HC Deb 19 December 1997 vol 303 cc631-8

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Kevin Hughes.]

2.30 pm
Mr. Barry Gardiner (Brent, North)

Had I not thought that it might be considered discourteous to refer to my hon. Friend the Minister for London and Construction as "my grandmother", I might have been forgiven for commencing this debate by proffering an egg and two straws. No hon. Member can be unaware of the years of research and campaigning that my hon. Friend has devoted to the subject of leasehold reform. I certainly have no intention of trying to teach anyone to suck eggs, and it is with a keen awareness of my own lack of expertise in these matters that I detain the House today, on behalf of my constituents.

In January 1992, one of the 156 companies in the Freshwater group, of which Mr. Benzion Freshwater was a director—a company called St. Leonards Properties Ltd., of 158–62 Shaftesbury avenue, London—sold the head lease of the block of 30 flats known as Mountaire Court, in my constituency, to a company called Maringrove Ltd., the director of which was a man called Paul Chater.

The flats were in an extremely bad state of repair and had declined under Freshwater's ownership. Interestingly, Freshwater promptly bought back long leases on 14 of the 30 flats, some of which it has subsequently let to tenants on a rack-rent basis. Maringrove Ltd. appointed a company called Avery Management to act as managing agents of Mountaire Court—at which point things began to get interesting.

On the instructions of Maringrove, the registered office of which is at Bishop House, Guildford road, Leatherhead, Avery Management—the registered office of which just happens also to be Bishop House, Guildford road, Leatherhead—decided to embark on a programme of major structural repairs. Tenders were solicited, and Willmott Dixon Ltd. submitted the lowest bid, at £477,263. All went quiet—until another company, George Smith Group, submitted a bid that was just below Willmott Dixon's bid, at £475,000.

I have managed to contact all the other four contractors who tendered for the work. Willmott Dixon's manager certainly remembered it. He said: We came in the lowest, then all went quiet. It seemed like a scam. If we'd known at the beginning we wouldn't have bothered tendering for it. I eventually traced the successful contractors, the George Smith group, in the phone book to an address at 52 Brooks mews, London. It is a building called Avery house, and it also happens to be the head office of Avery Management. Unfortunately, the telephone number that the directory gave me was unobtainable, having been disconnected on 8 December this year, just five days after I began asking questions. However, let us go back to 1992.

Avery Management invoiced all leaseholders for £22,150.86 for the repair work in advance. After that, there was a period of wrangling during which some leaseholders paid up while others, threatened with repossession, handed their keys back to the building society and walked away. Others, such as the leaseholders of the 14 Freshwater flats, paid nothing at all. However, the repair works to the block were never completed.

On 4 March 1996, Maringrove Ltd. went into liquidation and was put in the hands of the official receiver. On 14 June that year, a company of liquidators called Leonard Curtis was appointed to wind up Maringrove's affairs. Leonard Curtis then set about appointing a new managing agent, a company called Parkgate-Aspen whose employees I had the honour to meet on 3 December after the residents of Mountaire Court had approached me in desperation.

The new managing agents had demanded a further £5,500 from each of the flats in June this year to do the very work for which the leaseholders had already paid Maringrove Ltd. Their appointed surveyor, Chris Negus of Brooke, Vincent and Partners, stated at the meeting on 3 December that the first time he had tried to survey the property was in July 1997. When I challenged him as to how Parkgate-Aspen had issued a demand on 21 June, prior to the July survey, Mr. Negus said that he had given a rough estimate to Parkgate-Aspen the previous November after "walking around the outside" of the property. When I asked him to check what that estimate was, he confirmed the figure of £75,000. The demand notice issued in June by Parkgate-Aspen had been for £140,000. The cost had almost doubled before any survey was carried out. Mr. Brown from Parkgate-Aspen assured us that he knew what he was doing; he had worked for Freshwater many times before.

Questions also hang over the actions of the liquidators, Leonard Curtis of Eastbourne terrace, London. Why, for example, have they not notified the land registry, some 18 months after their appointment, that Maringrove is even in liquidation? Why have they not after 18 months contacted all Maringrove's creditors? Most important, why have they not done what liquidators do—liquidate? Why have they not liquidated Maringrove's head lease at Mountaire Court?

