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New Clause 15
Consultation about service charges
'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.
11 Mar 2002 : Column 714
(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.
Ms Keeble: I beg to move, That the clause be read a Second time.
Madam Deputy Speaker (Sylvia Heal): With this it will be convenient to discuss Government amendments Nos. 60 and 48.
Ms Keeble: I will speak at some length about these complex proposals because that may help Members, although I know that time is marching on and that others want to speak.
Mr. Don Foster: About marriage values.
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 minimis 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 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
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.
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.
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