My Lords, I also warmly welcome this Bill and the Minister’s introductory words. I am also very grateful to the right reverend Prelate the Bishop of Winchester for his thoughtful comments.
I support the call by many, including the Law Society, for the Government to identify sufficient funding to cover the full cost of cladding remediation to ensure that no leaseholder faces the prospect of picking up the bill themselves, regardless of block height. However, I am concentrating on a situation in which that has not yet happened: a situation that was alluded to by the noble Lord, Lord Young of Cookham. It is probably going to take years for this situation to be resolved, either by payment of compensation to have remediation work carried out or by compelling developers to carry out the remediation work themselves. In the meantime, there is an obviously liability that needs to be addressed by someone on whom it will fall.
In this period of time, when there is still work to be done, and at a cost, the relations between the landlord and the tenant are governed by the terms of their lease. In cases of leases of less than seven years, there
is no problem, because the landlord cannot recover the costs of repair and maintenance from the tenant. In the case of leases of more than seven years, there will almost inevitably be obligations on the landlord to repair common parts, including the exterior, but expenses will be recoverable, in whole or in part, by way of a service charge payable by the tenant. That situation is, unless something else comes into play, as I said, likely to continue for a considerable period of time.
My comments are really directed to the position of the landlord in relation to these service charges, and against the background that many small, residential, tenanted blocks of flats are owned not by large, profitable property companies but by private individuals. They are not necessarily wealthy but may have wanted some additional income—people who have bought to let or invested their personal pension in a residential block. There may be a situation in which all or some of the tenants have bought the freehold, or indeed the common parts may be held by way of commonhold.
The issue of how these costs in relation to remediation are to be addressed in this interim period—if I can call it that—is found in Part 5 of the Bill. The effect of Part 5 is to provide for amendments to be made to the Landlord and Tenant Act 1985. I am concerned with the provisions that require the landlord to, among other things,
“take reasonable steps to ascertain whether monies may be obtained from a third party in connection with the undertaking of the remediation works and, if so, to obtain monies from the third party”.
That is a mandatory requirement, not one dependent on discretion.
New Clause 20D(3), to be inserted into the 1985 Act, says:
“In subsection (2)(b) the reference to obtaining monies from a third party includes obtaining monies … pursuant to a claim made against … a developer … or … a person involved in carrying out works in relation to the building.”
A further new subsection provides that if there is a “failure to comply” with that obligation,
“a tenant may make an application for an order that all or any of remediation costs are not to be regarded as relevant costs to be taken into account in determining the amount of any service charge payable by … the tenant”.
Part 5 envisages that in this interim period the landlord is under a requirement to, among other things, take steps to see whether there is a claim and to pursue it. If the landlord—whether a he, a she or an it—fails to do so, there can be an application to the court for an order that the service charge is abated in consequence. As I see it, the difficulty with this is that it will cause the most enormous amount of dispute. Who is to say how much a landlord of the type I have described should properly spend on a claim?
Everybody is agreed—I certainly agree—that it would be quite wrong to expect leaseholders to undertake costly and complex litigation. This sort of dispute in relation to defective building work is among the most expensive, long-drawn-out and complex of all litigation—there is a special court designed to deal with it, the Technology and Construction Court.
Equally, it seems quite wrong for the landlords I have described—the private landlords, not the large companies—to have to involve themselves in exactly
the same type of litigation. Indeed, I expect that, were they to do so, the tenants might well say, “I’m not going to pay because you should never have spent so much money on it”. You are left with a dilemma in which steps must be taken by the landlord in relation to potential third-party claims, but there is no indication at all of what would be reasonable. How much money should be spent? For how long should the claim just be advised upon? How long should it continue?
There is a provision that:
“The Secretary of State may issue guidance about the taking of steps under subsection (2),”
which I have referred to,
“and may revise or withdraw any issued guidance … proof of compliance with any applicable guidance may be relied on as tending to establish that there was no such failure.”
I urge the Minister and the department to consider very carefully indeed whether it is appropriate to require all landlords to take those steps as a mandatory matter in view of all the costs and the absolutely inevitable dispute between tenants and landlords in relation to who is to bear those costs as reasonable service charge costs.
One solution might be to provide in the guidance, if not in the Bill, that the amount to be spent will be reasonable if it is limited to, let us say, a proportion of the annual rents. There must be some kind of qualification to prevent yet more disputes and more distress.
6.15 pm