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On Question, amendment agreed to.
Lord Selsdon moved Amendment No. 244A:
The noble Lord said: In moving the amendment perhaps I may speak to Amendments Nos. 244B and 246A which also stand in my name.
The amendments are designed to prevent vexation. They refer to Clause 79 which provides that leasehold valuation tribunals will have a power to settle service charge disputes. Service charges are the bane of everyone's life--landlords and tenants. They are not perfect. There is so much room for misunderstanding. Those charges cause tremendous fear and aggravation if they are not planned in advance and suddenly on the desk or at the home of a tenant appears a large bill for decoration.
This means that where a lessee believes that his service charge is excessive, as the Government have already declared, he may challenge it through the tribunal without the threat that his lease will be forfeited. That is good. This new procedure was introduced by the Government in response to the actions of a small number of landlords who had been levying inflated service charges, pursuing the collection of those charges aggressively through the courts, all the while threatening
However, the aggravation does not necessarily end there. There are problems in the general trend. My amendments relate to the landlord's costs under the new procedure. A landlord is not necessarily a titled lord with large land. Essentially "landlord" means whoever is responsible for collecting the service charge. I believe that we all agree that the right to manage, the freedom to manage, the right to be nearer to the decision-making process in relation to one's own house or flat, is good. But that brings with it certain problems.
The term "landlord" essentially involves those who collect the service charge. It may cover, for example, the traditional freeholder, whom to some extent we have been attacking today as a landlord. It may cover the head lessee of a long leasehold property. It could also encompass a management company which may be set up by tenants in a building to manage and run their own block, where the lessees themselves own the freehold.
Finally, if commonhold is introduced--the noble Lord, Lord Dubs, referred to it in Second Reading; I support him; and the Minister said that we all believe in it--then commonhold and the management of it would also be covered. Under the new procedures it is not simply a question of collecting the service charges. The noble Lord, Lord Dubs, pointed out that there are good and bad landlords. Under my definition of "landlord" there will still be good and bad landlords. But there are also good and bad tenants. There are absentee tenants. For example, under a head lease there may be a requirement to paint a building every four years to keep things up to standard.
I speak more of London than of anywhere else. We all know that one of the benefits of London is that there have been good managers where buildings have been painted and maintained on time. If the management falls down, there is a major problem. Often management can fall down when there is a shortage of money. Arguments arise in blocks of flats where six or eight people live, two of them abroad. A requirement to repaint that building every four years may exist but someone says that it does not need painting, "It took a long time to paint it and we are not prepared to repaint it". Someone else may say: "I live on the ground floor. Why should I pay for the lift to be maintained or the entry phone?" Often people who are ill-informed cannot understand the justice of service charges where they are required to pay for things that they think are not correct.
There is inefficient management but my worry is where there is a shortage of money. Under the new procedure, there are two elements of cost. First, the applicant to the tribunal must pay an application fee. Secondly, the parties to the hearing may need to employ solicitors or expert witnesses to present their case. In respect of the first cost, the application fee, the tribunal will have discretion and may make an award.
However, with regard to the other costs, the legal costs, the tribunal is specifically prohibited by the Bill from making an award. Therefore, if the lease does not allow legal costs to be collected through the service
There is a certain unfairness on the other side. When a lease requires that all costs are borne by the service charges if the freehold or head lessor takes action against a particular tenant for not paying his bills, it is extremely unfair that if there are six or eight tenants in a block and two have defaulted, the costs that those tenants incur in terms of legal fees should be spread across the rest of the tenants. When they took on their lease they might not have understood or appreciated that.
When people feel someone else is paying the legal bills, they do not worry, they let the lawyers get on with it. The lawyers are relatively slow because they know they will be paid in the end. As we know, legal fees can make an enormous dent in service charges if there is litigation due to one tenant who has behaved badly. That is the case for the other side.
My amendments deal with the landlord. It may well be that they should deal with the tenant as well, but I am in an embarrassing situation. I declared my interests on Second Reading and perhaps I should declare them again. I am a landlord, reluctantly, because when we got together to buy a head lease, I ended up holding the head lease. I have to manage the apartment and I cannot tell the Committee the problems when Mrs. So-and-so's washing machine leaks and causes damage on floors below and someone says that the insurance should pay. It is illuminating. However, at the other end of the scale, I am a tenant and own a lease of one of the great estates in London. If I put down an amendment to the effect that if I were to take action against that great estate, my legal costs should be recoverable, it would probably be immoral. Members of the Committee from the other Benches might suggest that, they seem to support the tenant more often than the landlord and I would support them.
The problem would be particularly acute for lessee-owned management companies which have no significant independent resources on which to draw. It is difficult to see, therefore, how they can manage their blocks efficiently in the future--I am not talking about today--using the Government's new procedures as drafted. For example, they might run out of money. Also, one must accept that some may not be efficient but, with the best will in the world, they will try to do what they can. If they are short of money, they will not be able to meet certain costs.
Amendment No. 246A seeks to address the problem by giving the tribunal discretion to make an award for legal costs. Under my amendment, the tribunal would have three options. First, it could make no award, in which case the costs would not be recoverable. Secondly, where a lessee in challenging a service charge
My amendment does not give the landlord carte blanche to recover costs. That would clearly be undesirable. But if the landlord--and I remind the Committee that the landlord could be small groups of people--had patently acted unreasonably, I should expect the tribunal to use its discretion and make no award for costs. The lessees will also have the safeguard of new Section 20C of the Landlord and Tenant Act 1985 which permits them to apply for the landlord's costs to be disregarded for service charge purposes.
Amendment No. 244B is intended as a saving provision, to ensure that where the lease allows for legal costs to be recovered through the service charge, the new provisions of the Bill will not override that. As some concern has been expressed on the issue by leading counsel, it is important that we put the matter beyond doubt.
I did not draft the amendments, not being a great draftsman, and I gather that the Government are short of parliamentary draftsmen at the moment. The amendments were drafted by professionals and in this world I am an amateur. Perhaps I am not an amateur because an amateur is someone who loves the subject. I do not love the responsibility of having to manage a building. I am told that the amendments are approved by the Federation of Private Residents' Associations, the Royal Institute of Chartered Surveyors and the Association of Residential Managing Agents, as well as a number of managing agents to whom I spoke. Advice was also taken from the Leasehold Enfranchisement Advisory Service.
If costs are incurred by a landlord in the pursuit of something legal, correct and proper, he ought to be able to recover the costs. I must not put my own causes, but I feel that that should apply equally to the tenant. I beg to move.
Page 53, line 3, leave out from ("court") to end of line 5.
Page 53, line 5, at end insert ("except as provided in section 31D").
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