Leasehold Reform (Ground Rent) Bill [HL]
Wednesday 12th May 2021
(2 years, 11 months ago)
Lords ChamberRead Full debate Leasehold Reform (Ground Rent) Act 2022 Read Hansard Text
Leasehold Reform (Ground Rent) Bill [HL]
Wednesday 9th June 2021
(2 years, 10 months ago)
Grand CommitteeRead Full debate Leasehold Reform (Ground Rent) Act 2022 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 1-II Second marshalled list for Grand Committee - (9 Jun 2021)
Lord Blencathra
Lord Blencathra (Con) [V]
My Lords, I will, for a change, be very brief, not least because there are a number of amendments in this group in the name of my noble friend Lord Young of Cookham which give a practical way forward and are far superior to mine. I declare a personal interest as someone who pays £602 ground rent per annum on my London flat. While that is a disgraceful rip-off, for no services given, it pales into insignificance compared to the horror stories I heard at Second Reading about leaseholders hit with escalating ground rents running to tens of thousands of pounds.
At Second Reading, I attempted to use mockery to draw attention to the fact that the English leasehold and ground rent laws are an absolutely prehistoric abomination which should not exist in a top G7 country these days. I also said that I fully support this Bill and will do nothing to hold up its becoming law. The only problem is that it does not go far enough and does not deal with the injustices for all those caught up in the current ground rent racket. The peppercorn rent solution, ridiculous though that term now is, does in fact give justice to all future leaseholders, and I welcome that. Amendments 1, 2 and 11 simply apply that same just principle to the current racket. If it is right and just that all future leaseholders, who have not lost a penny, are protected from this evil racketeering, then surely it is far more important to deliver justice to all those who are being ripped off at present, some for extortionate sums, as the House heard at Second Reading. Amendments 1 and 2 simply say that all current ground rents will become peppercorn rents, just as the Bill does for future rents. Amendment 11 offers an alternative, setting a ceiling on the amount which may be demanded in ground rent per annum and giving a refund to leaseholders who are being ripped off by ground rents above £1,000 per annum.
I suspect that my noble friend the Minister will say that this is a very complicated subject, that the Government are working on solutions and that we will see the full details next year in the leaseholders Bill. I accept that my amendments take an absolutist, purist approach, but I do like the detailed, sensible amendments tabled by my noble friend Lord Young of Cookham, which may offer a compromise—letting leaseholders buy their freedom. As my noble and learned friend Lord Mackay of Clashfern will confirm, since he is a far better scholar of ancient Roman law than I ever was, in ancient Roman times slaves could buy their freedom, but very few could afford to buy their manumission. Most were freed by testamentary manumission—that is, in the will of their master—and Caesar Augustus regulated the system. So I call on my noble friend the Minister to become the new Caesar Augustus and set free the millions of leaseholders still paying their salarium.
If the Minister cannot accept my amendments, I would like to hear exactly what is wrong with Amendments 7, 8, 12, 17 and 18, proposed by my noble friend Lord Young of Cookham and Amendment 5 in another group, in the name of my noble and learned friend Lord Mackay of Clashfern. They seem to me to be an excellent way to remove this 800-year-old injustice, bring justice to leaseholders and not deprive freeholders of some of their entitlements. I beg to move.
Lord Young of Cookham (Con)
My Lords, I will speak to Amendment 12 and its consequential Amendments 7, 8, 17, 22 and 23. Their effect is broadly the same as Amendments 1 and 2, in the name of my noble friend Lord Blencathra, whose speech I commend. Whereas he was able to express himself in four lines, I am afraid that my amendments have taken up four pages. The amendments also achieve the same as Amendment 5, which we will come to later, in the name of my noble and learned friend Lord Mackay. However, his amendment reserves all the detail set out in mine to the discretion of the Secretary of State, in regulations, and is time-limited. The amendments standing in my name, if accepted, would give a right to buy out ground rents for ever, beginning on 1 January 2023.
As my noble friend Lord Blencathra has just said, the Bill as drafted applies only to future leases, coming into force on such a day as the Secretary of State may appoint by regulations. It does nothing to help existing leaseholders or anyone who buys a lease with a ground rent before the commencement date, but it is government policy that existing leaseholders should have the right to buy out their ground rents. I refer to the Written Statement by the Secretary of State on 11 January this year:
“I am confirming that the Government will give leaseholders of all types of property the same right to extend their lease as often as they wish, at zero ground rent, for a term of 990 years.”
Later comes the crucial commitment:
“We will also enable leaseholders, where they already have a long lease, to buy out the ground rent without the need to extend the term of the lease.”
The obvious question for the Minister, raised by these amendments, is why the Leasehold Reform (Ground Rent) Bill does not deliver government policy on ground rents. Why should we have to wait for the next piece of legislation to honour the commitment? On waiting for promised legislation, I am once bitten, twice shy. As Opposition spokesman in another place, when the hereditary Peers were removed, I was assured by the then leader of the House that stage two of House of Lords reform would be in place for the first round of elections to your Lordships’ House, by 2001. Twenty years on, I am still waiting.
There is still no firm commitment from the Government on when the Bill will come into force and, the longer the Government leave setting a date, the greater the risk that new monetary ground rents will continue to be created. The Government could stop this by indicating even a provisional date for this legislation to come into force, which would shift the bargaining power in favour of prospective purchasers of leasehold properties. That is why Amendment 22, in my name, prescribes a date of 1 January 2023 for this right to buy out ground rents to come into force.
The case for giving existing leaseholders this right was well made by the Law Commission. They took head on the counterargument that this right is unnecessary because leaseholders can extinguish the ground rent by extending their lease. I quote from Law Commission paper 387, entitled Leasehold Home Ownership: Buying your Freehold or Extending your Lease. Paragraph 3.63 of the consultation paper states:
“we explained that the 1993 Act right to a lease extension has been criticised for requiring leaseholders simultaneously to extend the term of their lease (and therefore pay the landlord for the deferral of the reversion) and to extinguish the ground rent (and therefore pay the landlord the value of the remainder of the original term). We noted suggestions that leaseholders should be able to choose between extending their lease, extinguishing their ground rent, or both, in order to reduce the premium payable on the lease extension.”
The paper continued:
“Support for the introduction of a right to extinguish the ground rent under a lease without extending the lease (whether alone, or together with the right discussed immediately above) was widespread. Consultees who supported this option included various professional bodies, the majority of commercial freeholders, a majority of firms and individual professionals, and a significant majority of leaseholders and other individuals.”
I continue to quote from the report, which states:
“Generally, consultees’ reasoning for supporting a right to extinguish the ground rent without extending the lease focussed on the predicament of leaseholders who are subject to onerous or doubling ground rents in long or very long leases. Both professionals and leaseholders explained that these leaseholders have no need to extend their lease term (which may be as long as 999 years), but wish to buy out their ground rent before it becomes onerous, and/or to make their property saleable. It was said to be ‘pointless’ to require them to claim an extended lease term purely to solve this problem.”
The report goes on to say:
“Several consultees considered that, given the forthcoming ban on ground rents in the majority of new leases, the right to extinguish ground rent in an existing lease (which is very long and does not require extending) would help to avoid the creation of a ‘two-tier’ market, consisting of leases with ground rent and those without. This argument was most persuasively made by a number of leaseholders from 1 West India Quay Residents’ Association. Pointing out that media coverage of the ground rent scandal has led prospective buyers to scrutinise ground rent obligations much more closely, Antonio De Gouveia wrote: ‘If Government is to cap or eliminate ground rents on new leases (which we think they will do), then there is even more reason for new legislation from the Law Commission to enable all leaseholders in our building to buy out their ground rent (onerous or not)’.”
I note in passing that the point about a two-tier market was made in the helpful briefing for the Bill from the Law Society. This all led the commission to its conclusion in paragraph 3.108:
“We recommend that leaseholders who already have very long leases should be entitled to extinguish the ground rent payable under their lease without also extending the term of the lease.”
My amendments deliver that. They have been drafted so that costs are kept to a minimum. No valuation is required because proposed subsection (6) of Amendment 12 sets out the terms, based on Law Commission examples. There is no prejudice to enfranchisement rights and timescales are set out to prevent any delay by the freeholder.
My amendment also addresses a different complaint raised by the Law Commission, namely that the current process for statutory leasehold extensions is too long and cumbersome. Landlords have options to game the system to make it as difficult as possible for leaseholders to exercise their rights. Look at paragraph 2.23 of Law Commission report 392.
My Amendment 12 therefore seeks to give effect to the Law Commission’s recommendations for simplification by proposing a straightforward way in which to buy out monetary ground rents without the need for notice and counter-notice, as exists under the current legislation. There will be nowhere for unscrupulous landlords to hide if the approach suggested in this group of amendments is adopted.
My Amendment 17 provides for the First-tier Tribunal to have jurisdiction in dealing with any issues arising from the exercise of the rights given by Amendment 12 and mirrors the provisions in Clauses 13 and 15. Amendment 12 goes further, in that it would also permit the tribunal at its discretion to award damages to a tenant denied rights to buy out a monetary ground rent, which is intended to serve as a deterrent to landlords denying such rights. Amendment 22 brings in the commencement date of 1 January 2023, giving those involved time to make the necessary preparations. Amendment 23 is consequential.
Why not use the Bill to give an option to millions of existing leaseholders, rather than wait for another Bill that deals with ground rents? There is no disagreement on policy, and here we have the vehicle. I await the response from my noble friend the Minister and hope that he will set the tone for this Committee by looking favourably on this first group of amendments.
Lord Stunell (LD) [V]
My Lords, I shall speak in particular about Amendment 1, and the consequential amendments tabled by the noble Lord, Lord Blencathra. It was great fun to listen to him on Second Reading, with his eloquent flow sweeping away the whole caboodle of leasehold legislation and starting again from square one. That was spoken like a true reformer and radical, which, in his heart, I know he is.
Today the noble Lord was a bit more circumspect, but no less radical, with amendments that would not just reform the system but abolish it completely, starting on day one. That is an attractive proposal, especially to leaseholders—but even more so to lawyers. If implemented as drafted, it would leave a trail of wreckage that should keep lawyers employed for many a long year.
However, I suspect that, as befits a former Chief Whip in the other place, the noble Lord has carefully done his homework behind the scenes. No doubt he has had a word with the Minister and secured a commitment to bring back a government-led amendment on Report to comprehensively reform the entire leasehold regime and implement the recommendations of the Law Commission, and in the meantime to freeze the granting of lease extensions on grossly inequitable terms. If that is so, my noble friends and I will be ready add our names to that amendment, when it comes along.
However, perhaps the noble Lord’s quiet chat with the Minister did not go quite as well as he had hoped, and no such agreement was forthcoming—which may be why today he deferred to the amendments tabled by the noble Lord, Lord Young. Among those, Amendment 12, in particular, sets out in impressive detail a somewhat equivalent plan, as the noble Lord, Lord Young, has just spelt out. At first reading, that amendment would seem to provide less of a free lunch for lawyers than Amendment 1 would, and it is sensible, measured and proportionate, as one would expect from the noble Lord.
In his explanatory statement, the noble Lord describes Amendment 12 as a probing amendment. We certainly welcome that probing of the Government’s position and intentions. We too are concerned by the slow pace of reform, and the fact that the current Bill does nothing for existing leaseholders. Instead, the Government are offering jam tomorrow—or possibly the day after tomorrow—for current leaseholders. At least the noble Lord’s amendments offer us a sniff of jam today. I would encourage the Minister, in his reply, to explain fully to us exactly when he will come back with clear plans to achieve the reforms that the noble Lord has already drafted for him. I thoroughly endorse the noble Lord’s concerns about the gaps that could open up.
