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The Earl of Lytton: I declare an interest in that I am chairman of the Leasehold Enfranchisement Advisory Service and I wish to speak in support of the gist of what the noble Lord, Lord Selsdon, moved, for the reasons he gave. With regard to tenants' own management companies, which I believe is the real point, if they do not keep reserve funds--and I cannot see how logically they could insist on building up a reserve fund for the purposes of covering otherwise uncovered costs--they would end up with a deficit. They would not be able to satisfy their obligations under the Companies Act. It
seems to me that the noble Lord suggests a neat way of providing that proper discretion is exercised. I should be interested to know what the Minister has to say about it.
Lord Coleraine: I have not spoken before on the Bill so it falls to me to declare my interests. In 1993, when the previous Bill was enacted, I was the tenant of a flat under a long lease at a low rent. The lease had eight years to run, so it was collectively enfranchisable. I am now a lessee under a lease of 999 years of the same flat. I am also the owner of one share in the company which owns the freehold. I changed my status and those in my block changed theirs without any need to resort to the provisions for collective enfranchisement in the 1993 Act.
I have a further interest and I am embarrassed that I am declaring it at this stage because I am an honorary consultant to the Federation of Private Residents' Associations. As my noble friend stated, the federation generally approved the provisions of his amendment.
I have grave doubts about the amendment. The principal one is that provided it is in the case of a sole tenant who goes to the valuation tribunal that the cost provisions arise, it sanctifies in some way the position of the majority of the tenants in a building or of the residents' association. We must all recognise that there is in fact no such sanctity, that disputes arise between lessees within a building and that there is no reason why we should assume that it will always be the majority who are in the right and the minority who are in the wrong. As my noble friend said, the provisions of his amendment are one-sided. He would agree that that should be rectified.
If it were the case that a sole lessee who went to a leasehold valuation tribunal were to bear the costs of his application, it should also be the case that, were he to be successful, the landlord should bear the costs. My noble friend clearly agrees with that.
A further point has been made that where the lessees of a building take over the freehold, they will not have the resources to go to a leasehold valuation tribunal under the provisions of the Bill. That is correct and applies to any landlord. The landlord must have resources. I suggest that the proper management of a tenants' buy-out should include some form of agreement whereby it is made clear that, should the situation arise, those who participate in the buy-out must make funds available to enable the costs of an application to the LVT to be paid.
In the long run, however, I think the answer to my noble friend's amendment is that there is probably enough in the Bill to get round the very real difficulties that the decoupling of forfeiture from the collection of service charges has created. That is ultimately where the problem arises.
We have just passed an amendment to provide that frivolous and vexatious applications can be dealt with summarily by the LVT. I feel sure that that is one way in which single tenants acting unmeritoriously will be seriously deterred from going to a tribunal.
An existing provision in the Bill also enables the valuation tribunal to charge "reasonable" fees for the first time. I have no idea what those "reasonable" fees
are. Perhaps, in replying, my noble friend will help me. It is very difficult to envisage an application to an LVT going forward at a cost of less than £500 per day in LVT fees. Those fees could fall on a tenant who has made an unsuccessful application.Those two provisions are enough to safeguard landlords from the difficulties my noble friend sees. I hope that he will not press his amendment.
8.30 p.m.
Lord Lucas: My noble friend Lord Selsdon has raised some important points. I believe I can reassure him on some of them, and I shall reflect on some of the others. I deal first with Amendment No. 244B, which is aimed at making it clear that nothing in the Bill undermines any provision in a lease which allows a landlord to recover his costs as part of the service charge. Claude 79 does contain a provision--the new Section 20C of the Landlord and Tenant Act 1985 on page 54 of the Bill--which allows a leasehold valuation tribunal to order that such cost should not be recoverable. That provision, which largely repeats the existing Section 20C of the Act but extends it to LVTs as well as the court, is to deal with the case where the landlord has behaved unreasonably in some way in defending a case.
