Finance Committee, 30 Mar 2004

Meeting date: Tuesday, March 30, 2004

Official Report 219KB pdf

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Tenements (Scotland) Bill: Financial Memorandum

Item 2 is further consideration of the Tenements (Scotland) Bill. I welcome Executive officials to the meeting. Joyce Lugton and Hamish Goodall are from the Scottish Executive Justice Department, and Edythe Murie is from Legal and Parliamentary Services.

Members have a copy of additional information that we received from the Scottish Legal Aid Board following its appearance before the committee at the previous meeting. As the officials do not want to make any opening remarks, we will move on to questions.

I used to spend a huge amount of time studying title deeds for tenement flats. In almost all cases, the title deeds stipulated a scheme for common repairs and improvements. I might have missed it but I could not find in the Executive's papers its estimate of the number of tenements that do not have in their title deeds a scheme governing repairs and their execution.

My answer will be fairly lengthy, if the committee will bear with me. There is a wide variety of title deeds and Fergus Ewing is right that most will include some provision for maintenance and management.

Generally speaking, title deeds executed before 1820 or thereabouts will not include any such provision, but any executed after 1820 will have some provision for maintenance. However, Victorian title deeds are unlikely to include provision for management of a tenement, which only started to come in at around the turn of the last century. Therefore, there is a sort of continuum in the development of title deeds.

Victorian title deeds commonly set out schemes for maintenance and say who would be responsible for the maintenance of which common parts and so on, but they do not include provision for decision making. Therefore, although they are clear about who would have to pay, they are not clear about how a decision would be made on whether a repair was necessary.

The Tenements (Scotland) Bill tries to plug the gaps so that the entire bill, more or less, will apply to tenements that date from before around 1820 and which includes provision for neither maintenance nor management. Where the title deeds for Victorian tenements include provision for maintenance obligations but none for decision making, that gap will be plugged. In later title deeds, it is less likely that there will be gaps, so the tenement management scheme in the bill will be used less often, but it will plug whatever gaps there are. That is the general background picture.

You also asked for some sort of quantitative answer, and the answer is that we really do not know. The number of tenement flats in Scotland is in excess of 800,000. We do not know how many of them have title deeds that do not cover all of what are regarded as desirable conditions. In a way, the bill is drafted as it is so that it will plug the gaps that exist.

I am most grateful for that interesting answer. If I had a clearer recollection of Professor Halliday's conveyancing notes, I should have remembered much of it anyway.

We are obviously concerned with the financial implications of the bill and I asked my question for the simple reason that I was trying to work out on what assumption the estimates of the financial costs were based. You can correct me if I am wrong, but I thought that they would be based in part on the number of tenements lacking provision for repair and maintenance, which will now become subject to such provision. Was that part of the methodology?

Perhaps you could explain the methodology used in estimating the costs, which are not great and which largely involve court service costs and judicial salaries, as set out in paragraphs 162 and 163 of the financial memorandum, and legal aid costs of £60,000 relating to court actions, as set out in paragraph 164. Perhaps I have fundamentally misunderstood the methodology underlying the allocations in those estimates.

At present, there are tenement disputes that may or may not lead to court cases, and the fundamental point is that the bill will not add to their number particularly. Sections 5 and 6 of the bill are about specific court cases that might arise from the bill. Section 5 deals with the situation in which a majority in a tenement has taken a decision and the minority of owners who do not agree with that decision want to challenge it. However, the grounds for the sheriff finding in favour of the minority will be very restricted. There will be two grounds for such a finding. The first ground is that the decision taken by the majority was not in the interests of all the owners of the tenement. The second ground is that the decision taken by the majority was unfairly prejudicial to one or more of the owners. Those are quite high tests and we think that it is quite unlikely that section 5 will lead to many cases.

Section 6 deals with procedural matters and is quite technical. Again, we think that it is unlikely that there would be many cases under that section. However, what you may have in mind is the more general situation of a dispute in which the majority of owners want to pursue a repair but others simply do not agree. We do not think that that will lead to any more court cases arising out of tenement disputes than there are at present. At the committee's previous meeting, which we attended, Kate Maclean said that the whole allocation that we had suggested was likely to be taken up among her own constituents. We would be interested to hear from Kate Maclean—if that does not tread on anyone's toes procedurally—which cases she thinks might arise as a result of the bill and why she thinks that there might be a large number of them.

