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18 Jun 1996 : Column 174

3.30 p.m.

Lord Williams of Elvel: As the Committee is aware I promised to take trapist vows on this part of the Bill because I am a leaseholder, but I wish to correct certain matters of fact. I am not speaking in my own interest but on matters of fact.

The facts are that a freeholder sells a long lease under the terms of the definition of the 1993 Act. The freeholder sells the lease on the basis that the leaseholder will be responsible for paying rent, which may be low--that will be a matter which the Committee will discuss in due course--but also he will pay service charges. It is the service charge problem that has given rise to my noble friend's amendment and to the amendment in another place.

It is not simply a matter of saying that the leaseholder will pay all service charges whatever they may be. It is not even a matter, as the noble Lord said, of a return to the freeholder. The freeholder sold a lease for a capital value and that is his return, plus the ground rent. Unless I am much mistaken, the freeholder does not expect to get anything out of the service charge. It is the manager who obtains the return from the service charge.

Normally, freeholders appoint a manager. A number of estate agents of distinguished credentials run blocks of flats with long leases. The problem is that at the moment most leaseholders--I am trying to put this in the most objective manner that I can--do not know whether or not they are obtaining proper value for money from the service charges they pay to the agent. That is the problem that my noble friend is trying to address. It is nothing to do with the landlord or the head leaseholder; it is whether the leaseholder who has a flat, as I do, on a long lease, who pays a small ground rent, who could enfranchise--but as the noble Viscount, Lord Montgomery, said, I have no intention of enfranchising under the present arrangements, or at all--is receiving value for money.

I speak for myself at this point. With regard to service charges--I am not complaining about my flat or the service charges I pay--leaseholders need to do what is called "market testing". I thought the Government were in favour of market testing. The estate agent in charge of the property may have decided that after five years or so the whole property should be refurbished on the outside. That is the landlord's responsibility. They may have commissioned painter X or decorator Y. But we do not know under what circumstances they have been commissioned; we do not know that they were commissioned under competitive procedures; we do not know what the estate agent management take is and we do not know whether there could be any better management of the properties in which we live.

The intention is not to break through anything that the noble Lord described. We recognise, having signed and bought a long-term lease, the obligations. It is a question of market testing as to whether anybody--there are plenty of people in the business--could do it better than the present manager of the property. That is all my noble friend is saying.

Viscount Caldecote: The noble Lord, Lord Williams, is perhaps confusing the issue. He said that it was

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nothing to do with the situation of the head lessor. It is very much to do with the head lessor. If a tenant has a long lease from the freeholder he has certain obligations to keep the building properly painted, the structure maintained, and so forth. If he does not carry out those requirements then he may be sued by the freeholder.

The problem arises when the freeholder sells a long lease to a head lessor and the head lessor then has to pass on the requirements for maintaining the buildings to the sub-tenants. The head lessor appoints a managing agent to carry out the work on his behalf. The problem arises because some head lessors act in a most improper way, as do their agents, and the sub-tenants have no comeback to deal with the situation when they are being done down by the head lessor. I declared an interest in this matter the last time we discussed it and I speak from the experiences I mentioned then.

Lord Williams of Elvel: I am grateful to the noble Viscount for allowing me to intervene. I am trying to stick to the facts rather than pleading any interest. Whether or not the instruction of a manager is from the freeholder or the head lessor is, to my mind, irrelevant. Somebody has got to instruct a managing agent to manage the property, whether it is the freeholder or the head lessor. My problem is that I do not believe the Government are right in the facts of the matter; that is to say, the Government are not right in saying that there should not be some form of market testing whether it is from the freeholder or head lessor down to the person who actually holds the long lease of the property. I hope that I have made my factual contribution clear.

Viscount Caldecote: I am not sure whether I understand the noble Lord when he says that he is dealing with the facts and perhaps implying that I am not. I am trying to do just that.