For instance, if a landlord has used a legal team of disproportionate weight--a QC, duly instructed by a solicitor, with a Fellow of the Royal Institution of Chartered Surveyors and perhaps an accountant in attendance to argue a minor point about whether maintenance work has been done--the leaseholders could challenge whether the costs have been "reasonably incurred". The LVT would no doubt take a commonsense view.
But if the LVT does not exercise that power, the necessary implication is that the cost of defending an action is recoverable if the lease allows for this type of expenditure to be recovered in the service charge. That is certainly the Government's intention and understanding of what the Bill achieves. I am pleased to place that on the record. I hope that on that basis my noble friend will not press Amendment No. 244B.
My noble friend's other amendments, Amendments Nos. 244A and 246A, deal with responsibility for paying for costs more generally. The effect is to give the LVT a jurisdiction to make a single tenant pay the landlord's costs if he has acted individually or to order that the landlord may recover them as part of his service charge if the case is on behalf of the tenants collectively. In that case all leaseholders would have to pay. I am not sure that Amendment No. 246A quite achieves that because making the costs "relevant costs" does not itself make them recoverable if the lease does not provide for that.
I am not sure it would be right to put individual tenants at risk of having to meet their landlord's costs in this way. Part of the point of giving the leasehold valuation tribunals jurisdiction to settle service charge disputes is to reduce the risk that tenants might have to meet the legal fees of their landlord, which, in the case of some of the less scrupulous landlords, may be
significant--often unreasonably so. There are cases where a minority of tenants, or even one tenant, may have a legitimate case but where the majority are uninterested. I think the amendment goes too far. To that extent I am of one mind with my noble friend Lord Coleraine.But that leaves the question of how the landlord's legitimate costs are to be met. Many leases, particularly the more modern ones, will include a broad-ranging provision allowing the landlord to include within his management expenses the costs of proceedings of this type. Collecting service charges is part of the job of managing a block of flats. In those circumstances the landlord will be able to recover his costs unless the tribunal makes a ruling under Section 20C which I mentioned earlier.
But some older leases may not make sufficiently broad provision. They may not have anticipated tribunal proceedings. In those cases, unless some new provision is made, the landlord will have to bear the costs himself. I can imagine many cases in which that may not be unreasonable, or may even be richly deserved. But there may be cases where it does pose a problem. For example, at Second Reading my noble friend Lord Gisborough raised a point concerning blocks where the leaseholders themselves own the freehold, and there is simply no source of money other than service charges to pay for a surveyor, for example, to present their side of the argument before a tribunal.
I do not think it would be right to introduce a general provision about awarding costs into LVT proceedings. Tribunals generally, not just leasehold valuation tribunals, do not award costs against a losing party in the way a court does. They are less formal and more accessible. Legal representation, for example, is not necessary. If costs could be awarded, the notorious landlords would no doubt continue to intimidate their leaseholders from bringing even well-founded cases for fear of the potentially ruinous consequences of losing.
The better course might be to empower the tribunal to give a ruling (if the landlord asks for it) that his reasonable costs in defending the case should be recoverable as service charges, even if the lease does not provide for that. It is, of course, important that Parliament should not lightly give the LVT a power which amounts to imputing into leases new terms which place new obligations on leaseholders. The LVT should perhaps be allowed to do so only where convinced that it is fair, given all the circumstances of the case, and only to the extent that the landlord's costs are reasonable. In some ways this would mirror the current provisions which allow the tribunal to rule that the landlord's costs should not be recoverable, even where the lease would allow it, if the landlord had acted unreasonably.
My noble friend Lord Coleraine asked what level of fees we might expect from LVTs. He has the right idea. We think that £500 would be about the standard minimum; for longer cases £2,000 a day is about the
level we are thinking of. With those words, I think, of considerable comfort, I hope that my noble friend Lord Selsdon will be able to withdraw his amendment.
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