opportunity not to pay, for different reasons. There is always that risk. If one does not pay one’s service charge and is obliged to do so—for example, by going to tribunal and the tribunal says that actually £2,000 is payable—one is at risk of legal costs, which I am sure we will come on to in relation to the risk of forfeiture.

Q I was thinking not so much about where there is a dispute over reasonableness but more about whether the process that is set out in proposed new section 21D had been followed—for example, someone had not laid the accounts within six months and had not gone through all the set requirements in the Bill. Rather than it being a dispute about substance, the charge would be withheld on the basis of a failure of process by the freeholder.

Amanda Gourlay:

Yes, and I understood your question that way. I think my concern is that if there is a minor breach, is that simply a situation where we withhold service charges entirely? The question is the nature of the breach and whether it is or is not a breach. In principle, I would agree that it would be a sensible form of enforcement, because it is the absolute. It is the most draconian form of enforcement. One should always bear in mind, however, that if a third-party management company—a residents management company—is obliged to insure a building and has absolutely no wherewithal to insure it, there is that risk. Things may need to be done that simply cannot wait but, in principle, I see no reason why that should not be a remedy for failure to follow the process.

Q Although I said at the outset that I would not pursue the insurance costs with you, I think we can probably agree that the £1.6 million commission that was ruled illegal will take out the idea of commission—but that will move to fees instead. Given what you said about “arising”, do you have similar fears that fees for work charged might also open that up to a multitude of sins in the Bill?

Amanda Gourlay:

Do you mean generally, or in relation to insurance?

In relation to insurance—because it will no longer be possible to charge commission, but it will be possible to charge a fee.

Amanda Gourlay:

That is always a risk. In fact, that is a risk across the whole Bill where more obligations are imposed on a landlord. If the costs of those obligations are recoverable under the terms of the lease as part of the management, it is almost inevitable that charges will go up. They will have to: I am going to have to do more work, so I would like to be paid more.” The only control of those that we have at the moment is under section 19 of the Leasehold Reform Act 1967, which is whether the costs are reasonable in amount for the standard of work that is provided. One would hope that there would be degrees of transparency, but of course there is no obligation to account necessarily for the fees, save for the limitation of administration charges and the obligation to publish a schedule of fees of administration charges.

Again, however—I am sorry that I am providing such long answers—where it comes to publishing a schedule of administration charges, that is quite straightforward for most cases, but clearly if someone wants to carry out a significant change to a flat on the 15th floor of a building, the costs will be difficult to quantify in advance. There is still wriggle room, I think, in the administration charge limitations for costs to be higher.

Finally, proposed new section 21E of the 1985 Act talks about annual reports, while proposed new section 21D sets out the basis of the accounts and when they must be presented. What is your understanding of the difference between the report—as set out,

“before the report date for an accounting period, provide the tenant with a report”— and the accounts, which have to be presented at the end of the sixth month after the period? Is there any requirement in the Bill as drafted to ensure that the information available in the accounts is greater or more detailed—indeed, in any way different—from the report?

Amanda Gourlay:

That is a question with which I have battled for a number of hours. The conclusion I reached was that proposed new section 21D very plainly envisages the involvement of a chartered accountant—a qualified accountant; proposed new section 21E is different because it would appear to be more narrative, a more general description of the information that has to be provided.

If you look at the Bill, subsection 21E(3), which entitles the appropriate authority to make provision about information to be contained in the report, is extremely broad. It refers only to

“matters which…are likely to be of interest to a tenant”.

That is a very wide scope. The information in effect has to be provided within a month of the service charge year-end, whereas the service charge accounts must be provided within six months.

While I am on that point, proposed new section 21E is enforceable under the enforcement provision, which I think is clause 30; rather peculiarly, however, proposed new section 21D is not. I invite the Committee to consider whether that new section 21D should be brought within the scope of clause 30.

Thank you. That is extremely helpful.

Q I just wanted to follow up on something, so that I am clear in my own mind in relation to Mr Gardiner’s question about the provisions in the 2002 Act that have not been brought into force, and it directly relates to what you have just said about proposed new section 21D.

In some senses, many of the new requirements in this section are covered by the enforcement measures in clause 30. Is proposed new section 21D the only example, or are there other examples, of where that power in the 2002 Act might be considered necessary for a leaseholder to use, because the enforcement provisions do not cover the full gamut, if you like? I suppose that I am trying to get to where the enforcement clause is lacking. Is Mr Gardiner correct in specifying that there are circumstances in which you would want to withhold because the non-payable enforcement clauses do not bite in the relevant way?

Amanda Gourlay:

I am instinctively nervous about withholding, even if it is simply a question of process.

Q I suppose what I am getting at is that you would not need to withhold if the enforcement clause properly covers all the requirements therein.

Amanda Gourlay:

It seemed to me that when I was reading through the clauses in the Bill that it was really section 25D that stood out as the measure that was not covered by clause 30. Clause 30 very clearly enumerates that we have section 21C(1) which is about the demand for a payment; 21E, which is about the reports—obviously, between C and E there is D, which is not in there—and then we also have 21E covered. You can literally trace those measures through. D was the one that stood out for me as being a necessity.

