My Lords, this is an enormously complex issue, as I outlined in an earlier amendment. The current legal framework makes liability for the matters that have been referred to by the noble Baroness and the noble Lord a patchwork, and entirely uncertain of outcomes. So significant are the matters at stake that in a normal course of events it may be years before matters are resolved by the courts. We need a quicker fix than that, which is why earlier I suggested that the Government should take a firmer hand in this and not leave it to the industry and markets to sort out. In other words, there is a strong case for government intervention. I welcome this amendment, although not precisely on its own terms, because I think it has some potential flaws. However, certainly the opportunity to debate the issue is absolutely vital.
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I am satisfied in my own mind that where basic construction standards have been skimped, some residual duty of care ought to be capable of being invoked to make those directly responsible—constructors and developers and, to some extent, those responsible for construction warranties—liable. However, I am no lawyer and I fear that my hopes will not be fulfilled. Developers use increasingly sophisticated means to ring-fence liabilities of individual development projects, normally by means of a special purpose vehicle or similar device.
Enormously profitable housebuilding enterprises, which observed the provisions of approved documents but did not read the broad statement of objectives in the parent building regulations document, tell us they complied with the requirements at the time. The noble Lord, Lord Stunell, told us just now about a deliberate evasion of proper test procedures and certification. I must have seen the same BBC TV footage as he did, reporting on the investigation by Sir Martin Moore-Bick and the evidence of insulation materials suppliers, also referred to by the noble Baroness in moving this amendment.
The noble Baroness is right: the long leaseholder has paid hard cash in good faith. It is really wrong that they should be obliged to pay any significant sum in addition. Mortgage lenders have likewise relied on completion certificates, construction warranties and so on, although it appears that the construction warranty providers in particular have a role in monitoring quality of build—unlike the eventual building insurer, whose only concern is with subsequent post-construction insurance against specified perils. I do believe that construction warranty providers have some co-responsibility here.
The PI—professional indemnity—insurers, of course, may have some exposure in relation to professionals acting in the matter. I do not know about that, but I do know that these are powerful and well-funded interests. In order to break this logjam, it would require significant legal change. I think it would be necessary to lift what is known as the “corporate veil” to remove the assumption of “buyer beware”. These two matters in themselves would open up a whole area of wider responsibility which may yet have other serious implications.
I agree that the vulnerable and invariably innocent leaseholders and tenants should not pay twice. But if not them or the developer—who? Management is likely to have no asset beyond the management and maintenance generated via the service charge and guaranteed in terms of recovery from the occupiers, be they leaseholders or tenants. Freehold owners of the long-leasehold flats have an interest which, in general terms, is some multiple of the cumulative ground rent, so they do not have an interest of any significant value. The likelihood is that both management functions and freehold ownership are themselves vested in corporate structures for precisely the same reasons of delimiting potential liabilities to individuals that, of course, are common with special-purpose vehicles. Of course, the freeholder may not even be the original developer; they may have purchased in good faith.
I have written to the Minister previously to express my fears about orphan liabilities. This amendment allows us to consider the whole range of issues that arise if we are trying to establish or apportion liability. While everyone is saying “not me”, there is a real concern that the focus will not end up where it ought to be. Some sort of government initiative is needed unless the Minister can reassure us that something is already happening to try to resolve this.
I have enormous sympathy with the sentiments behind this amendment, but I do not think it works. Liability cannot fall on one person without establishing where else it might fall and what the consequences might be.