|Commonhold and Leasehold
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: 161and 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.
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: 162owing 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]
Clause 149 ordered to stand part of the Bill.
Clause 150 ordered to stand part of the Bill.
Column Number: 163
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