§ '(1) Paragraph 8 of the Schedule to the 1985 Act (right to challenge landlord's nomination of insurer) is amended as follows.
§ (2) In sub-paragraphs (1) and (2), after "nominated" insert "or approved".
§ (3) In sub-paragraph (4), after "nominate" (in both places) insert "or approve".—[Ws Keeble.]
§ Brought up, and read the First time.
§ Mr. Deputy Speaker
With this it will be convenient to discuss Government amendments Nos. 52 to 55.
§ Ms Keeble
New clause 14 and the amendments are purely technical. The new clause is important in that it builds on amendments that were tabled in Committee by ensuring that their intent is properly carried through. I hope that it will assist certain groups of people.
As hon. Members may recall from previous debates, some leases provide for insurance to be taken out with a nominated insurer. Some landlords have abused that right by insisting that their leaseholders take out insurance with a company that charges inflated premiums so that they can secure a large commission. Several hon. Members referred to the disgraceful scams that have taken place and the hardship that has been caused to many people.
Existing leasehold law gives leaseholders the right to challenge their landlord's choice of nominated insurer. Clause 161 further provides that where the terms of a 708 lease on a house require the leaseholder to use a nominated insurer, it will be sufficient for them to take out insurance with any insurer authorised to carry on business in the UK, subject to certain conditions being met. However, some leases provide that insurance must be taken out with an insurer who is approved by the landlord. We are concerned that it could be argued that that is not quite the same as a requirement to take out insurance with an insurer who is nominated by the landlord. Although we do not think that such an argument would be likely to succeed, for the avoidance of doubt we thought it important to amend the relevant provisions to make it absolutely clear that they also apply to approved insurers. I am sure that that will be especially welcome to my hon. Friends the Members for Bolton, South-East (Dr. Iddon) and for Bolton, North-East (Mr. Crausby), who led the charge on the matter in Committee and beforehand.
Amendment No. 55 ensures that the new clause tabled in Committee on nominated insurers—now clause 161—applies to Crown land.
I commend the new clause and the amendments to the House.
§ Mr. Cash
The Minister is completely right to say that the new clause is an important provision. We had a useful debate in Committee about the implications of the matter. Several issues are raised by the manner in which certain landlords put tenants at a disadvantage by requiring that they accept their insurance company, with which they, the landlords, may themselves be involved. The Minister rightly described that as a scam. It raises questions of conflict of interest and of uberrimae fidei, which lie at the heart of insurance contracts. It also raises questions about the extent to which there is a free market and whether a monopoly may arise, albeit in relatively constrained circumstances. Some of the very large estates represent a vehicle for acquiring vast amounts of commission, which can be generated on the back of a simple requirement to nominate an insurer.
On the face of it, the new clause makes an extremely simple amendment to paragraph 8 of the schedule to the Landlord and Tenant Act 1985, which deals with the right to challenge the landlord's nomination of insurer. Nevertheless, it is, by any reasonable standards, a considerable step forward that will come as a considerable relief to many people who have been taken for a ride in the past. The sums involved may be important as well, but the downstream consequence of being landed with a bucket-shop insurer—or even a big insurer—simply because the landlord has the power to insist on it has always struck me as an extraordinary state of affairs. It is almost nothing to do with the landlord, in the sense that what is done in the flat in question relates to compliance with covenants of repair, and so on. It could be argued that, if the tenant or leaseholder did not properly insure, other people in the premises could be at risk.
§ Mr. Wiggin
I am curious as to what would happen if a tenant claimed to have insurance—or perhaps ran his own insurance business—but it turned out to be inadequate. What sort of protection would the freeholder have from a rogue tenant who claimed to have insurance but in fact could not insure himself?
§ Mr. Cash
The short answer to that is that there are some very complex laws on assets under various Acts 709 relating to insurance companies. These laws require that any insurer must have a certain degree of viability. It is certainly true that a number of other insurers, who could fall into the category of being involved in scams, would not have that degree of proper insurance. I seem to remember an enormous insurance scandal about 25 years ago.
