§ 'For section 20 of the 1985 Act (limitation of service charges: estimates and consultation) substitute—
§ "20 Limitation of service charges: consultation requirements
§ (1) Where this section applies to any qualifying works or qualifying long term agreement, the relevant contributions of tenants are limited in accordance with subsection (6) or (7) (or both) unless the consultation requirements have been either—
- (a) complied with in relation to the works or agreement, or
- (b) dispensed with in relation to the works or agreement by (or on appeal from) a leasehold valuation tribunal.
§ (2) In this section "relevant contribution", in relation to a tenant and any works or agreement, is the amount which he may be required under the terms of his lease to contribute (by the payment of service charges) to relevant costs incurred on carrying out the works or under the agreement.
§ (3) This section applies to qualifying works if relevant costs incurred on carrying out the works exceed an appropriate amount.
§ (4) The Secretary of State may by regulations provide that this section applies to a qualifying long term agreement—
- (a) if relevant costs incurred under the agreement exceed an appropriate amount, or
- (b) if relevant costs incurred under the agreement during a period prescribed by the regulations exceed an appropriate amount.
§ (5) An appropriate amount is an amount set by regulations made by the Secretary of State; and the regulations may make provision for either or both of the following to be an appropriate amount—
- (a) an amount prescribed by, or determined in accordance with, the regulations, and
- (b) an amount which results in the relevant contribution of any one or more tenants being an amount prescribed by, or determined in accordance with, the regulations.
§ (6) Where an appropriate amount is set by virtue of paragraph (a) of subsection (5), the amount of the relevant costs incurred on carrying out the works or under the agreement which may be taken into account in determining the relevant contributions of tenants is limited to the appropriate amount.
§ (7) Where an appropriate amount is set by virtue of paragraph (b) of that subsection, the amount of the relevant contribution of the tenant, or each of the tenants, whose relevant contribution would otherwise exceed the amount prescribed by, or determined in accordance with, the regulations is limited to the amount so prescribed or determined.
§ 20ZA Consultation requirements: supplementary
§ (1) Where an application is made to a leasehold valuation tribunal for a determination to dispense with all or any of the consultation requirements in relation to any qualifying works or qualifying long term agreement, the tribunal may make the determination if satisfied that it is reasonable to dispense with the requirements.
§ (2) In section 20 and this section—
"qualifying works" means works on a building or any other premises, and
"qualifying long term agreement" means (subject to subsection (3) an agreement entered into, by or on behalf of the landlord or a superior landlord, for a term of more than twelve months.
§ (3) The Secretary of State may by regulations provide that an agreement is not a qualifying long term agreement—
- (a) if it is an agreement of a description prescribed by the regulations, or
- (b) in any circumstances so prescribed.
§ (4) In section 20 and this section "the consultation requirements" means requirements prescribed by regulations made by the Secretary of State.
§ (5) Regulations under subsection (4) may in particular include provision requiring the landlord—
- (a) to provide details of proposed works or agreements to tenants or the recognised tenants' association representing them,
- (b) to obtain estimates for proposed works or agreements,
- (c) to invite tenants or the recognised tenants' association to propose the names of persons from whom the landlord should try to obtain other estimates,
- (d) to have regard to observations made by tenants or the recognised tenants' association in relation to proposed works or agreements and estimates, and
- (e) to give reasons in prescribed circumstances for carrying out works or entering into agreements.
§ (6) Regulations under section 20 or this section—
- (a) may make provision generally or only in relation to specific cases, and
- (b) may make different provision for different purposes.
§ (7) Regulations under section 20 or this section shall be made by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament.".'.—[Ms Keeble.]
§ Brought up, and read the First time.
§ Madam Deputy Speaker (Sylvia Heal)
With this it will be convenient to discuss Government amendments Nos. 60 and 48.
§ Ms Keeble
Indeed. Although I have been as brief as possible so far—to the dissatisfaction of the hon. Member for Stone (Mr. Cash)—these proposals require some explanation.
New clause 15 would replace clause 150, and is intended to provide greater flexibility in the drafting of new regulations setting out the consultation requirements that will replace those contained in section 20 of the Landlord and Tenant Act 1985. It reflects views expressed in response to an informal discussion paper on how the new consultation arrangements might work, and views expressed in a recent meeting of a public sector leaseholders' working party.
