LKP submission to Housing Bill

 

Housing and Planning Bill

Written evidence submitted by the Leasehold Knowledge Partnership (November 17 2015)

Summary

This is a submission is made on behalf of the charity Leasehold Knowledge Partnership (LKP) as part of the Committee stage of the Housing and Planning Bill 2015.

It sets out a number of issues related to leasehold housing which apply to both the wider market and issues which arise from the right to buy proposals. It sets out a number of proposals the committee may wish to consider.

• · LKP is a registered charity (reg. no 1162584). Our objects include the provision of help on leasehold issues and improving the level of understanding about leasehold housing matters. Our patrons are the MPs Sir Peter Bottomley and Jim Fitzpatrick. This submission is made on behalf of LKP: we make clear we are not suggesting that this submission also represents the views of either of our patrons, unless they wish to advise the Committee accordingly. We hope the Committee will feel it relevant to call both ourselves and the MPs to understand our individual views on these matters.
• · Since 2013 we have helped to organise Parliamentary round table meetings on leasehold housing matters approximately every 6 months. These meetings encourage an exchange of information across the sector and hopefully assist government to better understand leasehold housing issues. These meetings are well attended by delegates representing developers, lawyers, surveyors, managing agents, landlords, the judiciary, academics, trade and representative bodies along with representatives of leaseholders interests. The next meeting is scheduled for 3rd December, 3:45PM Committee room 9. If members of the Committee have the time to attend they would be most welcome. Our speakers will be: the president of the law society; the law commissioner and professor Susan Bright from Oxford University.
• · It might be useful to set out a little of the background on leasehold matters. The leasehold sector is one of the least understood, most complex and most important parts of our housing market. The Committee may not be aware that, until last year, all previous governments had no accurate data on the size of the leasehold sector. Governments had used an estimate of about 2-2.5 million [1] privately owned leasehold homes in England.
• · Following on from work undertaken by LKP in the first part of 2014 we then worked with officials at DCLG to help produce what is now the new official figure announced last autumn. That new figure indicates there are 4.1 million privately owned leasehold homes in England [2] .
• · The gap between the new and old figures is clearly very large. We would argue, and had hoped government would understand, that the previous erroneous estimates had inevitably had a marked and adverse impact on housing policies. This impact may continue in some of the thinking which has gone into the Housing Bill. The Committee may also note that some developers still assert that there are an even smaller number of leasehold homes [3] than the governments’ previous under-estimate. We would encourage the Committee to consider why some developers, and other providers in the sector, seem keen to suggest that leasehold is a much smaller part of our housing market than it actually is.
• · Given that government now understands that private leasehold is a much larger sector than previously thought, it comes as a considerable disappointment that it has not chosen to include any leasehold matters in the Housing Bill, save for very minor technical matters under clauses 90 and 91. It has done so despite an awareness of many problems facing the leasehold sector, including issues which often result in inefficiencies in the market or in detriment or even extreme detriment to the consumer.
• · We would encourage the Committee to consider a number of issues which might be introduced in the Bill which we believe would help to improve the market for both customer and supplier.
• · At this late stage in the Bill’s developments we recognise that the opportunities for change are limited. The majority of changes we suggest are therefore relatively small, or are matters which have already been reviewed by the law commission, and where draft wording already exists.
• · The most egregious failing in the leasehold sector is the continuing right of a landlord to seek the total forfeiture of a lease following a court determination that a breach of the lease has occurred. If relief is not granted, and the forfeiture confirmed, the leaseholder losses their entire equity in their home. That total loss of equity can arise, even though the debt to the landlord may be as small as £350. We would encourage the Committee to note the incongruity in the position faced by the Chancellors own former nanny [4] . She took advantage of the previous right to buy initiatives, more recently she came into dispute with Southwark Council regarding major works which she regarded as excessive. She refused to pay and was taken to court. She has now gone on to lose all her equity in her home following a forfeiture action by the council who thereby made a large windfall profit. That level of major works expenditure by the council has since been partially limited under Florries law. [5] However, this will not help the chancellor’s nanny who has lost everything. Forfeiture can and often does arise over small amounts of money.
