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52Clause 148, leave out Clause 148.

Lord Falconer of Thoroton: My Lords, with the leave of the House, I beg to move that the House do agree with the Commons in their Amendments Nos. 51 and 52.

The new clause created by Amendment No. 51 replaces, with modifications, the existing Clause 148 of the Bill which inserts a new Section 20 into the Landlord and Tenant Act 1985. Although the revised clause looks complex, the changes made to the existing clause are relatively straightforward.

As regards long-term contracts, the existing clause introduces a new requirement of landlords to consult leaseholders before entering into any contract for the provision of works or services lasting for more than 12 months. Consultation would be required before entering into such a long-term contract regardless of

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its value. Furthermore, where the consultation requirements are not complied with, the landlord would be prevented from recovering any costs under that contract from the leaseholders.

Respondents to the discussion paper were firmly of the view that we should set a de minimis limit for long-term contracts so that long-term contracts for less than that limit would not have to comply with the consultation requirements. We accept that such a change is necessary to ensure that landlords do not need to consult leaseholders over long-term contracts that would have minimal cost to the leaseholder.

For example, some local authorities apportion running costs of their housing departments to leaseholders. Private sector landlords may also apportion administration costs in this way. This could mean that a landlord would have to consult leaseholders before entering into a long-term contract for the provision of stationery. The cost to the individual leaseholder would be very little and leaseholders would be very unlikely to be interested in such contracts.

The new clause therefore provides that consultation on long-term contracts will be necessary only if the cost to the leaseholder is above a prescribed amount. It follows the precedent set by the existing consultation requirements for specific works. We will of course consult on what the prescribed amount should be. Subsections (4) and (5) of the revised Section 20 are intended to provide the maximum flexibility in determining the prescribed amount.

We envisage occasions where a landlord does not consult because the estimated costs are less than the prescribed amount. However, if the cost subsequently increases above the prescribed amount, we believe it is unfair to put the whole amount of the cost incurred at risk. Therefore, the revised Section 20 provides that only the excess above the prescribed amount would be irrecoverable. Again, this is in line with the existing approach for consulting on specific work. Where the prescribed amount is based on the cost to individual service charge payers, only monies due from individuals in excess of the prescribed amount would be irrecoverable.

The existing requirement to consult leaseholders on specific works costing more than a prescribed amount would be retained. This would apply in addition to any requirement to consult under a long-term contract. As with consultation on long-term contracts, subsections (3) and (5) of the new Section 20 will provide flexibility over the way in which the amount is determined.

Existing Clause 148 provides that a leasehold valuation tribunal may, in a particular case, grant dispensation from all or any of the consultation requirements. This is intended to ensure that landlords are not penalised for technical infringements which do not disadvantage leaseholders or it is not practical in the circumstances to consult fully or at all; for example, where work needs to be carried out in an emergency. As drafted, it is arguable that Clause 148 allows such dispensation to be sought only after the event.

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Concern has been expressed that where full compliance with the consultation requirement is not practical, the landlord may be placed in a difficult position; for example, for some specialised services there may be only one supplier. The consultation requirements will require that at least two estimates be obtained. If the contract is entered into or the works are carried out without full compliance with the consultation requirements, there is a risk of not being able to recover the costs if the LVT should refuse to grant a dispensation. This new clause therefore makes it clear that a landlord may apply to an LVT for a dispensation of the requirement to consult before the works are carried out.

Amendment No. 52 is consequential and deletes the existing Clause 148.

Moved, That the House do agree with the Commons in their Amendments Nos. 51 and 52.—(Lord Falconer of Thoroton.)

On Question, Motion agreed to.

4.15 p.m.

COMMONS AMENDMENT

53Clause 149, page 72, line 44, at end insert—
"required to be supplied under this section."

Lord Falconer of Thoroton: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 53. I shall speak also to Amendments Nos. 72 and 84. This is a small group of technical amendments. Amendment No. 53 is a minor consequential amendment made in the light of the new clause to be created by Amendment No. 54. Amendment No. 72 removes from the Bill subsection (2) of Clause 174. Amendment No. 84 corrects an error in the drafting of Schedule 14.

Moved, That the House do agree with the Commons in their Amendment No. 53.—(Lord Falconer of Thoroton.)

On Question, Motion agreed to.

COMMONS AMENDMENT

54After Clause 149, insert the following new Clause—
"Notice to accompany demands for service charges


    After section 21A of the 1985 Act (inserted by section 149) insert—


    "21B Notice to accompany demands for service charges


    (1) A demand for the payment of a service charge must be accompanied by a summary of the rights and obligations of tenants of dwellings in relation to service charges.


    (2) The Secretary of State may make regulations prescribing requirements as to the form and content of such summaries of rights and obligations.


    (3) A tenant may withhold payment of a service charge which has been demanded from him if subsection (1) is not complied with in relation to the demand.