The revised measure incorporates three minor but important changes. It will provide the flexibility for exclusion of long-term contracts from the consultation requirements when the value of a contract is below a de minitnis figure. Clause 150 as now drafted requires landlords to consult leaseholders before entering into any contract of more than 12 months—regardless of value—when costs will be passed on to leaseholders through service charges. While long-term contracts are cheaper for the leaseholder, we would not want added consultation costs to be passed on when that was not strictly necessary.
Concern has been expressed that the measure could mean landlords' having to consult leaseholders about a large number of contracts involving minimal costs to leaseholders. For example, when a large corporate landlord is entitled to recover a share of general administration costs from leaseholders, consultation may be required on contracts for the provision of office services and stationery. The cost of consulting leaseholders could exceed the costs that they would be asked to meet. That makes no sense.
The new clause will enable us to exclude contracts whose value is below a prescribed amount from the consultation requirements. When we consult formally on draft regulations, we will seek views on what the amount should be and how it should be calculated.
Clause 150 currently provides that, if the consultation requirements on long-term contracts are not met or dispensed with by a leasehold valuation tribunal, no costs to under that contract may be recovered through service charges. We envisage occasions when a landlord will not consult because the estimated costs are less than the 715 prescribed amount, as we have discussed. However, if the cost subsequently increases above the prescribed amount, perhaps through genuinely unforeseen external factors, it would be unfair to put at risk the whole of the costs incurred. Subsections (6) and (7) therefore provide that only the excess above the prescribed amount would be irrecoverable. That is in line with the existing approach for consulting on specific works under section 20 of the 1985 Act.
On dispensations, as drafted, clause 150 provides that a leasehold valuation tribunal may grant dispensation from all or any of the consultation requirements in a particular case. The intention is to ensure that landlords are not penalised for technical infringements that do not disadvantage leaseholders, or in circumstances in which it is not practicable to consult fully or at all—for example, where work has to be carried out in an emergency. It is arguable that, as drafted, clause 150 allows such dispensation to be sought only after the event. The new clause therefore makes it clear that a landlord may apply to a leasehold valuation tribunal for dispensation of the requirement to consult before the works are carried out.
Amendment No. 60 is consequential to new clause 15 and deletes the existing clause 150.
Amendment No. 48 would create a new power to exempt managers, by regulation, from the requirement to use separate accounts for separate groups of service charge payers. Again, it may be helpful if I briefly explain the rationale behind the Bill's existing provisions and our reasons for the changes. Under existing law, managers are allowed to hold service charges from unrelated blocks of flats in the same account, which can make it easy for the unscrupulous to misappropriate funds. For example, if a group of leaseholders who had a sinking fund of £20,000 asked to see proof that their money was being kept safely, they might be shown details of a bank account holding £50,000, which supposedly included £20,000 from their block. They might assume that all was well, but they would have no way of knowing whether the account should in fact hold a much larger sum.
We know of a case in which leaseholders' funds went astray and, because they were held in the same account as funds from other leasehold blocks, it was extremely difficult for them to establish precisely what had happened to their money. It is reasonable to assume that that is only one of many cases. Using a single account for unrelated funds also makes the job of certifying accountants much harder. If they are asked to produce a certificate relating to just one block, they, too, will be unable easily to establish whether the right sum is being held at the bank.
Many managers already use separate bank accounts as a matter of good practice, and the time has come when all should do so. However, we have received representations from some managers who claim that operating separate accounts would be unduly expensive. Such costs would, in turn, be passed on to leaseholders. We remain sceptical about such claims. Managers who already operate separate accounts say that the additional costs of doing so are relatively small. Certain banks have already designed packages to minimise the inconvenience involved, and to avoid the need to keep separate cheque books for separate accounts, for example. They also apply interest based on the total sum held at the bank, rather than on individual accounts.