I am not sure that I suggested that my constituency would take up the whole allocation, but it would certainly take up more than its percentage share as one of the 73 constituencies. In a few areas in Dundee, the owners of old tenement properties want works to be carried out, but considerable numbers of absent landlords do not. The bill might result in more court cases than there are at present because it will give people more rights under the law. I would have thought that solicitors might advise their clients that the bill meant that there would be more point in taking a case to court.

Essentially, the bill gives the majority in a tenement the right to take decisions. That will replace the common-law position, which requires a unanimous decision. However—this is quite technical stuff—if the title deeds include provision for how decisions should be taken, that provision will take precedence. If we assume that the title deeds do not include such provision, which may be the case in older tenements, a majority will be able to take a decision to go ahead with a repair.

Just because a majority takes such a decision, that does not necessarily mean that there will be a court case. Indeed, it is to be hoped that no court case would result. Under the bill, if a majority decides to go ahead with a repair, the minority will have no defence in law against that decision, unless they want to challenge it under sections 5 or 6, which we discussed.

We are fairly sceptical about there being any cases as a result of the provision. The recalcitrant owner who does not want to pay up will not have a defence. Presumably, there might be an exchange of solicitors' letters but at some point along the line the recalcitrant owner will receive advice that he has no defence. Therefore, it must be doubtful that the recalcitrant owner would take the matter to court.

There might be particular local circumstances. For example, if the recalcitrant owners have not just one individual property but large numbers of properties in a certain area, they might find themselves faced with large bills and so decide that it would be worth spending money to try to fight the cases in court.

Would such owners be majority owners within a tenement?

No.

In that case, the fact that they owned a large number of tenement properties would not necessarily persuade them to go to court because each court case would be concerned with an individual tenement. In each case, they would be likely to lose if they went to court.

The bill requires all flat owners to insure against a list of risks. How will those insurance requirements be monitored and enforced? What penalties will be applied to people who do not comply with them?

Enforcement rights will lie with the other owners, who will be allowed to ask to see their neighbour's insurance policies and evidence that the premiums for those have been paid. Although the Executive and the housing improvement task force—which fed in its thoughts as the bill was drawn up—considered other methods of enforcement, we concluded that enforcement should be left with the other owners because it was difficult to conceive of an external body knocking on people's doors in tenement blocks to demand proof that people had kept their insurance premiums up to date and that they had insured themselves to the right levels. Local authorities would have been an obvious enforcement body, but that would have placed a very onerous duty on them.

Although it might happen, I find it unlikely that people would begin close meetings by asking to see one another's insurance policies to find out whether they have been paid for. On a linked issue, is there any provision in the bill for enforcing payment of repairs by those tenants who were against the repairs being carried out?

Could you repeat the question? I did not quite hear it.

Is there any provision in the bill for enforcing payment for repairs by those owners who were against the repairs being carried out, or is that a matter for the other owners?

That is as has been discussed: a crunch decision would have to be made when the funds were gathered for a repair. If a majority decided to go ahead with a repair, they would demand payment from those who did not agree with it. Eventually, after pursuit through solicitors' letters and so on, that might lead to a court case, but it is very much to be hoped that things would not go that far.

Was consideration given to the possibility of some small court dealing with problems in tenements, as opposed to people having to take such issues into the mainstream court system?

Consideration was not given to referring matters to a small court as such. However, consideration was given to the possibilities of arbitration or mediation. The Executive is very much in favour of mediation being used in such disputes. Consideration was given to including a provision on mediation, so as to encourage people to engage in a mediation process before the matter reached the sheriff court.

It has been decided, however, that it would be better to approach mediation in a more generic way. Tenement disputes are only one of a number of types of civil dispute. The intention is to encourage mediation through, for instance, the training and accreditation of mediators, through a cross-sectoral approach. It is hoped that that will be developed, although not through the Tenements (Scotland) Bill. One possibility that is being considered is that of sheriffs, in considering cases, taking into account whether a mediation process has been gone through before making an award of costs.

Did you consult registered social landlords in advance of the publication of the bill and the financial memorandum?

I do not know that we consulted registered social landlords.

We consulted local authorities and the Scottish Federation of Housing Associations. We sent consultation papers to most of the people who received the final report of the housing improvement task force. A lot of those people will be registered social landlords.

There are many tenement properties in my constituency that an RSL might own, although they might form the minority of owners in a tenement. The RSL could be compelled to carry out repairs but, as we know, they have finite resources. One outcome of the bill might be that social landlords, rather than private landlords, may have to contribute to repairs. Such repairs would be separate from landlords' business plans for the repair and development of their own properties. That is why I asked the question.