§ Peter Bottomley (Worthing, West)
It was Savundra; I think the company involved was Fire, Auto and Marine.
§ Mr. Cash
I have no idea. What I do know is that the principles of asset backing matter a great deal to an insurance policy when the crunch comes and something goes wrong, whatever kind of insurance we are dealing with. In relation to property insurance of this kind, it is essential for the tenant to have a proper degree of interest in who the insurer is, because he will be affected if the assets are not there to back the insurance policy. He and the other tenants and leaseholders will all be affected.
The matter should not, therefore, be left entirely to the landlord. That is why I agree that the inclusion of the words "or approved" means that there would be no way in which a tenant, under paragraph 8 of the schedule to the Landlord and Tenant Act 1985—which covers the right to challenge—could leave a leaseholder swinging in the air, because he would now be able to give names to the insurer. It would not simply be a question of nomination, which I regard as offensively monopolistic and extremely dangerous from the point of view of the people living in the premises.
There has been quite enough trouble, one way or another, in the insurance industry over the last few years, and it is the easiest thing in the world for a large estate with many leaseholders and tenants to prescribe its own insurer, and not only collect the commission but give no verifiable evidence of the assets that back that insurance company. That does not apply in all cases, but in a number of cases the provision will be extremely important. For all those reasons, I regard the new clause as good and sensible.
The Minister referred to clause 161, which prescribes thatwhere a long lease of a house requires the tenant to insure the house with an insurer nominated by the landlord….The tenant is not required to effect the insurance with a nominated insurer if—(a) the house is insured under a policy of insurance issued by an authorised insurer";710 furthermore,(b) the policy covers the interests of both the landlord and the tenant",and(c) the policy covers all the risks which the lease requires to be covered by the insurance provided by a nominated insurer";furthermore,(d) the amount of cover is not less than that which the requires to be provided by such insurance, and(e) the tenant satisfies subsection (3).The provision is extremely useful and will be of great benefit to tenants. We support the Government's proposals.
§ Mr. David Crausby (Bolton, North-East)
I shall be brief. I welcome clause 161, for all the reasons that the hon. Member for Stone (Mr. Cash) set out. It is disgraceful that members of the British public should be forced by anybody to take out insurance with the landlord's insurer. The amendments strengthen the clause and give people the power to decide which insurer to have.
The clause is a fine example of how Parliament should work. In the original proposals that went through the other place and came to this place, there was no recognition of the point. Because hon. Members in all parts of the House argued their case, the Government listened, rightly, and are acting in the interests of the British people.
§ Dr. John Pugh (Southport)
I shall make a brief and inexpert contribution. I cannot rival the hon. Member for Stone (Mr. Cash) in his eye for detail or his rhetorical skills.
There will be genuine rejoicing in my constituency at the inclusion of the clause, as it puts to bed an issue that has dogged Southport for many years. I am grateful to the Government for being responsive, and to my hon. Friend the Member for Torbay (Mr. Sanders) for drawing the matter to the Government's attention.
Southport was developed in the Victorian era and land was originally in the hands of feudal families. They sold off the land on 999-year leases, which is a peculiarity of the north. In the discussion of the Bill, there has been something of a London focus, and that practice is a northern peculiarity. For many years, those families collected a ground rent and expected an income for about a thousand years.
Attached to the lease were various exotic conditions. When I first owned my house, I understood that the Weld Blundell estate had the right to appear if ever, during the course of gardening, I struck oil or found coal or gold. The estate had additional income, quite apart from ground rent. Further income was derived by charging for alterations and extensions. A fee would be charged for an alteration as simple as putting in a new window.
As a result, the value of the ground rent in Southport fell. The cost of administration outweighed the income received by the original ground landlords. The ground rents were sold off to City firms, which had no connection whatever with the locality. The problem surfaced in Southport in the 1980s, when the then Member of Parliament, Sir Ian Percival, the Solicitor-General, got involved. There were threats from various companies that if insurance companies were not changed, dispossession would be a distinct possibility.
