Agenda item
Any Unrestricted Decisions "Called in" by the Overview & Scrutiny Committee
(Under provisions of Article 6 Para 6.02 V of the Constitution).
The following item has been “called in” for further consideration by the Overview and Scrutiny Committee at its meeting to be held on 7th March 2011. Should the Overview and Scrutiny Committee, upon consideration, refer the item back to the Cabinet for further consideration Members will receive a copy of the report and the decision/ recommendations of the Overview and Scrutiny Committee at the Cabinet meeting.
(i) Leasehold Policy Review (CAB 080/101).
Decision:
5.2(i) Cabinet Decision “Called in” Leasehold Policy Review (CAB 103/101)
Councillor O. Ahmed(Deputy Mayor) declared a personal interest in Agenda item 5.2 (i) “Any Unrestricted Decisions ‘Called in’ by the Overview & Scrutiny Committee - Cabinet decision ‘Called in’ - Leasehold Policy Review”. The declaration of interest was made on the basis that the referral, by the Overview and Scrutiny Committee held on 7th March 2011, of the provisional decision of the Cabinet, made on 9th February 2011 in relation to the Leasehold Policy Review report (CAB 080/101), to Cabinet for further consideration contained recommendations relating to the Authority’s Leasehold Policy and Councillor Ahmed was an LBTH Leaseholder.
Reference from the Overview and Scrutiny Committee, held on 7th March 2011, Tabled by the Chair of the Overview and Scrutiny Committee.
Response of Corporate Director Development and Renewal to the reference from Overview and Scrutiny Committee, held on 7th March 2011, Tabled.
Resolved
1. That the advice /comments of the Overview and Scrutiny Committee, as detailed in the Tabled Reference (CAB 103/101) be noted;
2. That the provisional decision of the Cabinet, made on 9th February 2011, in relation to the Leasehold Policy Review report (CAB 080/101) be reaffirmed;
3. That the Corporate Director Development and Renewal be instructed to examine the final report of the Beevers and Struthers independent audit of leasehold service charges, upon its publication, to identify any implications arising in respect of the Authority’s Leasehold Policy and to bring forward any appropriate revisions to this Policy for Cabinet consideration; and
4. That Corporate Director Development and Renewal, after consultation with the Assistant Chief Executive (Legal Services), be instructed to examine the basis and rationale for any differential charging of leaseholders by Registered Social Landlords, also the mechanism by which any costs were absorbed/ redistributed, and the scope for the Authority to act similarly at a future point.
Action by:
CORPORATE DIRECTOR – DEVELOPMENT & RENEWAL (A. DALVI)
Service Head, Strategy, Innovation & Sustainability, Development and Renewal (J. Odunoye)
Minutes:
5.2(i) Cabinet Decision “Called in” Leasehold Policy Review (CAB 103/101)
Councillor O. Ahmed(Deputy Mayor) declared a personal interest in Agenda item 5.2 (i) “Any Unrestricted Decisions ‘Called in’ by the Overview & Scrutiny Committee - Cabinet decision ‘Called in’ - Leasehold Policy Review”. The declaration of interest was made on the basis that the referral, by the Overview and Scrutiny Committee held on 7th March 2011, of the provisional decision of the Cabinet, made on 9th February 2011 in relation to the Leasehold Policy Review report (CAB 080/101), to Cabinet for further consideration contained recommendations relating to the Authority’s Leasehold Policy and Councillor Ahmed was an LBTH Leaseholder.
The Chair informed members of the Cabinet that:
· Councillor Jackson, Chair of the Overview and Scrutiny Committee, had Tabled a reference (CAB 103/101) arising from the deliberations of the Overview and Scrutiny Committee (OSC), held on 7th March 2011, in respect of the provisional decision of the Cabinet, held on 9th February 2011, made in relation to the report “Leasehold Policy Review” (CAB 080/101), a copy of which would be interleaved with the minutes.
· A detailed response to the matters raised by the Overview and Scrutiny Committee in the tabled reference regarding this agenda item, had been Tabled by the Corporate Director Development and Renewal, a copy of which would be interleaved with the minutes.