We should remember that leaseholders’ organisations desperately want this Bill in place, and the Liberal Democrats support their intentions. There should be no delay in its passage. But the Minister owes it to those leaseholders to commit to delivering a comprehensive reform in the shortest possible time. That is not only the right and equitable course of action, but the best way of avoiding disruption to the market.
The noble Lord, Lord Young, referred to the Law Society’s briefing on the Bill. I draw noble Lords’ attention to the Law Society’s belief that leasehold purchasers and their mortgage providers will, understandably, steer clear of taking out leases under the existing legal framework if they can find a much more favourable lease elsewhere in the market, under the new terms in the Bill. That means that existing leaseholders who are trying to sell will be put at a double disadvantage—not only having to pay outlandish charges but having more difficulty in selling their homes than if they had benefited from the new terms.
That risk to a stable market gets worse the longer the second stage of the reform is delayed. Perhaps the fact that that the noble Lord, Lord Young, referred to hereditary Peers’ legislation speaks to that foreseeable risk of endless delay. Two experienced senior members of previous Conservative Governments have tabled amendments in very similar terms to try to pre-empt that delay—which may be some kind of hint that they lack trust in the Government’s commitment to deliver on the second stage. In the Minister’s reply we need to hear exactly when he, as the responsible Minister, and the Government he represents, will bring forward that follow-up legislation, which we believe is now a pressing priority.
Lord Naseby (Con) [V]
My Lords, I apologise that I was not able to take part at Second Reading. Some of your Lordships know that my wife was taken very ill with Covid—in fact, we nearly lost her—and I decided to take her away for a rest. I am pleased to say that she is now pretty well.
There are a couple of interests that I ought to declare. I am a vice-chairman of the Shared Ownership Housing APPG. I have taken a particular interest in care homes, so I will be addressing the Committee on Amendment 4. My friends know that I was chairman of the housing committee in the London Borough of Islington from 1968 to 1971, when there was a fair number of lease challenges. Finally, I say to my noble friend on the Front Bench that I welcome the principle behind the Bill and thank Her Majesty’s Government for actually moving things forward.
I do not want to speak for very long on any of the amendments. I understand my roommate’s enthusiasm, which he has for everything in life, and he does cut through the rubbish, usually. It is nice to see someone cut through, bearing in mind that this is a pretty revolutionary Bill to start with. That is one end of the spectrum, and that covers Amendments 1 and 2. The noble Lord, Lord Young of Cookham, went into it in great detail. I read with great care what he said at Second Reading and the Government would do well to do the same—I am sure they must have done. He covered what might well be in the next Bill. It should be looked at extremely seriously.
I am concerned—I wrote it down before the noble Lord spoke this afternoon—about the position of existing leaseholders when they come to sell. I think that is a fair question, which the Labour Front Bench raised. That problem will be there unless some action is taken. It certainly cannot wait until the second half of this problem is dealt with in another Bill.
One other area concerns me: the situation, which is not uncommon, particularly in the provinces—I am speaking today from Sandy in Bedfordshire—where a landlord offers a 25-year lease on a residential property at a market or rack rent. That is pretty common in mixed-use scenarios; for example, a shop with a flat above, where the owner wants the commercial and residential parts to be leased out concurrently. In those sorts of circumstances, it seems—some would say absurd but that might be going too far—unusual and strange to expect just a peppercorn rent when a lessee is getting the benefit of living in or renting out the property.
The amendments in this group are absolutely crucial and I too look forward to the Minister’s response.
The Deputy Chairman of Committees (Baroness Healy of Primrose Hill) (Lab)
I call the next speaker, the noble and learned Lord, Lord Mackay of Clashfern. Lord Mackay, could you unmute, please? I will move on to the next speaker, the noble Baroness, Lady Grender.
Baroness Grender (LD)
My Lords, the debate so far has underlined the urgent need for reform across the entire leasehold sector and has reflected some of the strongly made arguments at Second Reading. In particular, many of the amendments are about the 4.5 million current leaseholders who are still captured by this unfair legacy and the failure to shift to commonhold, initiated in the 2002 Act.
I start by taking this opportunity to thank the Minister for discussions in advance of Committee and to stress our strong support for the Bill’s intentions. Its primary purpose is to chop off the head of the snake: the continuing supply of investment opportunities for freeholders on which they can base their borrowing for the next batch of unsuspecting leaseholders. I therefore hope that it goes through the parliamentary process with considerable speed. That said, what we cannot afford is any loopholes that enable this “something for nothing” industry to continue. When we debate later clauses, noble Lords will see that I believe there is a significant loophole that will be exploited: informal extensions, more ON which later.
As the relevant Committee, it is vital that we continue to remind ourselves of the shocking unfairness out there for many leaseholders. Last month, the Daily Mail featured a story about Carole Patterson, aged 44, an administrator in human resources whose ground rent on her flat in south London doubles every five years, rising to £1 million a year in 50 years’ time. The freeholder, MEA Real Estate Ltd, is prepared to waive the ground rent for a one-off payment of a whopping £100,000, described as
“a quarter of the value of the property”.
Given the value of that property, it is now almost impossible for her to sell on. Currently, leaseholders exist in a climate that was probably signed off by a solicitor, supposedly on their behalf. For all the Caroles, it is critical that this reform begin, and soon.
I therefore thank the noble Lords, Lord Kennedy and Lord Lennie, for Amendment 18, which I have also put my name to. It addresses the critical need for a swift resolution to the problem of existing leaseholders, and therefore asks for the next Bill to be delivered in draft form as quickly as possible. We recognise that the Law Commission has suggested a longer period, but the Government do not always do what it recommends. At present, a third of Law Commission recommendations are not implemented, some due to timing, but others because the Government have decided not to implement them. At certain points, politicians need to decide and act. With chronic unfairness built into the system for 4.5 million leaseholders, this is one of those moments.
Regarding the readiness for this change on the part of the freehold investment sector and the ongoing oligopoly of housebuilders, it is possible to argue that, since the leasehold reforms of 2002 or perhaps earlier, they have been forewarned that the clear intention over time of various Governments, of all parties, has been to move out of the leasehold system. If they are not prepared for that scenario, the problem belongs fully with them and not with the Government.
As my noble friend Lord Stunell—also a member of the former Chief Whips club in our own party—said, we of course support the intention of Amendments 1 and 2, in the name of the noble Lord, Lord Blencathra, to move more swiftly to cover all leaseholds. We also support his Amendment 11, which would limit ground rents with a relevant cap of £250 and provide for reimbursement. It is an interesting approach, given that, as I understand it, a property in London with a ground rent of more than £1,000 a year, or of over £250 per annum in the rest of the country, now falls into the definition bracket of an assured shorthold tenancy. That means that for some aspects of leasehold obligations, the courts do not have jurisdiction, especially regarding forfeiture, which was much discussed at Second Reading. I therefore look forward with interest to the Minister’s response to this issue.
The Deputy Chairman of Committees (Baroness Healy of Primrose Hill) (Lab)
Before I call the noble Lord, Lord Lennie, I will return to the noble and learned Lord, Lord Mackay of Clashfern.
Lord Mackay of Clashfern (Con) [V]
I am glad to say that I have managed to unmute with the help of the host.
I very much support the principles behind these amendments in this group. If it is wrong to have a new lease with ground rent of the kind that we are concerned with, why is it not wrong to have it in existing rents? That is what we need to address, and now, if at all possible, although I am equally strongly in favour of getting the Bill on the statute book as soon as possible and I would not like any delay to result from the other considerations. Nevertheless, these other considerations are very strong and I cannot see why it would not be possible to incorporate dealing with them in the Bill as well as preventing another wave of the problem.
I am very much in favour of my noble friend Lord Young of Cookham’s Amendment 12 and all the complementary ones around it. I had the responsibility a long time ago of looking at this question of leasehold and I confirm what has just been said—that it was certainly my idea to try to get rid of it altogether. I was brought up under the Scottish system, where Scottish tenement property is capable of being owned outright without the necessity of a lease. I also had the experience of later seeing the feu, or feudal, system abolished. It had a rent, called a feu duty, which was part of the basic responsibility of the title, and the Government of the day decided to get rid of it altogether. Of course, that meant that something had to happen to the feu duty. It was capitalised by a very simple formula that the feuer had to pay, and so the whole thing finished. I would love to see something like that happen to the leasehold system but I realise that that is a hope beyond immediate realisation. Therefore, my stance is the same as that of my noble friend Lord Young of Cookham—I think I am right in saying that I participated in the Bill when he was concerned with these matters a considerable time ago. I have suggested a small alteration to his way of dealing with the matter which I will explain briefly later.
Lord Lennie (Lab) [V]
My Lords, it was certainly worth waiting for the speech of the noble and learned Lord, Lord Mackay, because we now know we are all batting on the same wicket. As we have heard, Amendment 18, tabled by my noble friend Lord Kennedy and me, in addition to amendments tabled by the noble Lords, Lord Young and Lord Blencathra, introduces the issue of existing leaseholders and brings into question why the Government are not legislating to protect them. To us there seems to be no rhyme nor reason why they are not.
Although the provisions of the Bill are welcome and the Government are right to set future ground rents to zero, they are offering nothing for those tied into existing leaseholds. In 2019, the Ministry for Housing, Communities and Local Government estimated that one in five homes in England were leasehold dwellings. That equates to approximately 4.5 million properties, and the number will have grown since. Many of those households, tied into leasehold arrangements, are subjected to ground rent arrangements overwhelmingly balanced to benefit landlords—what the noble Lord, Lord Blencathra, called legal racketeering. Some leaseholders are being charged extortionate amounts and others have seen their payments rise exponentially.
In fact, the Competition and Markets Authority is currently taking action against both Countryside and Taylor Wimpey, which are doubling some ground rents every 10 to 15 years. There is one factor that every household paying ground rent has in common: they receive little to no benefit from paying that sum. The Government should take action for those already stuck in leaseholds and paying extortionate ground rent charges. Amendment 18, tabled by my noble friend Lord Kennedy and me, seeks to address this by ensuring that the Government bring forward further legislation. Can the Minister confirm whether any further legislation is anticipated or planned on this theme and, if so, when?
The purpose of Amendment 9 is to raise the question of remedial costs for leaseholders. The crux of this matter is that the Government have failed to introduce legislation to deal with the fact that building owners are attempting to pass on the cost of remedial work to leaseholders. Despite promises from Government Ministers that leaseholders would not be forced to pay to fix fire safety problems that were not their fault, the issue is still ongoing. I have a nephew who is a leaseholder in a block of flats in Hackney. The freeholder, Southern Housing, has simply failed to engage with the Government. It has not applied for any grant aid to assist to fix the fire safety problems, leaving the leaseholders potentially to bear the cost. We are talking here about tens of thousands of pounds per household. Can the Minister confirm when legislation will be introduced to prevent leaseholders facing those extraordinary costs?
Amendment 10, meanwhile, raises the issue of service charges in shared ownership properties. The purpose of the amendment is to highlight the sky-high fees that many residents in those properties are being charged, often with little return. Will the Minister use this opportunity to explain what steps the Government will take to help those in shared ownership agreements who are facing extortionate service charges?