716 None the less, we are anxious to ensure that the costs of operating separate accounts do not outweigh the benefits. After all, those costs would inevitably be passed on to leaseholders in the form of higher service charges. We have therefore decided that it is sensible to include in the Bill a power to exempt managers from the requirement to use separate bank accounts under certain circumstances. We do not intend to use that power unless we are presented with reliable and persuasive evidence that the cost of using separate accounts would outweigh the benefits in certain cases. Moreover, if we were to use that power, any exemption should be subject to the agreement of the majority of service charge payers concerned. The new power will also allow us to impose alternative requirements on managers to minimise any risk to leaseholders. We consider that to be a sensible precaution that would allow us to respond to any changes in the services provided by financial institutions, or in their charges, that might increase the costs of maintaining separate accounts to the point at which it became unduly expensive and the undue expenses were passed on to the leaseholders.
§ Mr. Cash
We discussed this issue at some length in Committee and I am glad that the Minister has taken the opportunity to describe the arrangements in new clause 15. It is always refreshing to note occasions on which consideration in Committee has produced improvements in legislation—and that is especially so in relation to this Bill, following the extended discussions that took place when it was first introduced and then on its reintroduction.
The Minister said that the new clause will replace the old clause 150 and section 20 of the Landlord and Tenant Act 1985. As new clause 15 states, when the new section appliesto any qualifying works or qualifying long term agreement, the relevant contributions of tenants are limited in accordance with subsection (6) or (7) (or both) unless the consultation requirements have been either…complied with in relation to the works or agreement, or…dispensed with in relation to the works or agreement by (or on appeal from) a leasehold valuation tribunal.The new clause then defines a "relevant contribution". The Minister made the point that she wants to be sure that we do not end up with the costs outweighing the benefits, and that is an important point. However, that leads us to a feature of recent Government legislation. I was asked to comment on the Education Bill and I said that it was regulation, regulation and regulation rather than education, education and education. The position with this Bill is similar.
We all understand that an important Bill cannot cover every issue, but—as I said in Committee—it is a matter of increasing concern that a tidal wave of regulation is affecting the people of this country. The public are confused, because even if they can understand the opaque and difficult provisions of a Bill—we have already discussed several examples tonight and I have tried to point out how difficult it is for people to understand, or even have ready access to, the provisions that will affect them—it is even more difficult to understand those areas that are shoved off to be the subject of regulations.
We do not even know what the regulations will contain. In Committee, I made that point about the drafting and preparation of the standard form of community statement and the commonhold association. I do not want to go back over old ground, but it took more than a nutcracker to get the details out of the Government. I am glad that I succeeded.
§ Mr. Mark Field
I understand my hon. Friend's concern about an overwhelming tide of regulation. Equally, I think all of us would accept that leaseholders must be protected. Some of the Government's suggestions are entirely sensible. However, does my hon. Friend have some thoughts on the de minimis provisions, on which the Minister was unfortunately unwilling to go into any detail, and the amounts of money below which such regulations would not come into play?
§ Mr. Cash
I should have thought that it was sensible to prescribe arrangements to ensure that people were excluded from the operation of the regulations except in circumstances where it was obvious that there was no alternative. Just as we cannot apply sunset clauses to everything, we cannot apply de minimis regulations to everything. What we can do is set a threshold and say, "The regulation will not apply in these cases but it will apply in others." As it happens, thresholds have already been set in a number of provisions in the Bill. They may have been applied in this case.
I have a general concern. New section 20ZA(5) states that the regulations willin particular include"—it does not say exclusively include—provision requiring the landlord—I do not know whether you, Madam Deputy Speaker, live in a block of flats like the block I live in. I dare say that most hon. Members do, certainly in London. I am happy to declare an interest and a concern, as I have done several times during our proceedings. There is the idea that, after we leave the precincts of the palace of Westminster, we will go to a late-night meeting with a tenants' management association and sit there between 10 pm and I am listening to harmonious, or very unhappy, discussions.
- (a) to provide details of proposed works or agreements to tenants or the recognised tenants' association".
I have on occasion unwisely taken part in some of those activities. I am a little apprehensive, because there is always—I say it with great respect—the Al barrack-room lawyer, who is determined to continue analysing the management association, the articles of association and the memorandum in every detail. [Interruption.] I take good note of the gesture the Minister has just made to me, which I perfectly understand. I assure her that those people do what they do in the great cause of ensuring that people understand the documents properly. All I can say is that there will be many occasions when the regulations will be buried from view. They will probably be in some obscure corner of a solicitor's office and cause a great deal of difficulty.