As an asset, a head lease is the inverse of the property itself. The more work required, the more attractive it is to buy: the more work a manager needs to do on the property, the more he can charge for the job of managing. Perversely, by trying to manage the property themselves, the liquidators are diminishing the asset that they are supposed to be liquidating.

I tried to give Leonard Curtis the opportunity to answer my questions earlier today. However, four of the partners—Mr. Monjack, Mr. Goodman, Mr. Swaden and Mr. Schapira—would not admit to being in the office at 10.15 this morning. The only other partner, Mr. Barry, who was in the office, declined to speak to me.

I hope that I have convinced the House that the important amendments that my hon. Friend the Minister introduced to the Housing Act 1996 when he was in opposition still leave leaseholders inadequately protected against unscrupulous, rapacious landlords. The tenants at Mountaire Court have been made aware of the role of leasehold valuation tribunals in resolving disputed charges. They now know that under section 81 of that Act they are protected against bully-boy tactics that threaten forfeiture, but I ask the Minister to consider the merits of some specific proposals.

First, we should impose a limit on a superior lessor or freeholder's ability to dispose of an interest without first complying with their obligations to repair and manage the property properly. That would stop landlords running down a property and then running out on it by selling a head lease on.

Secondly, we should require that all leaseholders should be advised by head leaseholders or freeholders of the basis of their rateable contribution to any service charge or capital worth and of the rateable proportions of all other affected leaseholders.

Thirdly, if a head leaseholder goes into liquidation, the management of the property should pass to a managing agent jointly appointed by freeholder and leaseholders. They should then jointly decide whether the head lease is sold on.

Fourthly, any money required in advance of work being done should be held in a trust account, with signatures required from the leaseholders and the landlord.

Fifthly, we should move to the system of commonhold, whereby each leaseholder owns the lease to their property and they jointly hold the freehold to the land and common parts of the building.

Sixthly, the Government should give leaseholders the right to manage themselves. Let us see an end to feudalism.

During my research for the debate, I have spoken to many people whose lives have been ruined and whose life savings have been lost because of venal and greedy landlords. I pay tribute to the help that I have had in that research from the Evening Standard, particularly Mira Bar Hillel.

I have seen people worn down by such venal landlords, but venal and greedy people do not always appear to be so. Sometimes they wear a cloak of excessive politeness. Sometimes they appeal for our sympathy. Yesterday, I received a hand delivered letter from the Freshwater group. It politely stated: I know you will want to be correctly informed when you speak in the debate on Friday. Indeed, that is true. It also said that Maringrove is totally unconnected with Freshwater". I have here evidence of a very close working relationship between Maringrove and Freshwater which long predates the purchase of the head lease in 1992. Not only was that relationship close and in existence, but it involved other properties in different parts of the country.

Finally and pathetically, the letter states: Freshwater is in the same unfortunate position as the other long lessees. What I have in my possession—and what the other long lessees do not have—is a companies form 395. The name of the company on it is Maringrove Ltd. and the form registers a first charge against that company for £15,938.38 plus interest accruing. The charge was created on 5 June 1992. It gives the presenter a prior claim on a liquidation fund arising from the winding-up of Maringrove Ltd. It is signed: P. M. Crystal. Freshwaters Legal Department.

2.45 pm
The Minister for London and Construction (Mr. Nick Raynsford)

I am grateful to my hon. Friend the Member for Brent, North (Mr. Gardiner) for raising these important and troubling matters on the Adjournment. He has highlighted a matter of very real concern that affects his constituents. He has clearly been assiduous in his research and in his work on behalf of his constituents, uncovering what can only be described as a veritable can of worms.

My hon. Friend has highlighted a distressing series of events that have left his constituents feeling shabbily treated. They are, I fear, all too typical of the problems faced by many residential leaseholders in recent years. Many landlords, of course, are good managers, but there is an all too significant minority whose management styles range from the incompetent to the criminal, the result of which is all the attendant misery the leaseholders have to endure.