Councillor Jackson, Chair of the Overview and Scrutiny Committee, addressed members of the Cabinet in relation to the tabled reference of the OSC (CAB 103/101), and requests contained therein, summarising the key reasons for “Call In”, highlighting focal points of the further deliberation of this matter by the Committee and its conclusion to refer the provisional decision of the Cabinet regarding this matter back to the Cabinet for further consideration.
· Summarised 3 key reasons for the “Call In”:
o That the proposed revisions to the Authority’s Leasehold Policy were not aligned with the report of the Beevers and Struthers Independent Audit of leasehold service charges, which had yet to be finalised and signed off.
o Fundamental changes were proposed to the Authority’s Leasehold Policy whereby leaseholders on the ground floor will start becoming liable for the costs of day-to-day maintenance and replacement of lifts and door entry systems. Also, leaseholders who succeeded in having a component exempted from major works would nevertheless be recharged a share of the preliminaries, professional and management fees arising from the major works contract.
o Non-publication of the Counsel’s Legal Opinion obtained by the Authority (the basis for the legal advice in the February Cabinet report that the proposed changes to the Leasehold Policy were necessary), to help inform the decision making process.
· Commented in relation to the response of the Corporate Director Development and Renewal to the referral of the “Call In”/ associated reference (CAB103/101):
o That it indicated policy changes required agreement by Cabinet in March in order for changes to the way leaseholder charges were calculated (including those for ground floor leaseholds) to be included in the 2011/12 estimates. The OSC had not understood this from the response to the “Call In”, made at their meeting on 7th March 2011, and it should have been drawn to their attention more clearly. The non-alignment of policy changes with the independent audit report was therefore a timing issue and confirmed that the changes were being rushed through.
o That it confirmed the concerns of residents and members of the OSC with regard to consultation with leaseholders and the effectiveness of this considering given a number of respondents complained about the consultation process. The OSC had noted that a copy of the report from the consultation had not been provided for Cabinet consideration in February, when the provisional decision regarding the policy changes had been made, and therefore the decision was flawed as it was not fully informed by all the information available.
o That it confirmed the concerns expressed by members of the OSC at their meeting, that the Counsel’s Legal Opinion regarding this matter had not been made available to members of Cabinet or OSC, and therefore could not be fully scrutinised nor fully taken into consideration when the Cabinet reached their decision.
· Concluded that members of the OSC were very concerned by the fundamental changes proposed in the new Leasehold Policy and commending that the Cabinet reconsider and set aside their previous decision, and instead took the alternative course of action set out in the tabled report of the OSC, summarised as follows:
o Ensure changes to the Leasehold Policy were aligned with the Beevers and Struthers Independent Audit of leasehold service charges.
o Commit to further consultation with leaseholders and councillors regarding the proposed changes to the policy.
o Ensure that the Counsel’s legal opinion regarding this matter was published.
Also sought clarification as to whether a decision could be made by Cabinet later in the month at an extraordinary meeting.
Ms Odunoye, Service Head Strategy, Innovation and Sustainability Development and Renewal, and Ms Freeman, Assistant Chief Executive (Legal Services), at the request of the Chair, also addressed members of the Cabinet in relation to the matters raised by the OSC in the tabled reference and also the tabled response to this from the Corporate Director Development and Renewal, highlighting key points as follows:
· Councillor Rabina Khan, Cabinet Member for Housing, had pledged at the meeting of the OSC on 7th March to revisit the revised Leasehold Policy once the Beevers and Struthers Independent Audit of leasehold service charges had been finalised and also to consult on any further necessary changes. The majority of the recommendations in the draft Beevers and Struthers audit report related to service delivery issues which were outside the scope of the policy review. Of those that related to policy issues, most had already been included in the review and of those not included only 1 related to the issues in paragraphs 9.1 and 9.5 of the February Cabinet report, which were the key elements of concern prompting “Call In”. Once the independent audit report was finalised Officers would examine the Leasehold Policy in this context and would bring forward any necessary changes.
· It was important that leaseholders were charged correctly, in accordance with their lease, and the policy review had focused on delivering a robust set of policies that properly reflected existing lease agreements. It was also important that the Authority collected the money due from leaseholders otherwise the Housing Revenue Account would bear the cost and that ultimately resulted in a cross subsidy by tenants.