• · The law commission reported on the unfair and draconian powers of forfeiture as long ago as 2006. [6] Our understanding is that, while there may be some concern regarding the law commission’s draft proposals on commercial leases, but their residential lease draft proposals seem fully supported. Their proposal for residential leases was for a termination of the tenancy through a forced sale. The leaseholder would then be entitled to the residue of their equity after legal costs and the debt, determined by the court, had been paid. The Committee may like to read the case of Mr Dennis Jackson [7] who faced two forfeiture hearings and almost lost his £800,000 home following a small service charge dispute where the courts agreed that he had been over charged and was entitled to a refund.
• · To our understanding there is no legitimate argument to keep forfeiture. The Committee may note that the government advised in March this year, in a written answer to the then Shadow Housing Minster, Emma Reynolds [8] , that it collects no data on how many people have lost their homes as a result of forfeiture actions, and that it considers that collecting such data would be uneconomic.
• · LKP would therefore strongly encourage the Committee to incorporate the law commission’s draft report on the termination of tenancies into the Housing Bill, in so far as it applies to residential properties.
• · We would also ask the Committee to consider several other clauses within leasehold legislation which might be added to this Bill to rectify matters which the government is, or should be, aware are currently broken or not working as Parliament intended.
• · LKP has recently coordinated submissions to government to show that S11 of the Leasehold Reform, Housing and Urban development Act 1993 does not and has never worked as government intended. We have recently provided DCLG with submissions from specialist counsel, leasehold managing agents, landlord’s solicitors, and leaseholder groups, and most recently the Law Society, to show why s11 does not work and why amendment in primary legislation is urgently needed.
• · Since s11 provides the rights by which a leaseholder may obtain information about their fellow owners, it is an important right with serious consequences. If s11 does not work it impacts on all other rights which are dependent on the leaseholders’ ability to take some form of group action or representation. We set out some of the rights impacted by s11 in the appendix [9] .
• · The deficiencies in s11 came to light partly as a result of a recent government discussion paper [10] on s29 of the Landlord and Tenant Act 1985, which provides for a “recognised tenants association” (RTAs). The Committee will of course be aware that under legislation the owner of a leasehold property is still referred to as a “tenant”. This terminology causes much confusion to both Parliament and officials who also use “tenant” to apply to those in the rented sector.
• · In turn, the government’s discussion paper had come out of a joint submission co-ordinated by ourselves and submitted to the Housing Minister as long ago as November 2013. That submission was supported by: the British Property Federation; AgeUK; Centreforum; Which?; the London Assembly; the Federation of Private Resident Associations and a number of others. It encouraged the Minister to amend the guidance which he is entitled to offer under s29. The effect would have been to promote the growth of RTAs and thereby encourage a more effective relationship between the leaseholders, the managing agents and the landlords. It is disappointing that the Housing Department has not fully understood the benefits of changing even this most basic of rights and is still considering this matter.
• · The Committee may also be aware that one of the emerging difficulties in the housing market is a regressive move to selling houses as leasehold. The potential range of problems this causes for our future housing stock are likely to be very large particularly as the right provided to houses under leasehold legislation are more limited than they are for flats. The reasons given by developers mainly relate to the problem of enforcing covenants on private estates. Again this is an issue already addressed by the Law Commission in its report in 2011 [11] . The report is strongly endorsed by the Law Society and to our understanding could easily be added to the Housing Bill. It would make considerable efficiencies in the market, to the benefit of both developers and home owners.
• · The “no fault” Right to Manage is provided for under the Commonhold and Leasehold Reform Act 2002. It is another housing issue which causes much concern and difficulty to leasehold home owners, landlords and managing agents. Almost all parties seem to accept that the legislation was flawed. The problems were made worse by a recent Court of Appeal decision [12] which now prevents the creation of an RTM covering more than one block. This has resulted in a situation where there is no statute to provide guidance on how such sites should operate in the future. We would also argue that the Judges’ comments at para 54 may be a correct legal interpretation, however they would be untenable in most cases in practice.
• · There are many other smaller amendments to the RTM legislation which could make what Parliament intended as a “no fault right” work far more effectively [13] . We would encourage the Committee to consider which changes could be introduced to the Housing Bill so that this section of legislation might work more effectively to avoid leaseholders facing what is sometimes years of litigation and delay.