§ Mr. Greg Knight
My hon. Friend should know that there is a lot of concern among Conservative Members about the scope of the regulations to which the Minister has referred. Has the Minister given him any undertaking as to whether she will consult with him and other political parties in the House before the regulations are formulated? If that assurance has not been given, has an assurance been given that the House itself will have the opportunity to debate the regulations? I share the concern that he expressed a few moments ago on this matter.
§ Mr. Cash
I am glad that my right hon. Friend has raised that point. Vicariously, I pass it on to the Minister 718 from the Dispatch Box. In a nutshell, will the hon. Lady ensure that we are consulted on the regulations? The question of their being subject to annulment in pursuance of a resolution of either House is a perennial problem. There is the question whether they will ever be properly examined, even by the House itself. That is another problem, so the Government should please consult. I also ask for a clear leaflet on the whole content of this Bill to be produced for those affected by it, particularly with regard to the provisions under discussion. Then people outside the House will be able to understand what is going on, with reference being made to the regulations if necessary. Please let us have regulations in plain English. If the Minister for Europe—this is the first time that I have referred to this today—can reduce to 300 words all the treaties from the treaty of Rome to the dreadful treaty of Maastricht, right the way through to the treaty of Nice, I hope that the Minister can give a clear explanation of the provisions under discussion.
§ Peter Bottomley
May I add two points to my hon. Friend's contribution? If the Minister cannot answer my questions this evening, I should be happy to receive a letter subsequently.
First, constituents have told me that, sometimes, in leasehold agreements, if someone who is not a leaseholder but a potential purchaser asks the freeholder for an answer to a legal point, the freeholder is free to consult his own lawyers and the existing leaseholders have to pay the legal costs. I find that surprising. That may be understandable in the lease, but it is not understandable to the leaseholders. The Minister may want to consult her officials on whether, here or in another place, that point can be covered by this new clause or by another.
§ Shona McIsaac
Many Members raised this issue in Committee—the leaseholder always seems to be paying the freeholder's costs in relation to many different things. Concerns were voiced in Committee, and I hope that the hon. Gentleman will acknowledge that.
§ Peter Bottomley
I am happy to do so. The point is whether anything can be done about it. To raise the issue in Committee—and to have nothing done about it—is an advance, but I want a more practical advance.
My second point may fall within the new clause or outside it. Sometimes, managing agents and freeholders are highly reluctant to spend a small amount of money that can make a major difference to the costs to leaseholders. I shall give a brief example from the commercial field. When I was a junior Minister in the Department of Employment in the 1980s, I discovered that spending £250 on a water meter in the Department of Employment's office in Tothill street would save £100,000 a year—£100 for each employee. I then had that change made throughout the Department of Employment estate. In Worthing, which has the highest proportion of retired people in the country and a reasonable proportion of leaseholders, nearly all pensioner flats pay more for water in terms of council tax values than they would if they were on meters. Installing meters in blocks of flats is complicated—many managing agents and landlords do not want the bother—but the leaseholder would be the gainer.
Therefore, I hope that under this new clause, or under an amended version of it, or under an amended Bill, not only water companies but managing agents and 719 freeholders will be subject to incentives or requirements to consult leaseholders, who will thus be told when it is likely that there will be an advantage. By installing a water meter—which is free from many water companies, or £50 from others—people may find that they can save £50 or £100 a year, which is a very high rate of return. However, leaseholders cannot always fix that by themselves.
§ Ms Keeble
I shall try to deal with the issues raised and, in particular, with the points made by the hon. Member for Stone (Mr. Cash), who referred to regulations and gave the example of the de minimis level in the contract. Of all the provisions in the Bill, the one before us should be set by regulation because of the need for consultation and because we are talking about small sums of money. What is a small sum one year might appear to be completely trifling 10, 50 or 100 years later. Arrangements for such sums should be made by regulation.
The hon. Gentleman referred to "regulation, regulation, regulation", but it is often far preferable to use regulations for certain types of arrangements. If they are enshrined in the Bill, changes can be made only by primary legislation and the hon. Gentleman knows how rarely the occasion to do that comes along. We want an efficient means of making provision for the proper management of leasehold properties.
