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Baroness Gardner of Parkes: On the question of legal costs, at an industrial tribunal people regularly defend themselves and therefore expenses are not high. We hardly ever award costs. Even if the applicants are represented legally on both sides, each party has to bear their own costs.

We recently had a case, the first in over 20 years, in which we awarded costs of £1,000. Everyone in the tribunal building considered that a very high amount. The circumstances were exceptional. They involved someone who had pursued the case, had had it deferred several times, and who in the end did not turn up. Costs were awarded against that person. I doubt whether they will ever be recovered since I believe he has absconded or left the country. So it may only be theoretical.

It is worrying if the "reasonable costs" referred to can be awarded and possibly then come back as part of a service charge. When we talk of legal expenses, the sky is the limit. I should be very concerned about any high costs being added on to service charges, which most tenants find quite worrying to meet now. I hope that the Minister and my noble friend Lord Selsdon will look carefully at the particular point of the type of costs involved and perhaps put a ceiling on what could be awarded.

Lord Meston: Perhaps I may follow up the noble Baroness's point. Her analogy with industrial tribunals is a valuable one. In those tribunals the power to award costs can be a disincentive, which is useful in itself; but the knowledge that in normal cases costs will not be awarded either way is also a disincentive of some value, because the parties know that it is much to their advantage to settle. Win, lose or draw, they are unlikely to get costs against the other side. I feel that the analogy that the noble Baroness drew is very valuable.

Lord Monkswell: I was rather concerned by one of the Minister's remarks. If I did not hear him aright, no doubt he will correct me. He said that the majority of leases granted nowadays contain the requirement that any costs incurred will be added to the service charge. If that is so, it is rather disturbing.

There may be a situation in which the landlord effectively makes excessive service charges, which are being challenged. If the landlord has the right to increase the service charges by any amount because he has incurred costs in defending those excessively high service charges, the poor leaseholder is on a hiding to nothing and the protection that the Government and we all are seeking against excessive service charges will be nullified. It should be borne in mind that, if money is no object and the costs will simply be passed on in service charges, all kinds of experts may be brought in--legal experts, surveyors and so on, some of whom are very expensive--and the person bringing the argument against the excessive service charges may be completely swamped.

I hope that the Minister will look at this matter very carefully and ask whether it is what we seek.

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8.45 p.m.

Lord Strabolgi: I should like to support my noble friend. Service charges can become quite a racket. Some years ago there was a block of flats near the Albert Hall where the service charges were allowed to be used for some refurbishment to the building. In fact, they were being used to do up other flats, putting in extra bathrooms and so on, which the owners of the block were then going to sell on long leases and the tenants were receiving the most enormous bills. There have been cases recently too in which people have been able to buy freeholds at auction for a couple of thousand pounds and then do what they liked with the building and the tenants. The so-called accountants who are supposed to assess the service charges are in league with the freeholder, as are the decorators who do up the places. The freeholder is getting a cut all along the line. It is a major scandal.

I remember the old days in the 1950s when many of the flats in central London were owned by old-established companies--key flats and so on--and everybody was very happy. The rents were low and went up normally every year or so. There was a nice porter in the hall with a coal fire and so on. It was a very satisfactory way of living and many people preferred it to living in a house. Then one or two speculators realised that they could make a large fortune by buying up the blocks of flats. They threatened the people with eviction--at that time the Government had taken off all controls--and the unfortunate tenants, in order to remain in their homes, had to agree to buy long leases from the new owners. The owner would then recover in service charges what he had lost in rent. Such people made very large fortunes. However, one or two of them went bankrupt, I am glad to say. It was quite a racket.

I am afraid that the Conservatives taking away security of tenure had absolutely unforeseen repercussions and distorted the whole of the housing market in central London and other big cities. We have never recovered from it. Attempts by the Government to try to control the situation with the 1988 Act and the present Act have all stemmed from that mistake, when they allowed speculators and crooks to take over blocks of flats and distort the market.

The Earl of Lytton: I apologise for rising to speak again on this matter. However, it seems to me that, speculators and racketeers apart, there still remains a problem which I should like to illustrate for the benefit of the Committee. Some years ago I worked in Brighton and I remember a large block of flats in Kemp Town. Part of it had had a bomb dropped on it during the last war, with the result that it had been reconstructed. Part of it was brand spanking new, relatively speaking and the rest was old and--to use common parlance--clapped out. That produced a significant differential in running costs between the two halves. I remember that the method of apportioning service charges was a constant source of problems to the residents.

Returning to the point about the tenants' own management systems, tenants are not a consistent breed. From my personal experience I know of several cases in which one group of tenants has radically disagreed

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with what another group of tenants has done in the name of the block as a whole. I referred to those problems at Second Reading when I mentioned the different aims of different tenants. For example, the elderly may want one particular service while the young and fit want another type of service.

There has to be a method of reconciling those views some way or other. It may be rough justice or a little like the Judgment of Solomon, but reconciled they have to be. I feel that what the Minister said about leaving discretion with the tribunal is probably the best that we can hope for in the circumstances. I do not believe that either side should be penalised. I do not feel that a deficit should be left in the hands of the tenants' own management company which will cause it severe legal problems about--apart from anything else--how the unsatisfied debt that it has accumulated will be expunged. Those people may have acted for what they genuinely felt was the benefit of the majority, taking an overall view of the block--perhaps a strategic forward view, based on doing more repairs at the present moment, taking the stitch-in-time rather than the sticking plaster approach. This matter will probably always be a source of contention. I want to see this Bill go forward with the opportunities for contention diminished.

I support what the noble Lord, Lord Selsdon, said. Maybe his formula is not quite perfect, as the Minister suggested. Perhaps the Minister's solution--if that is what it is--is a good one. If there is anything that it does not cover, perhaps that could be looked at and considered at a later stage.

Lord Coleraine: I should not like the strictures made by the noble Lord, Lord Strabolgi, against Conservative policies to go unanswered when this Bill leaves the Committee. The reason why we have the present dreadful long leasehold system in central London, with all the opportunities for bad dealing, is basically old Labour Party rent controls, which made it quite impossible for landlords to let their flats on short leases. They made it inevitable that they would seek to take premiums and get rid of the flats on long leases. That to a large extent is why we have the situation today.

Lord Lucas: I should perhaps steer clear of that particular controversy. Perhaps I can say two things to the noble Lord, Lord Strabolgi. First, if one buys a leasehold, one had better read the lease. Secondly, most of the problems he described I hope will be effectively dealt with by the Bill.

To the noble Lord, Lord Monkswell, I say that there are two ends of the spectrum. At one end we have a block owned effectively by the people who live there, where the company owning the back end of a 999-year lease will effectively have no assets and no income other than the service charges which it levies on the people who live there. If one tenant does not pay the service charge, there must be a mechanism by which the company can levy charges on all the other tenants to fund the action it needs to take against the defaulting tenant. That is why that is a common mechanism in that sort of lease and indeed in other leases.

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To deal with people who try to abuse that system, we have given the leasehold valuation tribunal the duty to make sure that the actions by the landlord are reasonable. The proposed new Section 20C of the Landlord and Tenant Act 1985--appearing on page 54 of the Bill--is a provision to deny the landlord the right to recover his legal and other costs through the service charge if he has acted unreasonably.

That provision places a great weight on the wording of the Bill. I would be happy to hear, perhaps on another occasion or through letter, from Members of the Committee who think we may be able to improve the wording to achieve what we all wish to achieve; that is, to make sure the leasehold valuation tribunal deals in a commonsense and effective way with landlords who abuse their position to try and terrorise the tenants. But we have perhaps come to an end of this conversation for now.

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