Some landlords are absent or neglectful, so essential work remains undone; others are lazy and keep on contractors or agents for year after year without testing the market, with the result that the leaseholders, who pay for the services, do not get value for money. The more unscrupulous charge for work that has not been done, or undertake works that are unnecessary, or to too high a specification, or to too low a standard, with the result that leaseholders pay a high price for work they do not need and which may then have to be expensively remedied. Then there are the out-and-out criminals who misappropriate the service charge and sinking funds. That is not an exhaustive list of the sufferings of leaseholders, but I believe that it will give the House a flavour of what we are dealing with.

I shall answer my hon. Friend by expanding on the points in the letter that my hon. Friend the Minister for Local Government and Housing wrote to him on A December in response to initial representations that he was rightly making to our Department at that time. I must stress that I cannot comment on the merits of any party's actions in the case, especially as litigation may be pending. I must also not attempt to interpret the statutes; that function is reserved to the courts. What I can do is set out the main provisions of the law relating to leasehold management. That will, I hope, shed some light on leaseholders' rights and how they may be exercised.

What happens to service charge contributions when leaseholders pay them over to their landlord or managing agent—a point my hon. Friend highlighted in the series of questions at the end of his speech? Section 42 of the Landlord and Tenant Act 1987 provides that service charge moneys should be held on trust, with any interest accruing, for the purposes for which they have been paid and, subject to that, for the benefit of the leaseholders. That is automatic and does not require a special trust deed to be signed. If the landlord or managing agent to whom the service charges have been paid goes into liquidation, the service charge moneys are protected by the trust from the other creditors. If the money has not been spent on the works for which it was paid and the liquidators cannot find it, it is possible that a criminal offence, such as fraud or theft, has been committed. If that is suspected, the police should be asked to investigate.

Where leaseholders are in dispute with their landlords over service charges, they can seek a determination of the reasonableness of those service charges from their local leasehold valuation tribunal. My hon. Friend referred to the new rights that can be exercised through leasehold valuation tribunals as a result of changes under the Housing Act 1996.

As well as challenging bills for work already done, or purported to have been done, leaseholders can challenge the scope, extent and cost of proposed works. That jurisdiction has been available since 1 September 1997. Leaseholders can also apply to the leasehold valuation tribunal for the appointment of a new manager if the management of the block is thought to be unsatisfactory.

The grounds for the appointment of a new manager include a track record of excessive service charges and failure to abide by an approved code of management practice. The relevant code for most leasehold blocks would be the Royal Institution of Chartered Surveyors service charge residential management code, which is available from the institution at a modest cost.

Leasehold valuation tribunals charge fees of up to £500 per case, but do not award costs. Landlords may seek to include their costs in their next service charge demand if the leases permit this, but leaseholders can prevent that by obtaining an order under section 20C of the Landlord and Tenant Act 1985. A section 20C order can be made by any tribunal or court which hears service charge disputes and leaseholders can apply at the hearing or subsequently. That provides one remedy to another problem that my hon. Friend rightly highlighted.

Leaseholders may well feel that they have to obtain some evidence in addition to their own correspondence before taking any action. As well as the information on service charge accounts that they are entitled to under the Landlord and Tenant Act 1985, they may wish to undertake a management audit of their landlord's service charge operations, or appoint a surveyor who can advise them on the condition of their building and the need for any works.

A management audit, under chapter V of part I of the Leasehold Reform, Housing and Urban Development Act 1993, can be required by a two-thirds majority of the service charge paying leaseholders in a block. On the surface, it would appear that this option may not be available to the leaseholders of Mountaire Court because 14 of the 30 flats are leased by Freshwater. However, I understand from the correspondence to which my hon. Friend referred—I also received a copy—that Freshwater, as lessee, identifies itself as being in the same unfortunate position as the other residents who are being asked to pay the sums described by my hon. Friend. The remedies granted by statute are available to Freshwater, just as they are to the resident lessees. Therefore, Freshwater might consider that a management audit would be appropriate. The auditors, who must be qualified accountants or surveyors, have the right to inspect the relevant documents and premises in order to carry out their functions.

