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.]
4.45 pm
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.