Questions were also raised about the application of the de minimis level and about the levels we had in mind. Subsections (4) and (5) of the revised section 20 of the Landlord and Tenant Act 1985 are intended to provide the maximum flexibility in determining the prescribed amount and they will enable the amount to be based on the total cost of the contract, the total costs in any period or the costs recoverable from any service charge payer either over the length of the contract or in any other period. We wish to consult before we commit ourselves to any particular option, but it is our intention to exclude contracts only when the costs of consultation would be disproportionate to the costs of the contract. However, it is difficult to envisage what that might involve.
The hon. Member for Cities of London and Westminster (Mr. Field) asked about the sums that might be involved and, to give him some idea, it might be that we exclude contracts where the annual costs paid by any leaseholder exceed £20 to £25. That might sound a small sum, but I am sure that the hon. Gentleman realises that, when there are many people in a block of flats, that might involve a substantial contract. It is important that there is proper consultation so that we get the amount right. We must strike a careful balance between costs and the requirement to consult.
The hon. Member for Stone asked many questions about the proposed new section 20ZA of the 1985 Act. The proposed new subsection (5) states:Regulations under subsection (4) may in particular include provision requiring the landlord",and paragraphs (a) to (e) list the matters, such as providing details of proposed work, to which the regulations might apply. The hon. Gentleman found the provisions to be very detailed and I do not think that he understood why people might be intensely interested in the issue. However, it is perfectly possible for people to talk at great length about who will do the work to their 720 properties and how much it will cost. The fact that he finds that odd might reflect the way in which we choose to spend our evenings and not reflect the way in which people who are passionately interested in their homes choose to spend theirs.
The hon. Gentleman also asked for assurances about consultation on the regulations. I hope that I have already made clear our commitment to consult on the de minimis level, which is probably one of the most important provisions before us. He asked whether Members would have a right to discuss the regulations and, as he knows, if they are discussed under the affirmative resolution procedure, they will be debated in Standing Committee. That debate might be wide ranging and extensive. If the regulations are considered under the negative resolution procedure, the Opposition will have the opportunity to pray against them and then discuss them. [Interruption.] The hon. Member for Stone now gestures at me.
§ Mr. Greg Knight
Will the Minister tell the House tonight which of those procedures the Government will be prepared to use? It is obviously better from our point of view if she gives an undertaking tonight that the affirmative procedure will be used.
§ Peter Bottomley
Those who listen to our debates may not know this, but am I right in saying that if the Government are defeated on a negative resolution, the measure is still carried into effect?
§ Ms Keeble
The hon. Gentleman is right. However, there will be consultation and it will be in the interests of us all to make sure that we get regulations that work.
The hon. Member for Stone asked about plain English, and he is correct. My officials and I are very concerned about that, since the many changes proposed by the Bill will profoundly affect a lot of people and their homes. We are doing a lot to ensure that there is good information in plain English so that people know their rights.
The hon. Member for Worthing, West (Mr. Peter Bottomley) asked about a number of points, most of which did not apply to the new clause or the amendments but which were very interesting none the less. On the question of the legal costs for purchasers being passed on, if charges are levied under the terms of the lease, the provisions of schedule 11 regarding administration charges will apply; for example, they must be reasonable and there is a right to challenge them at the leasehold 721 valuation tribunal. It is always the case that if rights are given to people, they have to exercise them. However, the rights are there and the point has been considered.
I will write to the hon. Member for Worthing, West about water meters. One point that he might not have picked up on, if he has not been closely involved in the Bill, is that the Bill opens up to leaseholders a right to manage. That is very important—particularly for pensioners—because it means that they do not have to go to the trouble to enfranchise, but can acquire the right to manage in leasehold blocks of flats.
§ Peter Bottomley
In my constituency, the average age in a block of flats may be about 80, and most people do not want to take on the responsibilities of management.
§ Ms Keeble
I take that point, but in terms of people's ability to deal with issues that otherwise they could deal with only through enfranchisement, they will now have this other route open to them.
That deals with all the points. The new clause and the amendments provide further improvements to the Bill and make it possible to look in more detail at some of the more detailed provisions. They ensure that we get the right balance between consultation and cost, for example, and that we help to improve the Bill for leaseholders.
§ Question put and agreed to.
§ Clause read a Second time, and added to the Bill.