Amendment 11 raises the important point of informal arrangements, which can be used to bypass the central provisions of the Bill. I look forward to clarification from the Minister in this area, and on the questions raised by Amendments 22 and 23, tabled by the noble Lord, Lord Young. I understand that the purpose of the amendments is to give time to prepare for all involved parties, but we should consider that the Bill’s proposals have been discussed for some time already. None the less, I trust the Minister will respond to the points made by the noble Lord.
The Minister of State, Home Office and Ministry of Housing, Communities and Local Government (Lord Greenhalgh) (Con)
My Lords, we have heard a great deal today about the difficulties facing some existing leaseholders, particularly in relation to ground rent—poignantly in the speech by my noble friend Lord Blencathra and, with some powerful examples, from the noble Baroness, Lady Grender.
We are very concerned about leases with high and increasing ground rents. We are aware that such onerous conditions affect not only the affordability of living costs for affected leaseholders but their ability to sell or even re-mortgage their properties. That is why we asked the Competition and Markets Authority to conduct an investigation into potential mis-selling and unfair terms in the leasehold sector. This included the issue of onerous ground rent. Following a detailed investigation, in February last year the CMA published its report, which estimated that the issue of doubling ground rent has affected more than 18,000 leaseholders. In March this year, it informed developers that they may be in breach of the law. Noble Lords will agree that this is very serious indeed, and the Government welcome the CMA’s continued efforts to bring justice to home owners affected by unfair practices.
Our commitment to existing leaseholders certainly does not end there. As I made clear at Second Reading, this is just the first of a two-part legislative reform programme that will improve the leasehold system. Further legislation later in this Parliament will address a range of issues facing existing leaseholders. In answer to the noble Lords, Lord Stunell and Lord Lennie, the aim is to have that next stage in the third Session.
On 7 January the Secretary of State announced a package of leasehold reforms covering enfranchisement valuation and 990-year leases. This is the first part of our response to the Law Commission’s reports on leasehold and commonhold. We will respond to the remaining recommendations in due course. We are absolutely committed to a comprehensive and ambitious programme of reform to create a fairer and more transparent leasehold market, but we need to make sure we get it right. That takes time, which is why we have started with this ground rent Bill, focused tightly on ground rents on new residential long leases.
I turn to the specific amendments before us today that deal with existing leaseholders. My noble friend Lord Blencathra has tabled Amendments 1 and 2. The whole House will have been left in no doubt as to his views of ground rents and the leasehold system following his barnstorming speech at Second Reading. His two amendments both aim to extend this Bill so as to reduce ground rent for existing leaseholders, and we can all understand his reasons for laying them.
I am grateful to colleagues from across the House for their close examination of the issues facing existing leaseholders. However, the decision to focus this legislation tightly on new leases was a very deliberate one. We are working to make the leasehold system fairer and more transparent for leaseholders, but we also need to ensure that we are fair to freeholders. Setting existing leases to a peppercorn raises complex issues and could have negative consequences that may extend beyond the leasehold sector. As just one example of these consequences, your Lordships will be aware that there are pension providers who hold existing investments dependent on ground rent income that were entered into some years ago. These are long-term financial commitments that service the needs of many of our elderly citizens.
I note again that we are in the throes of planning to bring forward further legislation on leasehold reform, and the changes to the valuation process will make a real difference for many existing leaseholders, especially those with fewer than 80 years remaining on their lease.
I come to the six amendments tabled by my noble friend Lord Young of Cookham regarding the right to buy out ground rent in pre-commencement leases, Amendments 7, 8, 12, 17, 22 and 23. As noble Lords will know, there is already statutory provision for leaseholders of flats to reduce the ground rent they pay to a peppercorn on payment of a premium when they extend their lease, and leaseholders of houses can buy their freehold and so extinguish ground rent liability that way under existing legislation. The Government are aware that for some leaseholders this may be prohibitively expensive. This is why we have announced forthcoming changes to the valuation process that will cap how ground rent is treated, reducing the premium to be paid for leaseholders with onerous ground rents.
In addition, the Law Commission has recommended that leaseholders should be able to choose to pay to extinguish their ground rent without extending their lease, as my noble friend Lord Young mentioned. I can confirm that the reforms we will bring forward in future leasehold legislation will enable leaseholders, where they already have a long lease, to buy out the ground rent without the need to extend the term of the lease. We are considering the remainder of the Law Commission’s recommendations and will respond in due course.
I know that my noble friend Lord Blencathra has asked me to be a latter-day Caesar Augustus, but I point out that we have not addressed this in this legislation because reform of enfranchisement and historical ground rents is complex and interlinked. It is important to address these issues together in the forthcoming legislation. The cost of enfranchisement is directly related to ground rents and other components, such as the length of the lease. That is why we are looking to do that in a second tranche of reforms in the third Session of this Parliament. That is the plan.
These planned changes will directly address the issue underpinning the amendments from my noble friends Lord Blencathra and Lord Young. Future leasehold reforms will allow existing leaseholders to pay a more affordable premium and buy out their ground rent when they extend their lease or purchase their freehold. This will be less costly for leaseholders than under the current approach to enfranchisement valuation. I hope that noble Lords will agree that these changes mean that the amendments are not needed, as their effect is being achieved through work beyond the Bill.
The Deputy Chairman of Committees (Baroness Healy of Primrose Hill) (Lab)
I have received a request to speak after the Minister from the noble Lord, Lord Young of Cookham.
Lord Young of Cookham (Con)
I am very grateful to the Minister for his reply. I press him on what he said right at the end about the importance of getting the Bill through “as speedily as possible”. I accept that, but if it is important that Parliament processes this legislation speedily, is it not then incumbent on the Government to announce an early date for the implementation of the Bill?
Lord Greenhalgh (Con)
My Lords, we want to move as speedily as possible but, as I stated in my reply, we do not want to set a deadline for things. We want to get this on the statute book very speedily in this Session; that is why it is so early in this Session. That is my answer.
Lord Blencathra (Con) [V]
My Lords, I am grateful to all noble Lords who have participated in this debate. I feel rather guilty that I am responding when it really should be my noble friend Lord Young of Cookham, who put forward an impeccable case today for the reforms he has suggested.
The one thing that has come through loud and clear to the Minister from all noble Lords is that the current system is totally unsustainable. My amendments are probably not appropriate; I believe the amendments of my noble friend Lord Young of Cookham are. If they cannot be accepted into this Bill, it is desperately important that we get them in the full leasehold reform Bill which we expect next year. If my noble friend wishes to put down his amendments on Report, I will support him; he may not wish to push them to a vote, but perhaps the Government need to see on Report that we are serious about talking about the injustice of the current leasehold system.
My noble friend the Minister has said that this is a difficult area and that he is committed to giving leasehold reform “high priority”. If I may say so, the Law Commission is a worthy body, but its problem is that it is full of lawyers; they see leasehold reform as a matter of dotting some “i”s, crossing some “t”s and tweaking an 800 year-old system a bit here and there to make it work better. As politicians—and as politicians in the Commons would say—we find the whole system iniquitous. It is wrong. Perhaps it is those of us from a Scottish background who cannot believe that you buy a property and do not fully own it; it is an extraordinary, wrong system. When the Bill comes next year, we do not want leasehold reform tweaked; we want it stopped for all new contracts.
The wonderful innovation of commonhold failed because we gave developers and other money-grubbing people the choice of continuing with leasehold or commonhold. We thought they would implement common decency and common sense, but they operated a system which made the most money—well, we cannot criticise that; it is inevitable. When the new Bill comes, let there be no choice. Let it be clear that commonhold will be the only system acceptable for all new purchase contracts in future.
That still leaves the problem of current leaseholders. I am very certain that, with Amendment 5 from my noble and learned friend Lord Mackay, the amendments from my noble friend Lord Young of Cookham on a buy-out scheme must be the right direction to go in, because it affords justice to leaseholders who can get out of this wicked system and gives some compensation—too much in my opinion, but who am I to say?—to current freeholders who would demand the right not to be stripped of all their benefits.
On early implementation, I refer my noble friend Lord Young of Cookham to Amendment 26, where I suggest that the Bill should be implemented on Royal Assent. I appreciate that we may need to make exceptions for property for old folks’ homes—I am not sure what the current term is for an old folks’ home, but I believe that is to be exempted for a couple of years for us to figure out how to do it. The rest of this Bill should be implemented as soon as possible after Royal Assent.
With those words—and my apologies; my camera was off a lot of the time so that my machine did not run down, but I heard all the debate—I am grateful to all noble Lords who have taken part and, in conclusion, emphasise to my noble friend once again that the Government might get away with not sorting out leasehold and ground rents in this Bill, but they will not get away with it next year when the big Bill comes. I beg leave to withdraw my amendment.
Lord Young of Cookham
Member’s explanatory statement
This amendment is to probe the application of the Bill where premises are part business and part residential.
Lord Young of Cookham (Con)
My Lords, Amendment 3 in my name is designed to shed light on what the Government mean by premises that significantly contribute to “business purposes”. We may move into less turbulent territory in this group.
I begin by asking the Minister a fairly basic question: if ground rents are, as I believe, a feudal anachronism or, in the words of my noble friend Lord Blencathra, “legal racketeering”—a payment for which one gets nothing in return—why are they being banned only for future dwellings and not for all premises? Surely a combination of a lease and a conventional rent would suffice for the commercial sector and we could simply strip Clause 2 out of the Bill entirely. This may go beyond my noble friend’s negotiating brief but, if we are to have this distinction, we need some clarity.
By way of background, when I put the Leasehold Reform, Housing and Urban Development Act on the statute book, one of the most contentious issues was the exemption from enfranchisement of mixed-use buildings, with shops on the ground floor and flats above. After a healthy dialogue between the two Houses, when your Lordships’ House still had a healthy representation of the country’s freeholders and the other place was concerned more with leaseholders who actually had votes, we ended up exempting properties where the commercial use was 25% or more of the total space. That Act was about the collective enfranchisement of a building, whereas this Bill is about individual leases within a building, so the same definition may not work. There is, none the less, the same need for clarity and, with the current definition, I can see scope for argument and the possibility for a freeholder to introduce a ground rent by arguing that the leases in his building qualify for Clause 2 exemption.
Suppose, for example, a new block of flats is specifically designed so occupants can work from home. The developer not only builds in all the relevant infrastructure in each flat but has a communal space on the ground floor that can be hired as a conference room to get around Clause 2(3). Could he then claim exemption and include ground rents in all the leases in the flats?
I was grateful to my noble friend for the time he spent with me on Monday, when he explained that the object of exemption was where a ground-floor shop had a flat above it and it was essential, for the efficient operation of the shop, for the shopkeeper to live above it. Perhaps the parliamentary draftsmen had in mind publicans, who often live above licensed premises. My concern remains that the wording is too loose, so it can provide loopholes and give rise to litigation. I wonder whether, between now and Report, my noble friend could consider an alternative and tighter wording. I beg to move.
The Deputy Chairman of Committees (Baroness Healy of Primrose Hill) (Lab)
I call the next speaker, the noble and learned Lord, Lord Mackay of Clashfern. Lord Mackay, could you unmute, please? Lord Mackay? Perhaps I can return to him. In the meantime, I shall call the next speaker, the noble Lord, Lord Stunell.