· Advising that service charge estimates were normally issued to leaseholders at the end of March each year, and if the revised Leasehold Policy were not agreed by the Cabinet at this point, the next time the Authority’s leaseholders could be billed on that basis would be March 2012. Ms Odunoye apologised if that had not been made clear to the OSC at their meeting on 7th March 2011.
· Confirming, in response to a public question earlier in the proceedings, that if Cabinet agreed the revised Leasehold Policy the charges associated with the revisions would be included in the 2011/12 Service Charge Estimates issued to leaseholders. Ms Odunoye apologised if any members of staff had informed the member of the public otherwise.
· Advising that all legal opinion was privileged and not for publication, as it was copyright to the Counsel. The Chief Legal Officer advised the Authority and this legal advice to the Authority had been published in the February Cabinet report. An offer was made at the meeting of the OSC on 7th March 2011 to circulate a briefing note based on the Counsel’s opinion and this was currently being prepared.
A discussion followed, during which the proposals in the reference from the OSC were rejected, and which focused on the following points:-
· Councillor Rabina Khan, Cabinet Member for Housing:
o Stated that it was her intention that the Beevers and Struthers Audit Report be finalised as soon as possible, and gave an assurance that she intended to reconvene the cross party project working group by the end of March with a view to achieving this. Councillor Khan apologised for the delay.
o Reaffirmed her commitment to revisit the revised Leasehold Policy once the Beevers and Struthers Audit Report had been finalised, to ensure the policy appropriately reflected the recommendations of the independent audit.
o Commented that the recent Audit Commission Inspection of Tower Hamlets Homes (THH), resulting in a two star rating, had noted in a little noticed paragraph that current Council policy meant THH was not charging ground floor leaseholders the full costs as outlined in their lease, with a resulting loss of income, and this should be addressed.
· A Labour Group councillor and signatory to the requisition “Calling In” the provisional decision of the Cabinet in respect of the Leasehold Policy Review, speaking with the consent of the Mayor and Cabinet commented that:
o The amendment to the recommendations contained in the report to February Cabinet, proposed by the Cabinet Member for Housing and agreed by the Mayor, in relation to retaining a discretionary £10,000 cap on major work recharges for some leaseholders had been welcomed by Councillors “calling in” the decision and the key role played by the Lead Member should be acknowledged.
o The Cabinet should reconsider the changes to the Leasehold Policy which meant leaseholders on the ground floor would become liable for the costs of day-to-day maintenance and replacement of lifts and door entry systems even if they did not access such facilities. It should also re consider the changes which meant that leaseholders who succeeded in having a component exempted from major works would nevertheless be recharged a share of the preliminaries, professional and management fees arising from the major works contract. For example being charged for scaffolding and fees where they derived no benefit. The councillor considered the new charges were inappropriate.
o That the Counsel’s Legal Opinion obtained by the Authority (the basis for the legal advice that the proposed changes to the Leasehold Policy were necessary) should have been made available to councillors and the public to inform their consideration and decision making in February and certainly to inform reconsideration of the matter in March. The promised briefing note based on the the Counsel’s Legal Opinion should have been made available for reconsideration of this matter.
o The decision of the Mayor and Cabinet to retain the discretionary £10,000 cap on major work recharges for some leaseholders demonstrated that the proposed changes were policy decisions not a matter of law. The Cabinet could set aside their previous decision and stop the changes which would drive leaseholders into poverty.
o There were serious concerns about the consultation undertaken with leaseholders regarding changes to the policy.
o In conclusion the previous decision of the Cabinet was unfair and based on incorrect advice.
· Clarification/ assurance was sought and given regarding the number of ground floor leasehold properties that were sub-let and the number still owned by the original purchaser; and also whether the Authority could legally distinguish between commercial leaseholders and original purchasers.
· The Assistant Chief Executive (Legal Services) commented/ that councillors were welcome to read the Counsel’s Legal Opinion referred to in the discussion in her office, but this could not be published more widely as it was copyright to the Counsel that wrote it. The briefing note based on the Counsel’s Legal Opinion had only been requested at the OSC held on the evening of 7th March and this was being prepared now.
· Clarification/ assurance was sought and given as to whether the decision taken by the Authority’s Housing Committee in 1998, in relation to the Leasehold Policy and charging of leaseholders had been lawful: The Authority could not lawfully choose not to collect service charges contained in its leases.
