My Lords, I will try not to repeat too much of what was covered in the earlier amendment of the noble Earl, Lord Lytton, but there is obviously some overlap.
Of all the exclusions from Flood Re, that of leasehold and tenanted residential properties was, certainly out there, the most unexpected and, on the face of it, the
least logical and most inequitable. As the argument about it has gone on, it has also become the most complex and confusing. Leasehold and tenanted buildings in a flood-prone area are faced with exactly the same risks as the freehold properties next door. That is where we start from. The families and individuals who live in these properties face exactly the same problems. These are residential properties; generally, no business is conducted from them. They are people’s homes. Yet the Flood Re project, which was the product of bilateral negotiations between the Government and ABI without any direct engagement with landlords, leaseholders or tenants, now appears to regard these properties and that risk as being different in kind to that of the freehold buildings in the same street. The rationale for that is that letting a property—whether long or short-term—is regarded as a business. The risk must be the same and the families will not be very different, yet they are treated entirely differently.
Since the original proposition for Flood Re, its terms have been, shall we say, “elaborated”—that is, amended in some respects or, to put it more bluntly, confused. For example, the ABI made it clear—this is a clarification, in a sense, but it confuses the issue—that contents insurance paid for by tenants and leaseholders would be part of the scheme and included in Flood Re, but obviously not the landlord’s buildings insurance paid for by the landlord. That makes the arithmetic a bit more complicated. Clearly, the £10.50 levy on other households—they presumably pay the full buildings and contents insurance—does not apply to that group. That leaves a lot of grey areas. For example, one of the most serious problems for leaseholders and tenants will often be that the flood damage has caused depredation to the fittings and furniture, some of which—in the case of fittings, most of which—will be covered by the buildings insurance of the landlord. Of course, landlords have contents insurance so it is not necessarily the same position as that apparent distinction creates. The effect is that the whole situation is more blurred and complicated.
The Government have also complicated the system. Just recently, they apparently conceded that properties of three or fewer leases are in the scheme, provided that the freeholder lives on the premises. Anything more than three, or where the freeholder happens to live down the road, is outside the scheme. There is also a rumour, though it does not seem to be substantiated, that the ABI and Government were also looking at the possibility of distinguishing between small landowners or single-property landlords and large, commercial operations. Where does that all leave us?
Let us take a typical street in a low-lying riverside area of a market town. For the purposes of making us all at home and in deference to the Minister’s patience in dealing with all the complications of the Bill, let us call it De Mauley Street. In De Mauley Street, no. 2 is a family house with three generations living there from two to 80. No. 4 looks and is very similar but is divided into four flats, one of which is occupied by the landlord at least occasionally. No. 6 is a house divided into four leasehold flats that have jointly bought the freehold and administer it as a leaseholder-owned company. No. 8 is, let us say, owned by a school teacher resident in London who bought the premises for her retirement
and is letting it out as four student flats. No. 10 is a four-flat block owned by a commercial leasing company with four leaseholders. I am tempted to add a no. 12 that is a mixed property, but that would complicate it too far.
Under the original proposition, no. 2—the family home—is covered but nobody else. Under the ABI concession on contents insurance, no. 2 is covered and all the rest are, but for leaseholder-paid contents insurance only; everything else is not covered. Under the Government three-leases concession, nos. 2 and 4 are clearly covered, provided you can prove that the landlord actually lives at no. 4, but only the tenant-owned contents in no. 8 is covered. As I understand it, no. 6 would also be covered because the leaseholders jointly own the freehold and therefore one of them lives on the premises. In nos. 8 and 10, only the tenants’ contents insurance will be covered. We are already in a very confused position.
If there were a cut-off defined by size of landlord, nos. 2, 4, 6 and 8 would be covered but not no. 10. If there happened to be a social landlord in the same street—there would probably not be in De Mauley Street—nobody would be covered because social landlords are not. Incidentally, I am not sure because we have not touched on it what the position is on mixed blocks. With the right to buy, some of the social landlord’s property may well be owned by private leaseholders, who presumably ought to be covered and may well assume that they are—but are not. We have a bit of a pig’s ear of a situation here. None of it is very logical. The properties are pretty much identical, the risk is the same and they thought they were all included under the pre-existing arrangement of the statement of principles.
The long-term implications of this are particularly severe. Particularly with small landlords and their tenants, if they cannot get insurance then they cannot get a mortgage or raise money for improvements. Hence the buildings deteriorate. The only way they could raise money would be to raise rents or the service charge, so tenants and leaseholders suffer directly. The area starts going downhill because the buildings appear more dilapidated and more obviously at risk. The tenant and leaseholder experience suffers, the landlords suffer and the number of new landlords prepared to invest and buy property diminishes in those areas. This is not a situation that the Government find easy to defend, but I think even the insurance industry is beginning to find some difficulty in defending it.
Having said that, as I said earlier in the previous debate, we recognise that the actuarial calculations for Flood Re are delicate and depend on various assumptions. I do not intend to unravel those calculations at this point by this amendment, but it is important that Parliament understands the position so this is a relatively modest amendment. It does not require Flood Re, the Government or the ABI to do anything directly. However, because the scheme has to have statutory backing and because to give that statutory backing Parliament needs to be convinced that it is logical, equitable and proportionate, Parliament needs to understand the consequences of including or excluding different combinations of property.
The amendment therefore seeks to find that out. It does not seek to delay the process—well, not by much. However, it proposes that before we finalise the statutory instrument on this—and it will need a final statutory instrument—the Government report back to Parliament on: the number of leasehold and tenanted properties included; the number excluded; the number where the landlord is in business in a large way; the number where a landlord is in business only in a very small way—probably with a single property; and the cost that would arise from including each of those categories in the Flood Re proposition. I am leaving the dividing line between large and small largely up to the Government, but we need to have a clear one.
The information that that report would show to Parliament would mean that we, and interested parties, could have a meaningful discussion before the consultation started—or within the consultation—on the statutory instrument, which I am assuming, because this is supposed to start in 2015, would have to be within a very few months. Without that information, we in Parliament are in danger of giving the go-ahead to what appears to every rational observer to be a seriously inequitable, complicated and illogical scheme, which we are about to back by legislation. I do not need to tell Ministers that that situation is probably judicially reviewable.
This amendment therefore asks the Government to give us the facts before we finally go down the road. In a way, it is not delaying this legislation going through, but it would allow us to face up to the facts before the final statutory instrument is carried. At the moment, frankly, we do not have those facts. The Minister referred to fanciful figures. A number of very reputable insurance companies and others have bandied about a number of different figures. I do not know the total number that fall into each of these categories nor, I suspect, does the Minister or the ABI. However, we need to know—at least approximately—and we need to know the cost consequences for them, for the scheme and for those in the rest of society who are subsidising this scheme what the effect would be. Therefore, we do need that information. This amendment would allow the Government, without holding everything up, to get that information and to report back to Parliament. In my view it is pretty obvious that Parliament needs to know. I beg to move.