Lord Mackay of Clashfern (Con) [V]
My Lords, I am of the same view as my noble friend Lord Young of Cookham about the difficulty of understanding exactly why business premises of any sort are exempt from this. No doubt there is an explanation. If so, it is necessary to ensure that the precise reason for business premises being exempt should be the basis of their definition. This is my point. I am sorry; I seem to have difficulty in unmuting without help, for some reason that I have not understood so far. Maybe I will gradually learn as the day goes on.
Lord Stunell (LD) [V]
My Lords, I will simply support the carefully presented argument from the noble Lord, Lord Young, with a case study which also shows a way in which the system might be exploited. On a new housing development outside Leicester, homes have been sold on leases with index-linked ground rents. So too have the parking spaces that go with them; the leases of the parking spaces are separate and also index-linked. There have been endless and, so far, fruitless battles to sort out the situation. Indeed, some leaseholders, facing rising charges and challenging their validity, have been presented with agreements signed with what they claim are forged signatures. Needless to say, they employed, of necessity, the developer’s nominated solicitor to advise them when they first purchased. The allegation is that he was a party to the alleged forgery.
Should the Bill—or, rather the next one because, as we have all fully understood, this Bill will not help anybody with an existing lease in Leicester—provide these residents with some relief? The Committee has heard from the Minister that it will, in due course, but how will they stand in relation to separate leases that they hold for their parking spaces? Is it open to a legally hawk-eyed owner of the lease to designate them as commercial? If they come as part of a car park that is also occupied by visitors to local shops, is the car park a commercial one, or does there exist some way of exempting the parking places of residents—not necessarily those living over shops, but those adjacent to commercial premises? Will they be entitled to redeem those leases on the car parking places under the terms of this Bill or its successor, or, in that case, will the evidently unscrupulous developers be able to claim that it is a commercial, not a residential, lease and therefore exempt, and that the accelerating payments can continue?
If the Minister says, “It is a matter of common sense”, then I would say that in Leicester it is not. If it will not be the amendment in the name of the noble Lord, Lord Young of Cookham, it certainly needs to be something more than is in the Bill as it is now, setting out clearly that leases ancillary to the proper use of the home will be included in the legislation and there will be no loopholes left for exclusion. It would be good to hear the Minister say that he agrees and will bring a suitable amendment back on Report.
Lord Lennie (Lab) [V]
The purpose of the amendment is to probe the application of the Bill where premises are part business and part residential. High streets across the four nations of the UK include properties that fit this description, and I hope that the Government have drafted the Bill with these in mind. I look forward to hearing the Minister’s confirmation of how the Government intend the Bill to apply to premises that are part business and part residential.
I have two questions. I would appreciate it if the Minister could confirm whether the Government have an estimate of how many part-business, part-residential properties could be impacted by the Bill. Will he also confirm what engagement the Government have had with the owners of such buildings as part of the drafting of the Bill?
Lord Greenhalgh (Con)
My Lords, I thank all noble Lords for their time on this issue, particularly the noble Lord, Lord Young of Cookham. I am happy to engage with noble Lords further on whether we can make the business exemption as clear as possible.
The Government consulted carefully on the detail that has informed the Bill. During that consultation a small number of areas were identified where there was a justification for the charging of a rent or ground rent for a property. The Bill exempts business leases from the peppercorn rent requirement, and we have always been clear that this Bill is aimed at residential properties. Clause 2(1)(b) addresses the very small number of leases that fall between these; that is, mixed-use leases, where a single lease comprises both business and residential purposes.
For the avoidance of doubt, this does not relate to mixed-use developments, which may comprise a range of property types, including both business and residential, but each on a separate lease. In such cases, provided that no other exceptions apply, the residential premises in such a development would be subject to a peppercorn rent, and a rent may be charged for commercial properties.
In response to the noble Lord, Lord Stunell, the exemption applies only where flat and commercial premises are on the same lease. The Bill is clear that home businesses and other ancillary leases are not included in the definition of “business lease”.
The types of premises that Clause 2(1)(b) is intended to address are likely to be small in number. They could include, as mentioned by the noble Lord, Lord Young, a flat above a shop where the occupant of the flat is a shop worker living above the business where they are required to have the shop open at certain times. The noble Lord mentioned a publican living above a pub.
We have taken care to ensure that this exception does not provide a loophole whereby a ground rent is charged on a premises that is to all intents and purposes a residential one. To prevent such a loophole, there must be a close link between the business purpose and the need for the associated residential use. That is brought about by the requirement in Clause 2(1)(b) that the use as a dwelling
“significantly contributes to the business purposes”.
There is a further protection for both leaseholders and landlords in Clause 2(1)(c). This requires that, at or before the point the lease is granted, both the landlord and leaseholder provide written notices that they intend the premises covered by the lease in question to be used for the business purposes set out in the lease. The purpose of Clause 2(1)(c) is to make sure that there is no doubt for either party that the lease is intended to be used, and continues to be used, for business purposes.
The business lease exception is carefully drafted to enable a rent to be charged where it is justified, and to include sufficient protection against abuse of this exception. I restate to the noble Lord, Lord Stunell, that the Bill defines “dwelling” as including gardens or appurtenances, which should include parking spaces, but I will be happy to clarify that specific point before Report. I therefore ask the noble Lord, Lord Young, to withdraw his amendment.
Lord Young of Cookham (Con)
My Lords, I am grateful to all those who have taken part in this short debate. I welcome what the Minister said in his reply, that he would undertake to reflect on it between now and Report to see whether there is a better definition. I am not sure whether we have dealt adequately with the case raised by the noble Lord, Lord Stunell, where, as I understand it, because a parking space is not a dwelling, it is not covered by the Bill. The Minister said he was going to reflect on whether that represented a loophole in that a developer could let a property separately from a parking space. The noble Lord also raised the issue of where you have a communal parking space that can be used by both the residents living nearby and the visitors to the shops, and whether the developer of the parking area could charge both the residents and the shops a ground rent for the use of the communal parking space.
The only other point I wanted to raise was whether my noble friend the Minister could give me an assurance on the specific example I gave, where a developer included in the block of flats a conference facility on the ground floor, and whether he could then argue that the nature of the business purposes permitted by the lease significantly contributed to the business purposes, and whether he could argue to everybody who bought a flat in that development that because they could access the conference room and whatever other facilities might be on the ground floor, therefore all the flats could be exposed to a ground rent. I do not expect my noble friend to give me a reply off the cuff but I would be quite interested in a response to that specific example if he could give it between now and Report.
On that basis I beg leave to withdraw my amendment.
“Retirement homes where development has begun prior to commencement
(12) A lease is an excepted lease if it is a lease of a retirement home, and—(a) a contract to purchase the land to develop retirement homes was agreed before 1 April 2021, and(b) development of the homes began before the relevant commencement day under section 25(4).(13) A lease is a lease of a retirement home if—(a) it is a term of the lease that the premises demised by the lease may be occupied only by persons who have attained a minimum age, and(b) that minimum age is not less than 55.”
Lord Best (CB) [V]
My Lords, I thank the Homes for Later Living group for its briefing on the issues that I shall raise. I greatly welcome the Bill, and congratulate the Government on taking the bold step of getting rid of ground rents. I know there is more to come in this space, and I look forward to further legislation to assist existing leaseholders in the future.
This amendment is intended to tidy up an anomaly in the Bill relating to the provision of retirement housing. I declare my interest as co-chair of the APPG on Housing and Care for Older People, and chair of the five inquiries flowing from the so-called HAPPI initiative—Housing our Ageing Population Panel for Innovation.
I shall set the amendment in context. Retirement housing is an important but very small part of the housing scene. It seeks to meet the needs of older people who want to “rightsize”, usually from a family house and garden to somewhere easy to manage and inexpensive to heat, with space and light and without stairs and obstacles, where care can be delivered if need be—and, importantly, with the opportunity for company and companionship, in these times when loneliness is a problem for so many.
By moving in later life, older people not only avoid the struggle and cost of maintaining a large property, and prevent the need for an expensive and unpopular move into residential care, but bring a much-needed family home on to the market. The house buying and selling chain that follows means that a young family, too, can access the home they need. The nation gets two for one. Yet in the last year before Covid, of around 200,000 homes built, only about 7,000 were tailor-made for later living—down from 28,000 in the recent past. That output is far short of the numbers needed, with surveys indicating that nearly 4 million people over pension age would be interested in downsizing—or rightsizing—if the opportunity were there.
I have been anxious to see whether the Bill assists or undermines the already very low level of new home building for older people. As it stands, there is a danger that it will have a negative effect on that sector, because ground rents currently play a special and different role in such schemes. The specialist developers of retirement housing have had a tough time competing with the volume housebuilders, which make bigger profits, and so pay more for sites, by concentrating on younger buyers who are less discerning and often desperate to move.
Retirement housing cannot take advantage of Help to Buy subsidies, or the ongoing stamp duty relief for first-time buyers. Importantly, retirement accommodation must include extra space for communal facilities—a clubroom, a garden area and a range of other facilities in assisted living and extra care schemes, such as a restaurant, a treatment room, accommodation for care staff and a guest room. Space for those items can add up to 30% of the total cost of a residential development.
The cost for a scheme of 40 apartments is likely to be between £1 million and £2 million. This is where ground rents come in. They have not been, as they are in other housing schemes, payments of “something for nothing”. When capitalised and sold to investors, they have been the means of funding the extra capital costs of the communal spaces inside and out. As I said at Second Reading, they have been “something for something”, and have represented an alternative to a higher purchase price, which would be entirely justified, but which can put off buyers in this sensitive marketplace and debar those unable to afford the extra cost.
Why, you may ask, cannot service charges cover the capital costs in retirement housing, instead of using ground rents? The existing rules on what goes into a service charge—which can, of course, cover the ongoing revenue costs of communal facilities—mean that it is impossible to use a service charge to pay for these extra capital costs. This is as it should be.
Lord Mackay of Clashfern (Con) [V]
My Lords, I very much admire the detailed knowledge that the noble Lord, Lord Best, has of this and many other areas of importance. I heartily agree with him. Your Lordships will appreciate that I may have a special interest in this area, in view of my years.
As a matter of interest, I wonder how the age of 55 was chosen. I hope he may be able to give me a short explanation of that, because it is of interest to me.
Lord Naseby (Con) [V]
My Lords, I too pay tribute to the noble Lord, Lord Best. I am in my 80s and, from talking among friends, I am aware of at least two couples who are beginning to think about retirement homes. The noble Lord, Lord Best, is quite right. We discussed this issue before I even knew it was coming up in the Bill.
This sector of the market is, first, growing—that in itself is very encouraging—and as a country we have been a bit slow in this area compared with other countries. Secondly, it is growing in the sense that it was clear, back in my days as an MP, that there was a scepticism about retirement homes with all these extra facilities, but now it is taken as the norm and people are particularly fussy. If, as the noble Lord, Lord Best, says, a number are caught by this time dimension, it seems sensible that any business that started by the dates he puts in his amendment should be exempt.
I do not understand why 55 was chosen. The retirement age is still going up, so 55 seems a bit generous, frankly. Another 10 on top of it would not have gone amiss, but that is a minor issue. I hope Her Majesty’s Government take the points made by the noble Lord, Lord Best, very seriously; they need addressing.
Baroness Grender (LD)
My Lords, developing adequate housing stock for an ageing population is a significant challenge for this and future Governments. The work of the noble Lord, Lord Best, and the publications by his APPG for Housing and Care for Older People have been essential reading in this area. While we recognise that what is now in the Bill is a compromise achieved following a total exemption for retirement homes in the original consultation, and in spite of the arguments of the noble Lord, Lord Best—whose expertise in this area is significant—when the Minister responds, I still want to understand where the essential difference lies between retirement and other leaseholders, in his or the Government’s opinion. If the straight answer is money required to be spent on common parts, surely a more honest and transparent way to do that is in either the original price or the service charges. However, I hear what the noble Lord, Lord Best, has said today and will study his explanation.