Under section 84 of the Housing Act 1996, a recognised tenants association also has the right to appoint a surveyor, who can inspect the common parts of the block and any documents which it is reasonable for him to see. A tenants association can be recognised by the landlord or, if he will not do so, by a member of the local rent assessment committee. The committee is the same organisation as the leasehold valuation tribunal, but constituted for different purposes. The committee would normally expect a tenants association to have at least 60 per cent. support before recognising it.

The threat of forfeiture of a lease has now been decoupled from service charge disputes. Since 24 September 1996, landlords have been unable to forfeit a residential lease for non-payment of a service charge unless and until that charge has been agreed or admitted by the leaseholder, or the reasonableness of the charge has been determined by a court or arbitral tribunal. I should emphasise here that a leasehold valuation tribunal is not an arbitral tribunal. That means that its decisions must be confirmed by a court before they can be enforced.

Therefore, if a landlord wants to enforce the payment of a service charge, he may apply to the leasehold valuation tribunal for a determination and then seek to enforce it in court if the leaseholders do not pay. Alternatively, he may go to court to enforce the payment of the alleged debt. The court would then be likely to remit the question of the reasonableness of the service charge to the leasehold valuation tribunal, whose decision would then be fed back into the court process. If any party is dissatisfied with the leasehold valuation tribunal's decision, they can, by leave, appeal to the Lands Tribunal. In contrast to leasehold valuation tribunals, the Lands Tribunal can award costs.

In due course, I would expect the liquidators in this case to sell the head lease. When they do, the right of first refusal, under part I of the Landlord and Tenant Act 1987, will probably come into play. The Act provides that landlords selling an interest in a block of flats which is immediately superior to those of the occupying leaseholders must first offer it to them.

From my hon. Friend's comments, it would appear that, when Freshwater sold the head lease in 1992, it did not offer the right of first refusal to the other leaseholders as it should have done in order to ensure compliance with the 1987 Act. There was no criminal sanction at that stage, but consequent to changes made under the 1996 Act, the landlord selling without offering his interest to the qualifying tenants would be guilty of a criminal offence.

As well as offering his interest directly, a landlord may use the auction route. That enables him to obtain the open market value for the asset, but allows the leaseholders to take the contract from the successful bidder at the auction. I understand that some property auctioneers can provide a comprehensive service, which includes serving the necessary notices on the residents.

Before leaseholders embark on the exercise of their rights, it is essential that they obtain as much information as possible, followed by sound professional advice. My Department publishes a range of free booklets that set out leaseholders' rights. My hon. Friend the Minister for Local Government and Housing sent my hon. Friend the Member for Brent, North copies of the relevant ones with her letter of 3 December. My Department also funds, with the private sector, the independent leasehold advisory service known as LEASE. LEASE offers free initial advice to leaseholders and freeholders on residential landlord and tenant matters, including service charge issues and the right of first refusal.

Finally, there is the question of what the Government are going to do next in the complex area of leasehold law. I have not touched on leasehold enfranchisement on this occasion, as it is not immediately relevant to the constituents of my hon. Friend the Member for Brent, North, but he will be aware that we are committed to streamlining and simplifying procedures to make it easier for leaseholders to exercise their right to enfranchise.

I hope that I have been able to assure my hon. Friend that a wide range of safeguards and remedies are already available to residential leaseholders, although some of them are virtually untried at present. However, the Government are not satisfied with the state of leasehold law, which has been patched up over the years as problems have emerged. New holes in the fabric come to light all the time, and examples similar to those to which my hon. Friend has alluded are all too common.

The Government believe that it is time for effective and far-reaching reforms of the whole system. We have a commitment to bring forward a new package of reforms to assist leaseholders and we are doing some hard thinking about the detailed implications. My hon. Friend will recognise that the area is extremely complex and that it is necessary to think through very carefully all the implications before proposing a package of reforms. That is what we are doing at the moment; we shall probably make an announcement about our proposals and invite comments from interested parties in the spring.

Question put and agreed to.

Adjourned accordingly at two minutes to Three o'clock.