711 Southport people are thoughtful and intelligent, which is one reason why they habitually elect Liberal Democrats. They reacted positively. They got together and there were huge meetings attended by hundreds of people. Pressure was brought to bear, and as a result some of the companies that tried to profiteer backed off. Few, if any, cases went to court, and there was something of a stand-off. However, the problem was not resolved. Many people took the opportunity to buy their freehold.
Latterly and very recently the problem has resurfaced. Residents, many of whom are elderly and still have houses under leasehold conditions, are being asked to switch insurance companies—not to fly-by-night companies, but major insurance companies that are associated with this technique. AXA is the insurance company that people in the northern part of Southport have been asked to change to, and it is a shame that AXA is associated with such a process. It is not motivating it: a Welsh finance company is doing that.
The letters and communications, which I have seen, have an undertone of threat. Letters sound legally assured, and people are genuinely frightened that they may lose their property. The people who are frightened are none the less well insured. They may not have an opportunity to look round the insurance market to find out what would be best for them.
Until this law is enacted, the process that is happening now could be repeated in three, six or nine years' time. It is an abuse: it has nothing to do with securing people proper insurance, but everything to do with making a fast buck.
It is a shame AXA is involved. No company should be party to an arrangement that involves frightening elderly people. It has nothing to do with the legitimate interests of ground landlords or real insurance: it is simply profiteering. Although this legislation may be dull—it is certainly a dull evening for many of us—there will be genuine rejoicing in Southport that it is going through because it will benefit many ordinary people.
§ Peter Bottomley
I support the comments of my hon. Friend the Member for Stone (Mr. Cash). I note what was said about long leases in Southport. I have a family interest in a long lease on the Isle of Wight, which is about as far south as one can get. I should declare an interest in a flat in Worthing, so I would potentially be affected, although not directly.
The leaseholders in my constituency and elsewhere want service, assurance and a reasonable way of being protected against sharks. The suggestions that my hon. Friend made in welcoming this new clause would help to protect people against sharks, and ensure that there is a common interest in insurance being carried through properly. In my block of flats in Worthing, all bar one of the six tenants have changed during the five years that I have been the Member of Parliament. It is important that managing agents and freeholders as well as the changing leaseholders have some continuity of protection. When damage occurs, insurance matters. I welcome the Government's rational approach to this issue.
§ Shona McIsaac (Cleethorpes)
I welcome the new clauses on insurance and the one that was passed in Committee. In all our deliberations on the Bill, we have shown that too many sharp practices are associated with 712 leasehold tenure, whether it is the insurance scams that were detailed on Second Reading and in Committee or forfeiture and ground rent grazing. This new clause is welcome, as it closes down the possibility of freeholders abusing leasehold home owners. The Government have done well to introduce the new clause. It is right that leaseholders should have freedom of choice and be able to choose the insurer that best suits them and gives them best value for money. I welcome this further tightening of the law to deal with insurance scams.
§ 9 pm
§ Ms Keeble
I welcome the support for new clause 14 from my hon. Friends the Members for Bolton, North-East (Mr. Crausby) and for Cleethorpes (Shona McIsaac), and from the hon. Members for Southport (Dr. Pugh) and for Worthing, West (Peter Bottomley). Members have raised the issue repeatedly, and I hope that these measures will go further to ensure that people are not ripped off.
The hon. Member for Stone (Mr. Cash) mentioned the possibility of tenants' failing to insure properly. Under clause 161, Iandlords can be satisfied that properties are insured. He also asked about insolvent or dubious insurers. Insurance must be with authorised insurers, supervised by the Financial Services Authority. I wrote to him just after the Committee stage, and he should have that on file.
The new clause extends what we have already done. It reflects concern expressed by Members on both sides of the House about the skill of a small percentage of freeholders in finding ways of making legal loopholes work to their financial advantage. I hope that many leaseholders will benefit from this further safeguard.
§ Question put and agreed to.
§ Clause read a Second time, and added to the Bill.