· Clarification/ assurance was sought and given that the cap on major work recharges for some leaseholders was discretionary and therefore the Authority had the legal power to impose it. Service charges for lifts and door entry systems were however part of the legal obligations contained in the lease agreement and associated Right to Buy documentation (effectively a contract) between the Authority and the purchaser of the lease. If the Authority wanted to change the lease this would require consent of all leaseholders in the block and was very unlikely to be obtained from those leaseholders impacted by redistribution of the costs. Were the costs not redistributed amongst the leaseholders in a block or estate the Housing Revenue Account would bear the cost of income not collected, and the Authority had a fiduciary duty which made that unlawful. The Chief Finance Officer would advise if asked that it was not appropriate for the General Fund to bear such costs.
· A Labour Group councillor and signatory to the “Call In” requisition, speaking with the consent of the Mayor/ Cabinet, commented that:
o The comments of the Solicitor tor the Council contained in the 1998 committee report on this matter stated that the proposed decisions were lawful, and if the current Chief Legal Officer did not concur with this opinion the rationale for that difference of opinion should be explained.
o The “Call In” requisition requesting the publication of the Counsel’s Legal Opinion had been submitted 3 weeks before the meeting of the OSC on 7th March, and he considered that it had been intentionally withheld.
o Registered Social Landlords (RSLs) such as Tower Hamlets Community Housing distinguished in its charging between original purchasers of a lease and those sub-letting and the leases were inherited from the Council, and often the Greater London Council before that, as were the Authority’s leases.
· The Mayor requested that Officers ensure that any reasonable requests for information allowing for more transparent and informed consideration/ decision making be addressed as soon as possible.
· A Labour Group councillor, speaking with the consent of the Mayor and Cabinet, commented that Old Ford Housing Association distinguished between leaseholders on the ground floor and others when apportioning costs for service charges. It also treated initial and subsequent purchasers differently in relation to the deferred payment of major works costs. A detailed discussion ensued during which the Assistant Chief Executive (Legal Services) clarified that there were differences between the Authority and RSLs as to the course of action they could lawfully pursue in this regard. The basis for this related to RSLs being constituted differently with individual Memorandum of Understanding and Articles of Association. Also trusts were permitted to absorb some costs whereas the Authority was not. The Authority was required to operate an HRA with a balanced budget. The deferral of major works costs was based on statutory deferral which allowed the original payment to be delayed and the Authority allowed this too.
The Mayor:
· Thanked the public and Labour Group councillors for their contribution to the discussion, commenting that this had been a contentious area for some years and his Administration was now being asked to make a policy decision that had been outstanding for some time.
· Considered, whilst acknowledging that the Authority was different in many ways to Registered Social Landlords, that it was appropriate in the context of points raised in the discussion that officers examine the basis and rationale for any differential charging of leaseholders by Registered Social Landlords, also the mechanism by which any costs were absorbed/ redistributed, and the scope for the Authority to act similarly at a future point.
· Also considered it appropriate in the context of points raised in the discussion that officers examine the final report of the Beevers and Struthers independent audit of leasehold service charges, upon its publication, to identify any implications arising in respect of the Authority’s Leasehold Policy and to bring forward any appropriate revisions to this Policy for Cabinet consideration.
Accordingly Moved the recommendations as set out in the report, together with the two additional recommendations (detailed at resolution 3 and 4 below) for the consideration of members of the Cabinet; and it was: -
Resolved
1. That the advice /comments of the Overview and Scrutiny Committee, as detailed in the Tabled Reference (CAB 103/101) be noted;
2. That the provisional decision of the Cabinet, made on 9th February 2011, in relation to the Leasehold Policy Review report (CAB 080/101) be reaffirmed;
3. That the Corporate Director Development and Renewal be instructed to examine the final report of the Beevers and Struthers independent audit of leasehold service charges, upon its publication, to identify any implications arising in respect of the Authority’s Leasehold Policy and to bring forward any appropriate revisions to this Policy for Cabinet consideration; and
4. That Corporate Director Development and Renewal, after consultation with the Assistant Chief Executive (Legal Services), be instructed to examine the basis and rationale for any differential charging of leaseholders by Registered Social Landlords, also the mechanism by which any costs were absorbed/ redistributed, and the scope for the Authority to act similarly at a future point.