Leasehold Reform (Residents' Associations) (Hansard, 3 April 1990)

§ Mr. Dudley Fishburn (Kensington)

I beg to move, That leave be given to bring in a Bill to give residents' associations the right to appoint managing agents. This is the second time in the 18 months that I have been in this House that I have sought to bring in a Bill on leasehold reform—I have had two skirmishes in a long campaign, which was spearheaded by my distinguished predecessor Sir Brandon Rhys Williams and which numbers among its battalions many hon. Members, building societies, the Law Commission and hundreds and thousands of leaseholders in London and elsewhere, who find the present state of the law bedraggled, shot through with anomalies and in need of reform.

The selling of residential flats on leasehold, the method by which London was developed in the 19th century, provides a singularly unsatisfactory form of home ownership for the tail end of the 20th century, let alone for the middle of the 21st century, when many of the leases, which are now being written, will finally lapse. No other country in Europe has such a system. Those countries that inherited English leasehold law—for example, the United States, Australia and Canada—have long since reformed or abandoned the practice.

Two reforms are necessary. First, we must be allowed to own individual flats on freehold. At present, the law does not permit it. Flat A, flat B, flat C in a residential block cannot each carry their own independent freehold ownership. By English law, each has to be on a lease, a diminishing asset that opens up a host of problems between leaseholder and freeholder. That is wrong. The Lord Chancellor is currently considering a system by which leaseholders could buy, with no compulsion—willing buyer meets willing seller at market price—their flats in perpetuity. For the first time, a flat could carry the same security as a freehold house. That was the substance of my first reforming Bill, last April. The system, called "commonhold", is well established in other countries. It was first floated in this country, interestingly enough, by the Grosvenor estate.

The essential problem with leasehold is not that it is just one way of providing residential blocks of flats, but that it is the only way under English law. Although someone might buy a 99-year lease on a property, the freeholder, whose residual interest is tiny, still maintains, in law, a disproportionately large amount of clout over the person whose home it actually is. That clout is being used in an increasingly disreputable way.

The problem is not with London's large traditional landlords. They are here to stay. They are a part of London's heritage, and think in terms of generations. Through huge swathes of London, however, there has grown up recently a different kind of landlord, whose time horizon is not 99 years, but rather the scope for profit in 99 weeks.

Few leaseholders will ever see, or know, their freeholders, who in my part of London are often either overseas investors or companies that are forever churning among themselves the legal documents of freehold.

1074 What leaseholders see, by contrast, are the often unreasonable demands and dictatorial behaviour of the managing agents. That is where my second reform, which I seek to introduce this afternoon, comes in.

I propose that residents associations, as recognised in the Landlord and Tenant Acts of 1985 and 1987, be allowed to appoint their own managing agents. The legal cog to permit that is to be found in part V, section 44 of the 1987 Act. There, the provision that landlords appoint managing agents after consulting leaseholders, should be, quite simply, reversed. Leaseholders should appoint them, after consulting the landlords. It is, after all, the resident leaseholders who pay the managing agents for their work and their fee. It is an old principle that he who pays the piper should call the tune—residents' power to residents associations.

Let us consider two recent cases from my post bag. The first is a block of flats on long leases off Kensington high street, where the freehold changes hands under the residents. A new management agent is appointed who, instead of charging the traditional fee of 15 per cent. on the work done, charges one of 77 per cent., which, after an outcry, has now come down—if that is the right word—to 42 per cent. The leaseholders are powerless, short of going to law.

Go to law is exactly what the residents of another block of flats—Oakwood court in the heart of Kensington—have had to do. This huge block has 182 flats on long leases—long, but not long enough. A property company, which does not own the freehold, controls under-leases that run for a few days longer than those of the residents. This allows the property company control over the service charges for the block, which amount to about £1 million a year. Who have they chosen as their managing agents? After an exhaustive assessment of the many such companies offering managing services in London, they have chosen, by chance, one that they just happen to own. That is because the law, as it now unsatisfactorily stands, allows the landlord to choose the managing agent, and does not give the residents a right of veto.

To a good freeholder—there are many—a managing agent's job is strictly neutral. The agent oversees the work that is a legal condition of the lease, and no financial advantage accrues to either side. That being the case, good freeholders mind little who appoints the managing agents. Legitimate work needs to be done, and is being paid for by the residents. This reform is about having the job done not on the cheap, but by those who must pay the bill, realise they must do so and live with the consequences.

The Department of the Environment is about to undertake what it calls a detailed evaluation study of the working of the Landlord and Tenant Act 1987. It will find that, where leaseholders are involved—rather than straight tenancies, which are a different matter not considered here—the law is in need of those two reforms. We should allow commonhold, through which leaseholders can buy their own individual flats on freehold, and permit leaseholders to name their own managing agents. Those are two reforms that this Government, who have done so much for home owners, need to undertake, and soon. Those are two reforms that have the added advantage of being both popular and, as far as Her Majesty's Treasury is concerned, free.