Given that ground rents appear to serve no purpose, as we have already discussed several times and at Second Reading, other than profit for the freeholder or security to borrow to develop more properties, why is this different when applied to retirement homes? I am sure that noble Lords are familiar with the Times investigation into this in November 2019, but it bears revisiting. It uses the example of one retirement property bought for £197,000, in 2009, from the FTSE 250 development company McCarthy & Stone, which was sold for only £26,000 six years later. By the time the flat owner died, she was paying the management company almost £8,000 a year.
The Times went on to say:
“Housebuilders such as McCarthy & Stone argue that without the money they make selling the freehold to management companies they could not afford to provide communal areas for their properties. Yet this is a poor excuse when there are far more transparent ways to raise revenue, such as simply selling their properties for a higher price.”
They often cover that in the service charge. The article continued:
“They insist, moreover, that the majority of their homes have increased in value.”
However, the Times then went on to find that
“one McCarthy & Stone property had lost £45,000 between 2015, when it was bought,”
and 2019. The same investigation found that, as with other leaseholders, elderly relatives are persuaded to use a solicitor who the developer has recommended, who turns out to be the very opposite of an advocate on behalf of the retiree. As the noble Lord, Lord Best, has explained, this group can often be exploited and manipulated.
For those reasons, we are minded to support the amendments in the names of the noble Lords, Lord Kennedy and Lord Lennie, but look forward to hearing the arguments in the closing stages of this debate.
Lord Lennie (Lab) [V]
My Lords, the welcome provisions of this Bill will not apply to retirement properties until at least April 2023, despite previous suggestions by the Government that these properties would be included. This is echoed by the contribution of the noble Baroness, Lady Grender. It represents a clear U-turn, without any explanation, and for this reason I have tabled Amendment 25 with my noble friend Lord Kennedy, intended to bring retirement properties in line with all other homes.
If the Government had placed the April 2023 date in the hope of creating a transition period, the Minister should explain to the Committee exactly why this is needed, when it has been accepted that no period is necessary for other properties, as part of this. Given that over 50,000 people in the UK live in retirement community units, I hope the Minister can explain what consultation has taken place with groups representing those residents and their families.
I am pleased that the noble Lord, Lord Best, who is deeply knowledgeable, has tabled an amendment to consider the application of this legislation to retirement homes where development has begun prior to commencement. I hope the Minister will offer an explanation of what steps the Government will take to support residents, which this clause relates to.
Lord Greenhalgh (Con)
My Lords, I start by addressing the point about age. It is great to hear from my noble friend Lord Naseby and my noble and learned friend Lord Mackay of Clashfern on why we are considering people aged a mere 55 for this. I do not have to declare an interest as I have not quite made that age threshold yet. However, it is fair to say that that sector broadly starts providing retirement housing for those aged 55 and above. Some people in that age group choose to move to those properties. In fact, one can access lump sums from one’s pension from the age of 55 but I know that people at a greater age look at that and ask, “How can you even contemplate retirement at such a young age?”
As noble Lords know, it is our intention to protect leaseholders from unfair practices through the Bill by ensuring that future regulated leases are restricted to a peppercorn rent, unless exempted. While we would like the provisions of the Bill to come into effect as soon as possible, we have decided to give the retirement sector additional time to prepare for these changes, as was mentioned by the noble Lord, Lord Best.
The noble Lords, Lord Kennedy and Lord Lennie, have tabled Amendment 25 to remove the provision that provides that the Bill will not come into force in regard to retirement homes prior to 1 April 2023. I thank them for their consideration of this matter.
I will explain to your Lordships the reasoning for including a transitional period for retirement properties and why it is the right thing to do. The detail of the peppercorn ground rent was announced in 2019, following the Government’s consultation Implementing Reforms to the Leasehold System. At the time of the announcement, retirement properties were to be exempt from the restrictions on ground rent in the Bill. Having reviewed this in further detail, the Government decided in January 2021 to widen the protections granted under the Bill and to remove the retirement exemption.
All other parts of the development industry have had time since the Government’s announcement in 2019 to adapt and review their business models and will have had sufficient time by the commencement of the Bill to adapt. However, given that the retirement sector has had less time to prepare, we have carefully considered the impact on developers and weighed this against our ambition to protect leaseholders. It is our firm belief that given these circumstances, the retirement sector should be given additional time to make adequate preparations to transition to peppercorn rents, as was carefully argued by the noble Lord, Lord Best.
The noble Lord’s Amendment 4 would have the effect of extending the transition period for retirement properties that are under development, potentially for an additional two years, or even longer where sites are slower to build out and sell. I am grateful to noble Lords for looking closely at this, and to stakeholders in the retirement housing sector who have provided information on this issue. We have carefully considered this matter to ensure that we are striking the right balance, thereby giving the retirement sector time to transition and ensuring that protection for leaseholders comes as quickly as possible.
I am sure that noble Lords will agree that the transitional arrangements that we have set out in the Bill will make it fair for all parties, both developers and leaseholders, and that it is the right thing to do. I therefore ask that the noble Lord withdraws his amendment.
Lord Best (CB) [V]
My Lords, I am grateful for all the contributions to the debate on the amendment. Perhaps I may respond to them all.
The noble and learned Lord, Lord Mackay, and the noble Lord, Lord Naseby, asked whether an age limit of 55 is sensible. It was chosen by the Government and is the age chosen by a number of retirement housing schemes. I agree entirely with the sentiments expressed by the noble Lords on that. Having had some responsibility for developing such schemes, I know that people actually move in in their 70s, not their 50s. The sometimes vain hope is that the scheme will attract a few younger people in order to get a mix of ages throughout. Indeed, sometimes people with disabilities who are in their late 50s are ideal people to move in. But the reality is that despite an age restriction of 55, people will only actually move in in their 70s. However, the flexibility has worked quite well also.
Other noble Lords were more sceptical. I hope that perhaps if they have a good look at Hansard, they might be convinced that there is a “something for nothing” versus a “something for something” debate here and that this particular kind of housing has achieved something for something with ground rents in the past and the transition to a future in which it has to do without that will present some problems.
As the noble Lord, Lord Lennie, and the noble Baroness, Lady Grender, said, it is probably the case that, in the longer term, there will be more transparency in a higher purchase price. It means that people will have to fork out more at the beginning—they cannot spread it over a period of years with a ground rent—but it will be more transparent. If some people cannot afford it, that is a casualty along the way, which I am sorry about, but it will lead to greater transparency in the longer term.
In the meantime, there are developments in the pipeline that are a cause of actual concern and difficulty. I am grateful to the Minister for his comments. He made it clear that this sector was given quite a clear steer back in 2019 that it could carry on as it was with new developments because this ban on ground rents would not affect it and it would be exempted. I agree with the change of mind that followed. It is right that all people are dealt with the same, younger and older alike, and that there will be no ground rents in the future.
I am happy with that, but it does leave the providers of later living housing rather high and dry. Although they have been given until April 2023—a similar period to that for housebuilders building for younger households—it is a fact that they need a bit more time. The buyers in this particular marketplace are right to be discerning, but it does take longer and there will be a problem for the relatively small number of 180-odd developments and about 4,200 homes affected, for which the transition is just not long enough. We will have weird situations where there are two kinds of occupier in the same development, some paying ground rents and some not, and the producer of the scheme having some financial and management difficulties accordingly. It would be quite simple to help them on their way and encourage this sector to develop, rather than discourage it, which I fear is the outcome at the moment. However, I am happy to withdraw the amendment at this stage and thank all noble Lords who participated in the debate.
Lord Mackay of Clashfern
“Leases with an option of redemption
(1) In this Act a lease with an option of redemption means a lease which meets the following conditions—(a) it is a long lease of a dwelling,(b) it is in force on the “relevant transition date”, and(c) it is not an excepted lease.(2) The “relevant transition date” is the day on which this section and the other relevant provisions of this Act come into force in relation to leases of that kind.(3) After the relevant transition date the tenant has an option to pay a capital sum to the landlord, on payment of which the rent payable under the lease shall be a peppercorn rent.(4) The capital sum in subsection (3) shall be calculated in accordance with a formula specified by regulations made by the Secretary of State.(5) The option to pay a capital sum to the landlord set out in subsection (3) may only be exercised within two years of the relevant transition date.”
Lord Mackay of Clashfern (Con) [V]
My Lords, this is an amendment on the principles that my noble friend Lord Young of Cookham explained when speaking to his amendment. The only reason why I thought of doing it this way was to make it part of the legislation now, if that was acceptable, with a degree of flexibility in the Secretary of State’s powers to fix the way payment would be adjusted or assessed. I thought it might help to deal with this situation now rather than later. As I said, this is based to an extent on the way feu duty was dealt with in Scotland when it was made compulsory to stop it altogether as we departed from the feudal system. My suggestion may be attractive in the sense that it avoids dealing with a lot of detail now. On the other hand, it may not be very wise to leave it so doubtful, especially when there are other concerns associated with the payment of ground rent, such as the maintenance of insurance policies and so on. I beg to move.
Baroness Grender (LD)
As in the earlier group, we support the principle of this amendment. I reiterate that the elegant drafting by the noble Lord, Lord Young of Cookham, in the earlier group is the drafting that we would prefer—and very much look forward to seeing on Report.
On Amendment 5, our concern would be about any kind of delay in this process, which would be driven by having to produce subsequent drafting of regulations for how the amounts would be calculated. Therefore, we would prefer the wording used by the noble Lord, Lord Young of Cookham.
I also take this opportunity, given that the Minister, in his summing up of the first group of amendments on trying to extend to existing leaseholders, made an argument about the proportion and percentage of pension funds that are currently invested in freehold property and the disruption that this might cause to pension funds, to ask him to elaborate on what kind of proportion that might affect, and what the balance is between the 4.5 million leaseholders who currently experience quite a significant negative impact in terms of ground rent in particular in the abuse of this system, and the pension fund system.
Lord Lennie (Lab) [V]
My Lords, this amendment returns the debate to the question of existing leaseholders and appears to allow existing leaseholders to pay a fee to exempt them from ground rent. As I said in the earlier group, ground rent arrangements are overwhelmingly balanced to benefit landlords and the system needs urgent reform for all involved.
I am grateful to the noble and learned Lord, Lord Mackay, for explaining that this was based on the Scots departing from the previous feudal system, but I am concerned that his amendment, if applied literally, could lead to landlords charging extortionate termination fees. None the less, I appreciate that he sees the need for reforming the system and I look forward to the Minister’s response.
Lord Greenhalgh (Con)
My Lords, I spoke earlier about the Competition and Markets Authority investigation into potential mis-selling and unfair terms in the leasehold sector. This included the issue of onerous ground rent. Our commitment to existing leaseholders does not end with the CMA investigation. As I have mentioned several times, this Bill is just the first of two-part legislation to reform and improve the leasehold system. As noble Lords will know by now, further legislation later in this Parliament will address a range of issues facing existing leaseholders.
My noble and learned friend Lord Mackay of Clashfern’s Amendment 5 would give an option of redemption on existing leases, allowing leaseholders to pay a capital sum to reduce their ground rent to a peppercorn. The broad aim of such an amendment to allow existing leaseholders to buy out their ground rent has been discussed previously, so I will avoid repeating the detail at length.