    (4) Where a tenant withholds a service charge under this section, any provisions of the lease relating to non-payment or late payment of service charges do not have effect in relation to the period for which he so withholds it.


    (5) Regulations under subsection (2) may make different provision for different purposes.

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    (6) Regulations under subsection (2) shall be made by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament.""

Lord Falconer of Thoroton: My Lords, I beg to move that this House do agree with the Commons in their Amendment No. 54. I should like to speak also to Amendments Nos. 63, 64, 66, 68 and 78. The amendments all relate to forfeiture and are perhaps of more interest than previous amendments about forfeiture.

The Government fully accept the widespread concerns about the forfeiture system. Forfeiture is a draconian penalty and many people feel that it is unfair that a leaseholder can lose their home, possibly for the non-payment of a relatively modest debt, while the landlord obtains a large windfall profit. It has to be stressed, however, that the courts do lean towards relief from forfeiture although we accept that this requires an application for such relief to be made.

Following the Government's consultation paper on residential leasehold reform in 1998, we announced in December 1999 in a document entitled Leasehold Reform, the Way Forward that we intended to replace forfeiture with a fairer regime. In particular, we proposed that where the landlord obtained possession, the leaseholder should be compensated for the loss of the leasehold interest after deducting moneys owed to the landlord. This remains our long-term aim.

Although the concept may seem a relatively simple one, legally and practically the matter is very complex. When we were drawing up our draft of this Bill we considered the issue very carefully, but reluctantly came to the conclusion that we could not resolve all the complexities without delaying the introduction of the Bill.

Instead, we decided to focus our attention on the main abuses associated with forfeiture. These include the use of forfeiture as a threat to extract payment, and also for leaseholders to challenge unreasonable charges or breaches of convenants that are unfounded. As noble Lords will know, there are a number of provisions already in the Bill which address these abuses.

In the other place the Government undertook to consider carefully the strength of feeling on this important issue and the desire for further measures in this Bill to deliver protection for leaseholders. That is why we have come forward with further safeguards for leaseholders.

I want to explain the additional safeguards. Amendment No. 63 is intended to prevent the use of forfeiture for small amounts. Forfeiture proceedings would be prohibited unless the amount outstanding exceeded a prescribed sum or the amount, or any part of it, had been outstanding for more than a prescribed period. On the face of the Bill the prescribed sum is set at £500. The level at which it was introduced would be set by regulation, and we would consult on that, although our current thinking is that it should be introduced at a level of £350 in the first instance. We would expect to set the prescribed period at three years. That would make forfeiture unavailable for small amounts of less than £350, unless they have been outstanding more than three years.

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Regulations made under the power would be subject to the affirmative procedure by virtue of Amendment No. 68. Administration charges and penalties for non-payment of an outstanding amount will not be taken into account in determining whether the prescribed sum has been exceeded. That would prevent landlords trying to evade the provision by adding further charges to push the total above the prescribed sum.

Amendment No. 64 is intended to protect vulnerable leaseholders, such as the mentally ill, who are unable to respond to the various warning notices required under existing legislation or other provisions of the Bill. We propose to require landlords to take reasonable additional or alternative steps when there is no response to demands or notices. We will consult on what steps would be appropriate, practicable and reasonable. That may include a duty to investigate the leaseholder's circumstances.

I should point out that the power would not apply in relation to properties subject to a mortgage. This is because mortgagees are normally informed of forfeiture proceedings, and have a right to seek relief—invariably they do so—to protect their security. So it is the leaseholders who do not have mortgages—for example, the elderly whose mortgages have been paid off—who would be protected by this measure. Regulations made under this power would also be subject to the affirmative procedure.

Amendment No. 54 is intended to ensure that leaseholders are aware of their rights and obligations by providing a power to require certain information to be provided with service charge demands. And it should also help to prevent forfeiture being used as a threat by unscrupulous landlords. The form and content of these notices would be prescribed. It would set out leaseholders' rights to challenge service charges which they consider to be unreasonable and the restrictions on forfeiture. But it would also point out the possible serious consequences of non-payment of service charges, the dangers of ignoring demands and suggest that leaseholders take advice.

Amendment No. 78 provides a similar power in relation to demands for administration charges.

Amendment No. 66 provides that the new clauses introduced by Amendments Nos. 63 and 64 would be binding on the Crown (the other changes already apply to the Crown by virtue of Clause 163). We believe that it will be important to improve awareness among leaseholders and landlords of their rights and obligations in this somewhat complex area. It is therefore also our intention to produce a guide that will summarise, in plain English, all the relevant provisions concerning forfeiture proceedings.

To conclude, those additional measures, together with the provisions that are already in the Bill, should go a long way towards preventing abuses associated with the existing forfeiture procedures.

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Moved, That the House do agree with the Commons in their Amendment No. 54.—(Lord Falconer of Thoroton.)


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