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.
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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.