As noble Lords will recall, existing legislation already allows for the leaseholders of flats to reduce their ground rent to a peppercorn when they extend their lease, while leaseholders of houses can eliminate ground rent completely by buying the freehold of their property.
In January the Government responded in part to the Law Commission’s reports on leasehold and commonhold reform. This included a commitment to allow leaseholders who already have a long lease to buy out the ground rent, without the need to extend the term of their lease. We will respond to the remaining Law Commission recommendations in due course.
I hope that noble Lords will agree that the work currently being undertaken beyond the Bill means that this amendment is not needed. Noble Lords can rest assured that this Government have a desire to reform the leasehold system at the earliest opportunity and the ground rent Bill represents the first stage in a two-step legislative programme.
I point out—as was raised just now by the noble Baroness, Lady Grender—that there are pension fund investments and we need to take that into account. That is why the Government believe it is right not to take a big bang approach to the abolition of existing ground rents but to make it easier to enfranchise and to offer that in the most leaseholder-friendly way. That is why we have made a number of commitments where people will be able to buy out ground rents without the need to extend their lease, as well as making enfranchisement as easy as possible, along the lines of the recommendations of the Law Commission. That is the balance that we want to strike to ensuring that existing leaseholders will have the mechanism and the ability to remove ground rents. I therefore ask that my noble and learned friend withdraws the amendment.
The Deputy Chairman of Committees (Lord Russell of Liverpool) (CB)
I have received one request to speak after the Minister from the noble Baroness, Lady Grender.
Baroness Grender (LD)
I should just like to ask the Minister to perhaps write to all Members involved in this debate to give a bit more detail about what proportion of pension funds are impacted, given that my understanding is that the pension funds are fully aware of the intention to abolish ground rents and extend that to existing leaseholders. I should still like to understand the balance of impact between the 4.5 million leaseholders and the pension funds, if that is to be deployed as a significant argument in this issue. I am very happy for the Minister to write to us later about this.
Lord Greenhalgh (Con)
My Lords, I shall try a second time, because obviously I did not manage it the first time. We have not made a commitment to abolish by fiat existing ground rents. We have committed to make it as easy as possible for leaseholders to enfranchise or to buy themselves out of the ground rent obligation. That of course then becomes a phased approach to the 4.5 million people who are paying ground rents. Of course, we are looking to the Competition and Markets Authority to deal with the issue of onerous ground rents. That is the policy position; the noble Baroness is implying something that we have not committed to.
Lord Mackay of Clashfern (Con) [V]
My Lords, I am grateful to all who have taken part in this short debate. It is quite important to have in mind the possibility of a variable way to buy off the ground rent, and that such a way of fixing that by a Minister in a regulation is flexible and could be of use in that regard. In the meantime, I am happy to withdraw my amendment.
Baroness Grender
“Existing leases: transparency requirement
(1) In this Act an “existing lease” means a lease which meets the following conditions— (a) it is a long lease of a dwelling,(b) it is not an excepted lease, and(c) it was granted before the relevant commencement day of any section of this Act that would make it a regulated lease.(2) Before requiring a payment of rent under an existing lease the landlord must provide the tenant in writing with a justification for the cost of the rent, and an explanation of what the payment will be used for.(3) Section 83 of the Consumer Rights Act 2015 (duty of letting agents to publicise fees etc) is amended in accordance with subsection (4).(4) After subsection (7) insert—“(7A) This section also applies in relation to a payment of ground rent.””Member’s explanatory statement
This amendment would require landlords charging ground rent on leases granted before this Act came into force to explain what the rent is for. It would also require lettings agents to make details of any ground rents available to prospective leaseholders.
Baroness Grender (LD)
My Lords, this is a fairly small amendment but may make a big difference for leaseholders. In a way, it is about replicating what I thought was a very successful late-stage amendment to the Tenant Fees Act. We are trying to introduce a greater level of transparency for leaseholders.
Before being required to pay a rent under an existing lease, the landlord must provide the tenant in writing with the justification for the cost of the rent and an explanation of what the payment will be used for. I fully understand and recognise, given the arguments made at Second Reading and those made so far today, that in reality, a lot of us would say that the ground rent is used for absolutely nothing—except buying a new Porsche for a very wealthy freeholder, for instance. However, I still believe that there should be an explanation and accountability and that we should use the opportunity of the Bill to ensure greater accountability. A lot of people who campaign in the area of leasehold reform want to see a display of comprehensive, accurate data on properties. They want to see how long the lease is, what the ground rent is and what the nature of the ground rent is. We already heard in the debate at Second Reading that some people are charged a ground rent without any notification; suddenly they are asked for a particular sum and they may then get into dangerous grounds of forfeiture if they cannot pay it.
The sentiment I am particularly trying to push for—I will be very happy if the Minister says that the wording is not quite right, but that he understands and recognises the sentiment and will come back with further drafting on Report—is that people who currently have to pay freeholders ground rent should get some sense of accountability regarding the amount, the future amount and what it goes towards.
I also take this opportunity to point out that ground rent demands already have to be accompanied by a statement of leaseholder rights, so there is absolutely no reason why the Government cannot prescribe a standard form of information to be given to leaseholders in this area.
Also, could the Minister in summing up answer a question I asked on Second Reading about the CMA’s action against Countryside and Taylor Wimpey? I asked whether, if the process the CMA is currently undergoing fails and it has to go to court, the Minister would consider putting more emphasis in the Bill on consumer protection law. With that I mind, I beg to move.
Lord Mackay of Clashfern (Con) [V]
My Lords, I support this. It is highly important that a person buying a property which is subject to this kind of rental arrangement should know precisely what its details are, as a necessary condition of the purchase. It seems essential to me to point out the whole nature of the responsibility for ground rent and what can happen, not only next year but in years to come. A person buying a property is entitled to know all the burdens on it at the time of purchase.
Lord Stunell (LD) [V]
My Lords, I am happy to speak in support of this amendment and am delighted to have the support of the noble and learned Lord, Lord Mackay of Clashfern, for the words of my noble friend Lady Grender in advocating for this change. It can hardly be a radical call to ask for accurate data to be available before a transaction is completed; yet, as the example I drew from Leicester in an earlier debate shows, that accuracy is often not present and the transparency is sometimes deliberately disguised. There is absolutely no particular obligation on those taking part in that transaction to make sure that the consumer is aware. It is very much caveat emptor, and one is in the hands of the legal representation one has—if any—in conducting it.
The Bill should state that there must be a clear explanation of the length and terms of the ground rent—the minefield that lies ahead of escalation charges and the development of the terms, some of which are not perhaps deliberately concealed but are well hidden in the small print. Reference has been made even to requiring release letters to cover pets, never mind alterations to the premises. Many issues have been used deliberately or have perhaps inadvertently fallen in such a way as to put leaseholders at a serious disadvantage. Of course, the hand they hold at that point is extremely weak, because if they decide to contest the payment, they have to consider not only the legal costs and the associated trouble and stress but the risk of forfeiture if they fail to pay. Paying and arguing afterwards is not a very successful basis for performance, either.
There are grounds for accuracy, transparency and accountability. We know that the CMA is actively looking at this area. If the Minister can give us some assurances about how he intends to proceed if the CMA does not do the business, I would find it a very helpful way forward.
I press the Minister to say that this is a sensible amendment that protects leaseholders and that any good landlord should be happy to comply with it. Therefore, I hope he will feel able to accept it.
Lord Lennie (Lab) [V]
My Lords, this amendment would ensure that landlords with existing leases explain why they are charging ground rent and that agents publicise the details of any such ground rent. Both of these points are pertinent and I am pleased that the noble Baroness, Lady Grender, tabled the amendment.
The first issue of ensuring that landlords explain why they are charging ground rent is so important precisely because there is often no reason to charge ground rent. Residents get no material benefit from paying these sizeable fees, yet the landlords often increase the charges exponentially. If the Minister is reluctant to accept the amendment, could he estimate how many landlords currently offer explanations for the ground rent they charge?
On the second issue of ensuring that estate agents publicise the details of any ground rent, I understand that Rightmove has recently changed its policy to encourage agents to do exactly this. Can the Minister confirm whether the Government have any plan of their own to follow this and encourage it further?
Lord Greenhalgh (Con)
My Lords, to respond directly to the noble Baroness, Lady Grender, I appreciated the point about the importance of seeing where the CMA’s investigation ends up and the potential need to look at consumer protection should that not succeed. I do not want to pre-empt the investigation at this stage, but it is an important point, because one of the fundamental purposes of the Bill is to increase transparency and clarity for home owners. I listened carefully to the noble Baroness, Lady Grender, and the noble Lord, Lord Stunell, and I thank them for putting forward these amendments, which look at the issue of transparency and seek to add to that agenda.
I shall start by addressing Amendment 6, which would put a requirement on landlords to write to their leaseholders setting out why they are charging rent and what it is being used for. As noble Lords know, and I have mentioned previously today, it is our intention that no rent can be charged beyond that of a peppercorn for regulated leases once the Bill comes into effect, admittedly for new leases, unless special rules applicable to shared ownership leases or leases replacing pre-commencement leases apply.
In the Bill, “rent” has been defined in a way that will preclude landlords sneaking prohibited rents into leases under another name. This will ensure that there is clear transparency in the lease as to what is charged as “rent”—which is to say, generally, a peppercorn—and what is charged in return for a “service”. It is also important for your Lordships to note that, where a leaseholder may be dissatisfied with service charges, there are statutory processes they can use to seek redress. I am sure that noble Lords will agree that while this amendment is a welcome attempt to increase transparency, the Bill as drafted delivers the important changes that we want to see in the system.
I turn to Amendment 13, which would require a landlord to inform leaseholders of their rights under housing law in England and Wales and in relation to the Bill before entering formal and/or informal renegotiations or extensions to an existing lease. I note the concerns of the noble Baroness, Lady Grender, and the noble Lord, Lord Stunell, that without such an amendment there may be a rush for landlords to incentivise leaseholders to extend their leases before the changes in this Bill come into force. The effect of this, in their view, would be to ensure that ground rent on these leases could continue to be collected, thus trapping more people in a situation of ground rent payments in the system we are trying to stop.
Unfortunately, as drafted, the amendment would not come into effect until after the Bill commences, and it would not have the desired impact that the noble Lords seek. However, I assure noble Lords that we are working closely with a wide range of stakeholders who are committed, as the Government are, to ensuring that leaseholders are aware of their rights and what routes of redress they can take. I also invite the noble Lords to join me in these efforts to ensure that these important messages reach as far as possible. Communication of these important points is key. I therefore ask the noble Lords not to press the amendments.
Baroness Grender (LD)
I thank the Minister and all noble Lords who spoke in the debate. We have not got to Amendment 13 yet, so I hope we can have a bit more discussion about it in the next group. I thank the Minister, in particular for his point about the CMA. I fully understand what he said. I hope that Ministers feel able to state an intent if the CMA court action is unsuccessful, simply to underline the need for particular developers who are currently on the naughty step to change their ways. I should very much like to revisit that, potentially on Report.
