Commonhold and Leasehold

[back to previous text]

Ms Keeble: The existing provisions for enforcing accounting requirements are recognised to be weak and the Bill tightens them up and makes them easier to enforce. The new powers to challenge unreasonable administration charges, for example, are designed to deal with landlords who make excessive charges as a condition for consenting to the assignment of the lease—one of the issues that the hon. Member for Guildford (Sue Doughty) raised.

The clause requires landlords to send leaseholders annual accounting statements that deal with certain matters and gives us the power to prescribe the form

Column Number: 161

and content of those statements through secondary legislation. As we discussed, a considerable amount of regulation will have to deal with the exact wording of several of those prescribed notices.

If landlords fail to provide statements on time, or those statements do not wholly or substantially meet our requirements, leaseholders will have the right to withhold service charges. That powerful sanction will give landlords a powerful incentive to comply with the law, but those who do not do so will soon discover that their source of income has dried up thanks to the new right to withhold.

Amendment No. 91 is intended to provide an additional enforcement mechanism. It provides that a leasehold valuation tribunal may order a landlord to pay a leaseholder up to three times the annual service charge as compensation for any failure to comply with the new requirements. That is excessive and unnecessary and the potential for such large awards could dissuade leaseholders from exercising the new right to manage or even from enfranchising given that such awards could, in turn, be made against them. The right to withhold is designed to make the requirement to produce accounting statements self-enforcing, so the potentially draconian penalty in the amendment is superfluous.

Amendments Nos. 92 and 93 would require landlords to provide accounting statements on commencement or termination of a tenancy or where a lease was assigned to another person. Accounting statements can take some time and effort to produce, which is why the Bill gives landlords six months to produce them. It would not be sensible to ask a landlord to produce a new accounting statement for each change in the ownership of a lease. In large blocks with a rapid turnover, it could easily become an excessive burden.

I have tried to demonstrate to the hon. Lady that we take seriously the reasonableness of service charges and the sanctions that will be open to leaseholders. Whenever leases change hands, there will have to be an agreement about the service charges, but it will be done in the usual way. The amendment would require a complete accounting statement. I hope that my assurance that reasonableness and other such issues will be taken into account, and that proper safeguards for leaseholders will be put in place, will allow the hon. Lady to withdraw the amendment.

5.30 pm

Sue Doughty: I thank the Minister for her explanation. I still have some concerns about people being able to get accurate information in a timely manner when a property is bought or sold. Many people need to know where they stand financially at such times. Knowing where they will be six months down the line will not help them sort out their finances when exchanging property. Can the Minister help?

Ms Keeble: The Bill provides six months for producing accounting statements, but the amendment would cause delays. The Bill would allow for a test of reasonableness and it would give leaseholders proper sanctions. It would also allow the normal provisions to apply when deciding the amount

Column Number: 162

owing when a lease changes hands. Leaseholders would be in a stronger position under the Bill than under the amendment, which would cause a delay.

Sue Doughty: I am still having difficulty determining the sanctions that would face someone who used that opportunity to raise charges. What sort of deterrents will be in place? At the moment, it can be a nightmare to find out what the charges will be. People in that situation settle on a realistic charge, work out the balance and then tend to walk away. They take the hit, which is not right. I still do not fully understand how someone who has been overcharged could easily get restitution. Further clarification would help.

Ms Keeble: The reasonableness of service charges can be challenged and there is also the new power of withholding. Leaseholders who have to pay charges before selling their lease will be able to challenge the reasonableness of those charges. That would be after the event, but they would be able to challenge them. The amendment would require an accounting statement to be provided on the termination or commencement of the tenancy.

Elsewhere, the Bill provides six months for the accounting statement to be produced, because it is a complex statement. We should remember that some of the relevant blocks are quite large and that producing a statement of accounts, not just of amounts owed, every time a lease is sold would become a substantial burden. Also, the Bill provides for a period of six months, so there would be a delay.