It might be said that that is because the provision of those accounts is outside the control of the landlord, because the accountant is the person who is preparing the accounts and they may—you will understand that I am trying to argue both against myself and for myself. There is that possible argument that may be proposed as a counter-argument to mine.

Q Ms Gourlay, I just wanted to go to part 4, which is about the regulation of estate management charges. You talked at the outset about bringing everything together in the process and we have heard a lot about people saying how it is all a bit of a David and Goliath process, so I wanted to get your views on how effective you think some of the measures in the Bill are when it comes to trying to help David in his battle against Goliath. We should always remember that David actually beats Goliath; I do not know why or whether that is a bad thing.

You talked also about the provision of information and how important it is that people have access to annual reports and so on. In clause 49, there is a provision whereby the failure to provide things such as annual reports will carry a charge, with a maximum charge of up to £5,000. Then in clause 51, which addresses other aspects of what should be provided—in this case, charge schedules; you said how important they were—there is a maximum charge of £1,000. Does that sound like a sufficiently large sling from which a shot may be fired, or is it just a cost of doing business?

Amanda Gourlay:

Again, we come back to the fact that for some landlords, particularly those that might be management companies with no other assets, £1,000 would be crippling; effectively, that might put them into insolvency unless they can recover those moneys from other leaseholders. For other landlords, even £5,000 will be next to nothing. It is a shot across the bows; it is clear that such failure is regarded with disapproval.

What I would like to do is to take those figures back, because they appear in part 3 as well as in relation to the estate management charges. The way in which they are formulated is that they are damages that can be awarded to a tenant if they make an application, certainly on the leasehold side of things—

Q Not in this section.

Amanda Gourlay:

Not in that section.

If it is effectively a civil fine, there needs to be a sliding scale. In the tenancy deposit scheme, the way that things work is that, as you may know, if the landlord has not protected the deposit, they have to pay back an amount that is between one and three times that deposit. Some form of sliding scale would seem to be appropriate. I am not the right person to ask about sums and amounts; that is a policy question, really.

Q However, I think you have given some view about how you think it should be assessed.

Amanda Gourlay:

I think it should be assessed on a sliding scale, to take account of the differences of interest—

We have four more people who want to ask questions, so we need quick answers.

Q The other part is that bringing a lot of this together will mean that the first-tier tribunal has a lot more work. Do you think that people may want to get justice, but that it will be denied because the first-tier tribunal is going to be overwhelmed?

Amanda Gourlay:

I would not anticipate that the first-tier tribunal would be overwhelmed. At the moment, I find that my hearings go through within a reasonable period of time. That is the best I can say.

Q Would commonhold being the default position make your job less complex?

Amanda Gourlay:

In the first few years, it would make it more complex, because I would have to learn about it. I have read the Law Commission’s report, and any new scheme is going to involve some bedding down. From what I read and hear about commonhold, it should make matters less litigious. That is what I hear. I have no experience of commonhold directly, however.

Q Having heard from some of our other witnesses, and from the casework that I see in my office, it strikes me that there is a lot of bad practice in the sector. We heard from one of our first witnesses this morning about recurring charges not being disclosed at the point of sale. Does the Bill address that sufficiently? Would it be more sensible to have a clause stating that if recurring charges are not disclosed when the transaction is complete and you purchase the property, they are not paid?

Amanda Gourlay:

The difficulty always comes back to what information people are given when they purchase a property, or when they take on the lease of a flat or a house. On the whole, those in the conveyancing industry who behave ethically do their best to inform people. I have very little conveyancing experience, so I am going to hold my fire on that a little. Clearly, if something is important, it should be drawn to a purchaser’s attention. Recurring charges are something I would have anticipated. Anecdotally, I have heard that people will say, “I don’t understand why I am paying a service charge—I own my flat.” “Education” always sounds slightly high-handed, but more information being made available or accessible would be useful.

Q It is one thing knowing that you have a service charge—when you buy a flat, you know that—but it is quite another when you do not know about it and it suddenly hits you after you have signed on the dotted line. To me, that is more of a problem, but thank you very much.

We have just three minutes left, as we are bound by the programme motion. We will hear questions from Rachel Maclean and then Barry Gardiner, and we will finish by 11.25, as per the programme motion.

Q Have you ever acted for freeholders against leaseholders? Have you ever found that the leaseholders have been egregious, rather than the other way round?

Amanda Gourlay:

I believe I have acted for freeholders against leaseholders on occasion.

Q You referenced the damages under proposed new section 25A of the Landlord and Tenant Act 1985, which “may not exceed £5,000”. The tribunal does not have to award £5,000; it is a ceiling, rather than a floor. Often a single leaseholder will go to the tribunal and get an award, but they are representative of problems that all the other leaseholders have. Rather than saying that damages under the proposed new section may not exceed £5,000, would it make sense to say that damages to each leaseholder may not exceed £5,000?

Amanda Gourlay:

That would make sense, but damages are not an appropriate remedy in this particular situation. It is very rare that a leaseholder will suffer financial loss. It is more about encouraging good behaviour.

Q Thank you. Will you send me a full report on the details that you did not get a chance to share?

Amanda Gourlay:

I will, yes. I had no intention of making a speech, and I am sorry if I trespassed on people’s patience.

That is fine. Do not worry.

Ordered, That further consideration be now adjourned.—(Mr Mohindra.)

Adjourned till this day at Two o’clock.