I thank the noble and learned Lord, Lord Mackay of Clashfern, for his support and my noble friend Lord Stunell for his example in Leicester, which I think still holds true in this discussion. I hope to take another look, read the Minister’s words and revisit this on Report. I want to ensure as much transparency as possible for leaseholders. I think we all agree that leaseholders are not given full transparency or provided with full information. That is why so many leaseholders are so aggrieved, particularly the 4.5 million current leaseholders, as opposed to future leaseholders. With all that in mind, I beg leave to withdraw the amendment.
Baroness Grender
This group has two purposes. The first would be to remove Clause 6 altogether to ensure that informal extensions come under the regulations proposed in the Bill; the second, less dramatic amendment would increase transparency in both formal and informal renegotiations or extensions of the existing lease. I shall deal with Clause 6 stand part first.
We see informal leasehold extensions as a significant potential loophole and the next obvious area to exploit for the “something for nothing” industry in this area. Therefore, we wish to ensure that informal leasehold extensions are regulated in the same way. I appreciate that there may be extenuating circumstances where there is a need for an informal extension—for example, if someone inherits a home and needs to make a relatively quick sale on a very short lease—but those circumstances should be the exception, not the rule. I fear that this will become standard practice unless the Government find a comprehensive way to restrict its use. If noble Lords who speak after me in this debate have concerns and examples of the advantages that an informal leasehold extension provides, I am more than happy to hear suggestions of better solutions than this, but the key question for this debate is how to prevent informal extensions being used, as they currently are, to exploit leaseholders and how that can be reflected in the Bill.
I will be using, in particular, specific examples provided in a detailed blog on this issue by Louie Burns. Sadly, he died a year ago. He was a trustee of the Leasehold Knowledge Partnership and an expert practitioner in the area of leasehold extensions. I have taken the liberty of sharing the link to his blog with noble Lords participating in the debate on this group of amendments.
Louie Burns called such offers “Trojan horse offers”. He described an offer from a real case he dealt with, made by a large London-based freeholder, on a property valued at £230,000 with a ground rent of £75 a year, doubling every 33 years, and a current lease of 75 years. The cost of extending the lease using statutory legal rights would be a total of £13,250, securing a lease of 165 years with zero ground rent.
Often, the freeholders in this scenario are professional money makers. They make money from licensing fees hidden in the lease, through claiming a finder fee for the building insurance, when people have no choice as to who building insurance is provided by, through service charges and ground rent—and, of course, through money paid to extend the lease.
The freeholder writes to the leaseholder offering to extend the lease back up to 99 years—which means that, 17 years later, the lease will need extending again —for £10,200, plus VAT of £1,000, with ground rent at £250 doubling every 10 years, with a short deadline of 30 days to make a decision offered by the freeholder. In the small print, of course, the leasehold is extended only to 99 years—or the freeholder may offer 125 years, without explaining that the extension is from the date that the lease was originally granted, not the date of the extension offered.
Louie Burns went on to explain how the costs described, over a 24-year period, added up to more than £100,000, which will go to the freeholder. Please remember that this is a specific real case, which he provided as an example. When compared, unfavourably, with the statutory route, costing about £13,000, with zero future ground rent, that is beyond shocking. We need to bring this sharp practice under some form of regulation.
The other option is to accept Amendment 13, which would impose an obligation to explain. If leaseholders had the full picture and knew both their statutory rights and the full costs over 24 years, say, they would have much greater control. The alternative is an informal extension to 99 years—which, as I said, would have to be renewed 17 years later, and then in turn makes the flat impossible to sell, and prohibitively expensive to maintain, with the ground rent alone.
An informal extension of a lease also means that the leaseholder is not protected by the law, and the freeholder can make changes by saying things such as:
“We are not looking to amend your lease in any way, we will only modernise the terms of your lease.”
Louie Burns, in his blog, told people to beware of the term “modernise” as used here, because it means “amend”. An informal leasehold extension is a quick route for a freeholder to add additional payment. It is also a quick route for a solicitor to receive a fee—which may explain why, often, solicitors do not give a warning.
The statutory route is slower. With banks and building societies now showing reluctance to lend for such leasehold arrangements, yet again, the person who suffers the most, and is caught between freeholder and lender, and cannot sell, is the leaseholder, who has received minimal information. Sometimes Ministers like to solve such transparency issues through guidance. But if the aim is to ensure that the freeholder complies with the law, I suggest that the transparency approach should be in the Bill. I beg to move.
Lord Naseby (Con) [V]
My Lords, the noble Baroness has done us a great service. We have all read about these situations. I am not aware of the details of any of them, but there has been enough coverage in the responsible media for me to see that this is a problem. I hope my noble friend on the Front Bench will be able to address it.
I assume that in this group we are also dealing with my noble friend Lord Young’s Amendment 12, although I notice that it is not listed. It says “After Clause 6”. Is that after this debate?
The Deputy Chairman of Committees (Lord Russell of Liverpool) (CB)
It was in the first group.
The Deputy Chairman of Committees (Lord Russell of Liverpool) (CB)
Yes, we have.
Lord Naseby (Con) [V]
I apologise. I very much support what the noble Baroness said. I need do no more than ask my noble friend on the Front Bench to take it really seriously.
Lord Mackay of Clashfern (Con) [V]
My Lords, Clause 6 is inconsistent with the spirit of the amendments in the first group, which were heartily supported. In a sense Clause 6 stands against them, and for that reason I suppose it is logical to say that it should not stand part.
I am also very impressed by Amendment 13. There is a need to deal with this situation, in which people find themselves unconsciously in a very difficult position. I hope my noble friend will find it possible to deal with this in a satisfactory way.
Lord Stunell (LD) [V]
My Lords, I thank all those who have spoken. I particularly thank the noble and learned Lord, Lord Mackay of Clashfern, whose legal background and desire to make sure that the consumer gets the right result are very much assisting our argument on this occasion.
My noble friend Lady Grender set out our case very clearly. I want to make it clear that informal leasehold extensions can be as bad an evil, if not a worse, as some of the other abuses that have been talked about. They are the worst for being concealed. If you are offered what appears to be a new lamp for old, and the only difficulty you might face is that somebody may modernise the terms of your lease, it is very likely that what modernising the terms of your lease consists of will escape your eagle eye.
It is like all those “Change my settings?” messages that one gets on websites. One wants to get on with the business. You click and carry on; you certainly do not read paragraph 123 on page 17, where you find that bedded in it there is a hidden charge, which you never find out until the moment it matters most. At the low-entry bar, I hope the Minister will say that he will come back and show us how we can incorporate into the Bill the claim for transparency we make in Amendment 13.
By saying that the clause should not stand part, we are following the logic of what the noble and learned Lord, Lord Mackay of Clashfern, pointed out: it is absolutely contrary to the spirit and direction in which the Minister claims this legislation is intended to go. It is a major loophole, because it means that existing leaseholders who might find a way of using this new legislation to have a new lease find themselves drawn on an escalator—an escalator of continuing and repeated higher charges over the lifetime of that lease. That may well be the nuclear weapon amendment, but I hope it emphasises to the Minister the significance of Clause 6 and the damage it can do, and no doubt will do, in many cases that have already been spelt out.
I very much hope that I shall hear from the Minister a positive reaction to this and that we can move forward on Report with a proposal, coming from his side of the Chamber, that will help to remedy this major deficiency in the legislation we have in front of us today.
Lord Lennie (Lab) [V]
My Lords, the Motion moved by the noble Baroness, Lady Grender, on Clause 6 exposes the extortionate legal racketeering that goes on in this sector. We are right to seek clarification. We cannot allow a situation to develop whereby landlords are pressuring tenants to agree informal extensions as a means to continue their ground rent arrangements. The fact remains that leaseholders need greater legislative protection. While the Bill will, I hope, set the foundations for that, there is much more that needs to be done. I hope that the Minister explains the intention behind Clause 6 and considers whether further provisions are necessary to prevent any exploitation.
Amendment 13 would require landlords to inform tenants of any ground rent extensions. This raises the question of whether lease extensions will be agreed before the changes in the Bill are implemented. Can the Minister estimate the legislative timetable for this Bill and when it might receive Royal Assent? Can he also confirm whether the ministry has received any reports of lease extensions being rushed through before these changes have been brought into force?
Lord Greenhalgh (Con)
My Lords, I have just spoken of this Government’s efforts, including working with our key stakeholders, to strengthen leaseholders’ awareness of their rights and what entering into a lease might mean for them. The noble Baroness, Lady Grender, and the noble Lord, Lord Stunell, have tabled a Motion to oppose Clause 6 standing part of the Bill. I acknowledge the concerns that have been raised, but I point out that we have made a conscious decision that the Bill should not create barriers to non-statutory leasehold agreements. Part of the reason is that more flexible processes outside the statutory route can, in some cases, be more cost-effective and quicker for both the leaseholder and freeholder, so we want to allow this option and choice to remain.
I reassure your Lordships that we do not want leaseholders to be taken advantage of in this situation, so we are working to ensure that better information, advice and support are offered to them, and we will consider where we can strengthen this where appropriate. By making the system more transparent and exposing inappropriate practices, as described by the noble Baroness, Lady Grender, and others, we can protect leaseholders.
It is important that your Lordships note that the Government are considering the Law Commission’s recommendations on enfranchisement. They include recommendations on voluntary informal lease extensions. When the time comes, I will be more than happy to engage with noble Lords on this, as we have done on this Bill.
Our overall approach to increasing awareness and making things fairer and more affordable will help protect more leaseholders, whichever route they choose. I therefore ask the noble Baroness to withdraw the Motion.
Baroness Grender (LD)
I thank the noble Lord and all Ministers for participating in this part of the discussion. I fully recognise the need for some level of flexibility and that there is a case for informal extensions. As I said in my opening remarks, I still think there is a danger of this being a loophole through which the industry, which we know is not very responsible or kind to leaseholders, will travel. It will exploit any and every available gap in the law in order to perpetuate itself. For example, when the Government said they were going to ban leasehold houses, the industry rapidly moved to deploy estate rentcharge schemes attached to freehold houses. This ensured that there were still two profits on the sale of every plot and that investors could still access a certain income stream, albeit by a different name. As a result, the consumer—the leaseholder —continues to suffer.
I very much appreciate the Minister’s intention and hope that we continue discussions about how this significant loophole can be closed. I particularly thank the noble Lords, Lord Naseby and Lord Lennie, and the noble and learned Lord, Lord Mackay of Clashfern, for their support for these amendments. Like my noble friend Lord Stunell, I hope that we move to a pragmatic remedy. There is potential for compromise and, with that in mind and an optimistic sense that there will be some compromise on Report, I beg leave to withdraw the Motion that Clause 6 do not stand part of the Bill.
The Deputy Chairman of Committees (Lord Russell of Liverpool) (CB)
That concludes the work of the Committee this afternoon. I remind Members to sanitise their desks and chairs before leaving the Room.
Leasehold Reform (Ground Rent) Bill [HL]
Monday 14th June 2021
(2 years, 10 months ago)
Grand CommitteeRead Full debate Leasehold Reform (Ground Rent) Act 2022 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 1-III Provisional third marshalled list for Grand Committee - (11 Jun 2021)
Baroness Grender
Member’s explanatory statement
This amendment would raise the minimum financial penalty under the Bill from £500 to £5,000.
Baroness Grender (LD)
My Lords, this group of amendments is an attempt to ensure that enforcement bodies have sufficient financial long-term sustainability. It also ensures that there are appropriate deterrents in the Bill to incentivise freehold landlords to understand just how serious a breach will be and the impact it will have on their current portfolio of properties. The additional aim is to create an incentive for local authorities to pursue financial penalties.