We have, therefore, provided remedies. Leaseholders who had to pay service charges before selling their lease could pursue a challenge. It would be after the event, but it is the best way to achieve a reasonably smooth procedure and to avoid the delays that would be caused by production of a complete statement of accounts. I understand that some of the issues raised in this context involve large amounts of detail, but on balance our proposals will provide new remedies to enable leaseholders to challenge service charges. We have devised new sanctions against freeholders who do not produce statements of account. We feel that they will work more effectively than those suggested by the hon. Lady, which are substantial and could produce delays.

Question put, That the amendment be made:—

The Committee divided: Ayes 2, Noes 11.

Division No. 11]

Doughty, Sue
Sanders, Mr. Adrian

Crausby, Mr. David Hendrick, Mr. Mark Hepburn, Mr. Stephen Iddon, Dr. Brian Keeble, Ms Sally McIsaac, Shona
Marsden, Mr. Gordon Stringer, Mr. Graham Thomas, Gareth Woolas, Mr. Phil Wright, David

Question accordingly negatived.

Clause 149 ordered to stand part of the Bill.

Clause 150 ordered to stand part of the Bill.

Column Number: 163

Clause 151

Liability to pay service charges: jurisdiction

Ms Keeble: I beg to move amendment No. 107, in page 75, line 32, leave out 'or not any amount is so' and insert—

    'a service charge is'.

The Chairman: With this we may take Government amendments Nos. 108 to 112.

Ms Keeble: The amendments are the consequence of a recent Court of Appeal decision and to explain why we consider them necessary I shall set out some background.

Under current law, leasehold valuation tribunals can rule on whether service charges are reasonable. Clause 151 would widen their jurisdiction to allow them to examine the wider issue of liability. That would include reasonableness, because a leaseholder is not liable to pay a service charge unless it is reasonable. However, the clause goes wider and a leaseholder may not, for example, be liable to pay a service charge that is not covered by the terms of their lease or where the landlord did not properly consult on the long-term contract under which charge was incurred.

The clause would also allow the LVT to rule on such matters. However, a problem that has arisen in relation to the Landlord and Tenant Act 1985 might also be relevant to the Bill. In a recent Court of Appeal case, Daejan Properties v. London Leasehold Valuation Tribunal, the court ruled that, except under very limited circumstances, LVTs had jurisdiction only to decide the reasonableness of disputed service charges that were still unpaid.

That decision was most unfortunate from the viewpoint of both leaseholders and landlords. As leaseholders become aware of its effect, they may be inclined to withhold service charges until they are certain that they are reasonable; otherwise, it may prove difficult for them to launch a challenge. That, in turn, will create problems for managers of leasehold property, who may find it increasingly difficult to obtain payments in advance and may be reluctant to commence work without them.

A central factor in the view reached by the Court of Appeal was the meaning of the phrase ''alleged to be payable''. It felt that a payment that had already been made could not be said to be alleged to be payable, because it was no longer payable at all. The same phrase appears in clause 151, on service charges, and in schedule 11, on administration charges.

The London LVT is seeking leave to appeal against the decision in the Daejan case. To avoid doubt, however, we decided that it would be sensible to remove the contentious phrase from the new provisions. The amendments do that, as well as making consequential changes.

I should make it clear that our intention in clause 151 and schedule 11 is for LVTs to be able to rule on service charges and administration charges that have already been paid—an important point in the context of our previous discussion. More specifically,

Column Number: 164

where a service charge or administration charge has been paid, the LVT should be able to rule on the person who should have paid the charge, the person to whom it should have been paid, the amount that should have been paid, the date by which it should have been paid and the manner in which it should have been paid.

Mr. Cash: The Minister tells us that the issue is subject to a current court case and that the Government will remove the words that are causing unnecessary contention. In the light of that, will she tell us when the matter will be resolved?

Ms Keeble: I cannot give a date now, but I shall write to the hon. Gentleman if that would be helpful.

Previous Contents Continue

House of Commons home page Parliament home page House of Lords home page search page enquiries ordering index

©Parliamentary copyright 2002
Prepared 22 January 2002