The fact is that the head lessor can and does appoint managing agents and the tenants of the head lessor have to accept the service charges and other charges that the managing agents impose on behalf of the head lessor. If that is done properly, there is no problem. But how does the sub-tenant deal with a head lessor who is not acting properly and whose agents are not acting properly and where the charges are excessive?

One way of getting round that problem is simple but may be expensive; that is, for the tenants to buy out the head lessor, which is a satisfactory solution. This Bill gives greater power to the sub-tenants to buy out the head lessor when the head lessor changes. He will not get out of his responsibilities so easily now in giving the sub-tenants the first right of refusal to buy him out as he could before this Bill.

That is therefore a great improvement; but the problem still arises in a case where the head lessor does not sell on his interest. The sub-tenant still has to put up with the difficulties and disadvantages of overcharging by the managing agents. As I say, the solution is to buy out the head lessor. In my own experience we have found that to be extremely satisfactory. A great deal of money is saved by the sub-tenants, as they were, who have taken over the head lease and manage the flats on their own behalf and employ what agents and surveyors

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they wish. The whole thing is much more open and a great deal of money is saved. I hope that the Government will look again at this problem of protecting sub-tenants from head lessors who do not act properly at a time when they are not proposing to sell and when they are now much better protected.

Lord Monkswell: As something of an outsider in this kind of debate, it seems to me that the amendment my noble friend Lord Dubs is putting forward is trying to separate the service charges and management from the ground rent and the capital sums and returns on capital. The noble Viscount, Lord Caldecote, suggested that one way of resolving the problem is to buy out the head lessor. That obscures the problem. It is rather like the Government's argument, "You can enfranchise yourself".

We should look at the two charges separately. There is the ground rent which is like a return on capital for the landlord. The other is the service charge which is for maintenance, repair and management of the building, which is an on-going function. It is not to do with a return on capital. One of the problems that we are faced with in the market place is that people operate as though the service charge was some sort of return on capital and do not use the money to maintain and manage the building. My noble friend's amendment effectively encapsulates that by saying, "The tenant should have the right to effectively manage the service charge and maintenance of the building". It should be taken away from whoever was previously responsible. The sub-tenants are paying the money and they are living in their own homes; therefore, they should have the right to ensure that the money is properly spent in the management and maintenance of the building and that it is done properly. I am just a simple guy, but that is the way I see it and that is why I support my noble friend's amendment.

Lord Weatherill: I had not intended to participate, but listening to this debate I am very sympathetic towards what the noble Lord, Lord Dubs, said. I have recently encountered a problem where one of my former constituents lives in a block of flats in which some of the tenants are protected and others are not. The problem appears to be that those who have bought long leases pay substantial service charges to the landlord and in this particular instance no work is ever carried out. It seems that the landlord is using the money which he gets by way of service charge to do up the flats when the protected tenants die or leave for other reasons, and sell them on. As regards the former constituent, there appears to be no redress whatsoever. The amendment of the noble Lord, Lord Dubs, may not be absolutely correct in its wording, but I hope that the Government will agree to take it away for reconsideration and then bring forward an amendment which will cover this particular difficulty.

3.45 p.m.

Baroness Hamwee: Perhaps I may take up one point made by the Minister given that this is the first debate on this subject. He said that agreements between landlords and tenants are contracts freely entered into.

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I do not dispute the importance of contract nor the importance of providing means for its enforcement; but it is worth recalling that in this area the contract is perhaps a little different from, say, a contract to purchase goods where there is a freer choice.

In the housing market one is affected by a number of issues such as the location, price and so forth. It may well be that all that is available within one's price range and the place where one needs to move is a flat which is the subject of a lease and one purchases the benefit of that lease. One may not even be in the position of making the contract afresh. These days I guess that there are rather more existing leases than there are new leases being created. A purchaser buys an existing lease and does not have the opportunity to alter its terms. So in talking about a contract I do not believe that we can regard this contract as being quite like others.

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