• · The Committee will be aware that as part of the “balance” in the leasehold sector governments have felt it right to provide a “low cost” tribunal system. The Committee should be aware that many in the sector, along with members of the judiciary, now appear to believe that the system is fundamentally broken. Following various judge made law we now appear to be in a position where there is an almost entirely one sided costs regime. A cost regime in favour of the landlord. Most leases entitle the landlord to their costs unless the courts limit those costs. However the Tribunal is only entitled to limit certain of these costs, most often in circumstances where a leaseholder has initiated the action and where they win their case. In those circumstances where the landlord initiates an action the Tribunal may have no real power to limit the landlords’ costs. We now have the ridiculous situation where a landlord may spend hundreds of thousands of pounds in costs for a “low cost” Tribunal hearing. These costs may not even being evaluated or quantified by the Tribunal at any stage. They will then be passed on to the leaseholders within the service charges. Conversely, the leaseholder has no corresponding right to pass on his costs under the terms of the lease. The “low cost” nature of the Tribunal has effectively meant there are almost no circumstances where the Tribunal has ever awarded any costs to the leaseholder, beyond a refund of the court fees which are minimal.
• · The net result of this position is that generally rich and powerful landlords, both private and social, are encouraged by the costs regime to attend a Tribunal hearing with full professional representation. Conversely the leaseholder is often obliged to represent themselves, with no hope of costs recovery even if the Tribunal finds fully in their favour.
• · Perhaps the most important reason why the Committee may wish to consider this matter is that the most extreme imbalance sometimes occurs not in the private sector but with those who have taken the right to buy in the social sector. Some social landlords claim they are obliged to use full legal representation (partly at a cost to the taxpayer) even when facing the weakest of opponents. They appear to argue that this is required in order to demonstrate to their regulator that they have mitigated risk by ensuring they properly represent the organisation’s interests.
• · The head of the social housing sector’s National Leaseholder Group has just estimated that 500,000 new leaseholders could come out of the extended right to buy. These are new leaseholders who would face this imbalance unless the costs issue is addressed now.
• · The Committee may of course take the view that changing the entire costs regime goes beyond the remit of the Bill. We would however encourage you to consider one specific matter. Due to recent judge made law the rules limiting costs, for matters referred to the county courts on the small claims track in service charge disputes, appear to have been changed [14] . The Tribunal currently has very few powers to limit these costs if they are deemed to be “administration costs”. The simplest solution would be to provide for “administration costs” a similar power to that provided under s20C of the Landlord and Tenant Act 1985 for service charge costs. This would go a long way to addressing this problem, especially if the concept of proportionality were included. LKP is aware of a number of cases where the amount owed by the leaseholder may be one or two thousand pounds, but the cost of recovery amounted to ten or twenty thousand pounds. In some extreme cases we have reported instances where the Tribunal has reduced the amount owed by the leaseholder by a considerable amount but where the landlord has gone on to claim costs of twenty times the amount in dispute.
• · There are of course many other difficulties within leasehold law which will have to be addressed at some future point if Commonhold is not revived. We have set out above those issues which seem most relevant to help ensure both a more equitable market for leaseholders and for systems to encourage a more efficient market.
• · One of our primary reasons for working to develop a new understanding of the size of the sector was to help government understand that all its previous housing policies had been based on erroneous data. We remain unclear whether that understanding has permeated all levels of government. We continue to see many disjoints between Departments in how they seek to address a range of housing matters. It seems likely we will continue to have these inefficiencies while that lack of understanding remains.
• · With 4.1 million leasehold homes in the private sector currently, and another 500,000 potentially coming from the social sector, leasehold becomes a very important part of our existing housing stock. However, the leasehold sector is also set to grow very rapidly. All forecasts put flat building at between 33% and 50% of future construction in the UK. In almost all major conurbations flat building will be the dominant form of construction. For the capital, houses have now become a very minor part of future development, yet leasehold remains the least understood element of our housing policy.
• · LKP believes that if we continue to ignore the problems in the leasehold sector, and it’s hugely complex legal structure, there is little chance we will ever meet the country’s housing needs, and a very strong chance that the state will face the burden of an ever growing number of leasehold litigations.
• · The Committee will also note that the Bill makes no reference to Commonhold. LKP’s understanding is that officials knew shortly after the Commonhold Bill was passed in 2002 that the legislation was fundamentally flawed. The government is beginning to be aware of what is required to correct these flaws, following the round table meeting organised by LKP in June 2014. While it would perhaps be premature to attempt to introduce amendments on Commonhold into the current Bill, LKP would strongly urge the Committee to understand more about these matters.