The bill contains some safeguards for RSLs. First, the bill defines "maintenance"—it is not just what people might think would be nice to do. Secondly, improvements are specifically excluded from the tenement management scheme. It is more that necessary repairs and maintenance are covered.

I am grateful for the evidence that has been provided, as I have found it to be useful in understanding a bit more about the bill's purpose and the methodology.

In the financial memorandum, costs are based on an estimate of 50 new cases a year. However, the precise wording in the memorandum is:

"If there are any more additional actions arising under sections 5 and 6, we do not believe that there will be more than 50 new cases per annum."

Would it be reasonable to say that you think that a significant use of the new remedies will be unlikely because the difficult hurdles that you have described must be overcome in order for someone to have any prospect of success? If so, would it also be reasonable to say that there may be rather fewer than 50 cases and that the costs will consequently be less than the modest figures that are given?

That is right. We think that the number of cases that will be pursued under sections 5 and 6 will be small. That does not mean that we think that the bill will not be a useful tool—we hope that its general policy and the general purposes behind it will be used.

I understand that the bill will have useful functions.

I have a final question. The financial memorandum estimates that 10 per cent of tenement flats in Scotland are uninsured, which is a rather frightening figure if one thinks of 10 per cent of 800,000. If such a flat is destroyed, the owners will probably find themselves with a mortgage, but without a capital asset. Is the Executive satisfied that no tenement flats that belong to any local authority or other public body are uninsured?

We have consulted the Convention of Scottish Local Authorities about the position of local authorities. There has not been a completely full response, but I think that 28 of the authorities have responded and have indicated that they insure their properties, although in some cases there is an excess, which varies from authority to authority.

I am not sure about the position in relation to other public bodies. I think that the Crown is excluded from the bill and that the normal practice is for the Crown to cover its buildings and possessions by indemnity.

It occurred to me that some local authorities' flats could form part of the 10 per cent and may be uninsured, unless the authorities have a block policy arrangement that applies to all the properties that they own, as opposed to each particular property being specifically endorsed and identified in the policy. I thought that, as the point arose, it might be useful to obtain an assurance from the Executive—if not now, then later—that no local authority property of a tenemental nature is uninsured.

We are certainly pursuing the question of comprehensiveness with COSLA. However, as I said, there has not been a complete response. The figure of 10 per cent is based on evidence that we received from the Association of British Insurers.

Ted Brocklebank will ask the final question.

Would you be good enough to guide us through some of the legal aid implications that are involved? I think that the estimated costs were associated with an additional five cases being granted legal aid per year, but in evidence to the committee, the Scottish Legal Aid Board has questioned whether the number of cases would amount even to five. I think that the point that it made is that an application for legal aid may be considered alongside the financial situation of all the others who are concerned in the block. It follows that if only one flat owner in a tenement is eligible for legal aid, that aid might not be granted and the total costs would fall on the other owners in the tenement, which might turn out to be a disincentive for making use of the bill. Extra costs might be involved for the majority of the flat owners.

I am not really qualified to speak about eligibility for legal aid—I think that you have already spoken to the legal aid people. I hope that the possibility of court costs—and legal costs in general—would not act as a disincentive to people using the bill for its policy purposes. If a majority were to decide to go ahead with a repair, the minority would have no defence in law, and that would itself act as a disincentive to the minority taking legal action to pursue the matter.

The bill's intention is to make it easier for repairs to go ahead in tenements, by virtue of majority decision taking. It is not envisaged that it would lead to a great increase in legal actions and it is to be hoped that the question whether some people in a tenement might have to pick up the tab if others could not qualify for legal aid would not hinder the bill's policy objectives in any way.

My point was that those who initiated legal action but who were not awarded legal aid and would therefore not be responsible for paying for the action might inflict that legal action on the majority, who might decide not to go to law over the matter because of the costs. That might lead to tensions in a block.

Under the bill, the decision to sue would not be a scheme decision. It would be for each owner, not the majority, to decide how to pursue the rights and obligations that the bill would confer. Most tenements currently have schemes of burdens that confer rights and obligations which, as far as I am aware, do not generate a huge amount of litigation. We hope that the bill, by clarifying rights and obligations, would in some cases reduce the scope for litigation.

On behalf of the committee, I thank the witnesses for coming along to answer our questions.