November 2015

[1] [1] E.g At para 1.5 of the following DCLG consultation attributes the numbers to a 2012 CentreForum report. In turn that report used as its source previously inaccurate government data https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/269448/Instructions_for_Redress_Schemes_covering_lettings_agency_work2.pdf

[1] [2] The new numbers at approximately 4 million were first announced in the second part of this release under the heading “increasing support for leaseholders”

[2] https://www.gov.uk/government/news/flos-law-new-cap-for-council-house-repairs-comes-into-force

[2] [2] A government technical paper of the new numbers at 4.1 million appear here.

[2] https://www.gov.uk/government/publications/residential-leasehold-dwellings-in-england-technical-paper

[2] [3] This Galliard Homes page asserts government records shows there are 1.5 million leasehold homes

[3] http://www.galliardhomes.com/property/leasehold-property

[4] [4] https://www.leaseholdknowledge.com/case-of-george-osbornes-ex-nanny-facing-115000-bill-to-council-reported-in-sunday-times

[5] [5] https://www.gov.uk/government/news/flos-law-new-cap-for-council-house-repairs-comes-into-force

[6] [6] http://lawcommission.justice.gov.uk/areas/termination-of-tenancies-for-tenant-default.htm

[7] [7] https://www.leaseholdknowledge.com/plantation-wharf

[7] https://www.leaseholdknowledge.com/dennis-jackson-and-plantation-wharf-did-it-have-to-end-like-this

[8] [8] http://www.parliament.uk/business/publications/written-questions-answers-statements/written-question/Commons/2015-03-23/228689/

[8] [9] If s11 of the LRHUD does not work as Parliament intended it impacts among other things. The rights provided under s27A and S29 of the Landlord and Tenant Act 1985 for the right to ask the Tribunal to determine the reasonableness of the service charges and the right to form a recognised tenants association. It impacts the functioning of parts I and II and III of the Landlord and Tenant Act 1987 covering the right of first refusal, the right to appoint a manager and the rights of compulsory acquisition. The rights to a management audit as provided under Chapter V of the Leasehold Reform, Housing and Urban Development Act 1993. The Right to Manage under Part 2 Chapter I of the Commonhold and Leasehold Reform Act 2002 and the right to enfranchise as provided under Part 2 Chapter 2 of the Commonhold and Leasehold Reform Act 2002.

[9] [9] At the point s11 was drafted the draughtsman could not have known we would see a change in tenure type with a much greater share of buy to let and overseas ownership, It could not have known that we would move to mixed uses sites or that we would have many larger sites.

[10] [10] The submissions setting out why s11 is not working correctly followed on from a recent government discussion paper. This asserts at the bottom of page 14 s11 is working.

[10] https://www.gov.uk/government/consultations/making-it-easier-for-leaseholders-to-gain-recognition-of-a-tenants-association

[10] [11] http://www.lawcom.gov.uk/wp-content/uploads/2015/03/lc327_easements_report.pdf

[12] [12] http://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWCA/Civ/2015/282.html&query=title+%28+triplerose+%29&method=boolean

[13] [13] LKP figures show there were only 4610 potentially active RTM’s as of October 2014 some of which were newly formed and therefore unlikely to have acquired the RTM control of their site/or might go on to fail to acquire that right. LKP worked with the CMA on their report to help provide a number of the figures uses including the and the rounded figure of 4500 RTM’s which appear in their final report (page 43 para 3.49)

[13] https://assets.digital.cabinet-office.gov.uk/media/547d99b8e5274a42900001e1/Property_management_market_study.pdf

[13] [13] [14] A legal view of the recent court decision on costs appears here: http://www.lawandlease.co.uk/2015/10/21/chaplair-limited-v-kumari-2015-ewca-civ-798-observations/

[14] [14] [14] November 2015