Today, of course, is the fourth anniversary of the Grenfell Tower fire where 72 people lost their lives, and I am sure that we are all thinking of those bereaved families, survivors and residents as they remember their loved ones. That tragedy underlines just how important it is that homes are safe and secure, and one of the first lines of defence is the enforcement authorities.
In addition to moving Amendment 14, I will speak to Amendment 15. While we appreciate that the Minister stressed at Second Reading that the fines would be for each individual lease, the danger remains that an enforcement authority will receive only £5,000. Indeed, Clause 9(3) states:
“Where the same landlord has committed more than one breach of section 3(1) in relation to the same lease, only one financial penalty may be imposed on the landlord in respect of all of those breaches committed in the period”.
Several noble Lords at Second Reading raised the issue of enforcement and resources to enforce. Local authorities’ trading standards departments have experienced staff cuts of at least 50% since 2010. It is not unusual for skilled and experienced—and therefore more expensive—staff to have been replaced with less skilled and lower-salaried staff. Sometimes trading standards has been contracted out to third parties completely. Local authority trading standards departments need greater sustainable long-term resource and that means generating greater levels of income.
Therefore, there should be a wider range for the fines and a higher start point for the penalty. The amount should be consistent with the Tenant Fees Act 2019 where landlords breach Sections 1 and 2 of the Act on more than one occasion. If you are a leaseholder, you are not a home owner, and therefore the levels of potential fines should surely be similar to those for rogue landlords in the Tenant Fees Act. The Bill relies on local weights and measures authorities—namely, trading standards departments—to oversee this new law. The Government will already be well aware of the sluggish approach to fining and banning rogue landlords under the Tenant Fees Act 2019. When originally launched, the Government predicted that there were 10,500 rogue landlords; so far, only 43 have been registered. Speak to many local authorities and they will report that an operation of this nature requires early up-front investment, but other priorities such as social care with chronic records of poor funding will inevitably come first. As Liam Spender, a trustee of the Leaseholder Knowledge Partnership, points out:
“It is likely most local authorities will decline to get involved, as they do in most private sector housing disputes now, on the grounds that leaseholders have civil claims they can use to recover any prohibited ground rent.”
Waiting for the next local government settlement is a short-term solution and, frankly, unlikely to solve this problem given other competing demands on local authorities. Now the Government are adding another task with too limited financial reward: as the fines currently stand in the Bill, the incentive to take the necessary action to fine a freeholder will not be worth the effort.
Amendments 14 and 15 would raise the minimum financial penalty from £500 to £5,000 and the maximum financial penalty from £5,000 to £30,000. The potential of greater fines would give local authorities an opportunity to invest in this operation, charge rogue landlords and freeholders and therefore sustain a longer-term, fully budgeted operation. If the Government are opposed to this increase, perhaps the Minister could share what level of financial penalty would make it worth while for a local authority to pursue a freeholder. If the argument is that this will have an impact if it is a penalty on a developer across several leases, what level of fine do the Government anticipate?
On Amendment 16, in my name and that of my noble friend Lord Stunell, the arguments are similar. It contains a new clause that would be inserted after Clause 12 that would extend the banning order regime under the Housing and Planning Act 2016, with an exception for rent recovery orders. It would ban landlords who received three or more penalties in any six-year period from collecting some or all of the monetary ground rents arising under pre-commencement leases. That should be a clear signal to persistent offenders that, under Clause 9 of the Bill, if the maximum penalty has been charged three or more times against the same landlord or a person acting on their behalf, there will be restrictions and penalties.
We recognise how significant the failure is of this part of the Housing and Planning Act 2016. On 9 January 2018 the then MHCLG Minister, Jake Berry MP, said the Government’s estimate was that
“about 600 banning orders per year will be made”.—[Official Report, Commons, Fifth Delegated Legislation Committee , 9/1/18; col. 12.]
In April, the Housing Minister, Christopher Pincher MP, confirmed that just seven landlords had so far been issued with a banning order. As the National Residential Landlords Association says of this failure:
“The Government needs to work with local authorities to understand the true extent of the pressures faced by environmental health departments responsible for enforcing many regulations”
affecting this sector.
“Too often, government has introduced initiatives to crackdown on”,
for instance,
“criminal landlords without properly understanding whether councils have the resources and staff to properly enforce them. In short, regulations and laws to protect tenants”—
and to protect leaseholders from bad practice—
“mean nothing without them being properly enforced.”
When we look at the level of these fines, we must remember that this industry is vast. The MHCLG’s own estimate is that, of the 4.5 million leasehold properties in the UK, approximately 2.5 million are owner-occupied. All these people are likely to be paying some level of ground rent. The companies behind the freehold interests receiving these ground rents are huge undertakings. They are more than a match for any local authority seeking a £5,000 fine. For example, Proxima GR, a key company in the Vincent Tchenguiz freehold portfolio, reports in its most recent accounts that it expects to receive £2.4 billion in ground rent between 2019 and 2080. It is believed to control a portfolio consisting of freehold interests over hundreds of thousands of leasehold properties. The same accounts report cash income of £24 million in the same year. A fine of £500 or £5,000 for multiple breaches is no disincentive to any organisation of that scale. Information on other ground rent investors is hard to come by but, from the limited information available, there are many other substantial operators out there. For example, in 2016, leasehold properties worth £64.8 billion were sold. Of these, new-build properties were worth £13.7 billion, leasehold house numbers doubled, and developers made £300 million to £500 million a year from ground rent sales. Looked at from that perspective, £5,000 seems a very small sum to put as a maximum. Has the Minister considered an industry-funded redress scheme to support enforcement?
To conclude, there should be greater detail in the Bill about how to resource penalties and sanctions to sustain longer-term planning and funding. These are large industries with significant levels of income and profit: they need to be aware that their days of exploiting leaseholders are over and failure to recognise that will cost them dearly. I beg to move.
Lord Naseby (Con)
My Lords, I am delighted to support the noble Baroness on Amendments 14 and 15. I was just reflecting on how important this issue is: hundreds of thousands, maybe millions, of families are affected. The problem probably goes back over half a century. It is to the great credit of my noble friend on the Front Bench that the Bill is before the Committee now, and I say to him “Well done.” In 1968—I see my noble friend Lord Young sitting opposite me—I had the privilege of being elected, somewhat against the odds, as the potential leader of the London Borough of Islington. We won 57 out of 60 seats; we did a deal with the other three, because they were a local community group. I was then elected to be leader and chairman of the housing committee. Sitting here this afternoon, I still remember working really closely with the officers of that authority, from the town clerk down. It was not entirely to do with leaseholds, but it was to do with property and rogue landlords. Two in particular come to mind: a local one called De Lusignan and the one whom we all remember, Rachman. Those rogues and their successors have not gone away—the noble Baroness is absolutely right; they may well have multiplied for all I know. They were a huge problem even in those days.
There is another element, which I can talk about, though some noble Lords might have more difficulty. I have lived and worked in Pakistan, India and Sri Lanka. I have the greatest respect for those countries. I would go as far as to say that I love them dearly; I know them extremely well. As far as I can see, there is a rogue element, particularly in the poorer parts of our country, which exploits vulnerable migrants. That is wrong, and we know that it is wrong, but some local authorities appear to be slow, resistant, unwilling or too conscious of the social situation. In my view, as someone who has taken a deep interest in housing all my political life, that rogue element has to be addressed—it does not matter who they are.
The noble Baroness is right about the figures that are in the Bill. In today’s world, £500 is absolutely no deterrent to anybody: you only have to see what is happening out there in the market. She is right that £5,000 is the beginning of a reasonable deterrent. Personally, I would do a multiplier by five, because £25,000 somehow—perhaps it is the advertising man in me—sings out as even stronger than £30,000. I do not know why that is, but I thought about this when I was working on it over the weekend. I agree with the noble Baroness that £5,000 is the beginning of a proper deterrent, and I think that £25,000 should be the maximum.
Of course, it is for my noble friend on the Front Bench to decide what Her Majesty’s Government believe is appropriate, but all I say to him is that this area needs dealing with, and here is an opportunity to do it. I again congratulate my noble friend and his colleagues on bringing this Bill forward. Let us make a really good job of it.
Baroness Jones of Moulsecoomb (GP) [V]
I congratulate the noble Baroness, Lady Grender, on her clear exposition of her very sensible amendments. It is obvious to everybody that rogue landlords have an easy ride in this country. It is far too easy for such unscrupulous landlords to get away with far too much, and that extends to freeholders abusing leaseholders with exploitative ground rents. In shorthold tenancies, a lot of wrongdoing occurs unintentionally by uninformed or incompetent landlords, but that is not the case in freeholder-leaseholder relationships, where the freeholder is usually a big corporate entity that is professionally managed and legally advised. For that reason, any breach of this Bill is likely to be wilful, intentionally exploitative and involve large sums of money.
It is obvious, then, that the penalties currently contained in the Bill are paltry and unsuitable to deter or to punish the criminal behaviour. As a proportion of these massive landowners’ revenues and profits, a minimum penalty of £500 is irrelevant. I would much rather see financial sanctions on companies being similar to those under the data protection laws, which specify penalties as a percentage of a company’s global turnover. That is how you get companies to sit up and pay attention. At the very least, these penalties should be much higher than they are in the Bill. I am sure that the Government know that, so I have no idea why they chose this figure of £500, which is absolutely ludicrous.
Lord Stunell (LD) [V]
My Lords, as my noble friend Lady Grender has clearly set out, the current provisions in the Bill to enforce compliance by those who are determined to do wrong will not work, and that view has been strongly supported by the noble Lord, Lord Naseby, and by the noble Baroness, Lady Jones of Moulsecoomb. The three reasons for that are quite clear: the penalties themselves are trivial; the enforcement system will be ineffective; and rogue landlords will prosper.
First, the penalties themselves are trivial. The noble Lord, Lord Naseby, has made the point perhaps better than I can, but in many cases £500 will be less than the current annual leaseholder charge. Indeed, with escalation clauses in place, over the lifetime of the lease £500 might be seen as very small change indeed. The case for making these penalties bite is overwhelming, simply because the unscrupulous who carry on as though the law has not changed will readily write off these penalties as essentially meaningless. I shall not engage in a bidding war with the noble Lord as to how high we should go, but each of us in our different ways would make the point that £500 is nowhere near enough to be effective as a deterrent.
It is not just nowhere near enough to be effective as a deterrent; it is not anywhere near enough to pay for a sound enforcement policy. The enforcement system will be ineffective. It is supposed to be paid for by the pitifully small fines, which will be paid not by all those who offend but all those who are successfully prosecuted—only those fines will contribute to the funding of the trading standards department. It will therefore be the case that the trading standards department exercises passive power only, exercised, if at all, only when a big fuss is made about a particular case, perhaps by a local councillor or an MP.
It is extremely doubtful that any responsible financial officer of a local authority, when building a budget for the next year, would authorise the recruitment of staff to enforce legislation on the basis that it would be funded by £500 for each case that is won. Of course, it would need recruitment of staff because, as my noble friend Lady Grender pointed out, there has been a 50% reduction in staff in trading standards over the past decade and a loss of skills to go along with that. This new burden, to be dealt with effectively, would have to have additional resources. I am sure that the Minister is not content simply to put in place a deliberate paper tiger of enforcement—unless that does in fact suit the Government’s purpose: something that looks okay in the Bill but about which their landlord friends can be told, “Don’t worry, just keep your head down and carry on.”
That brings me to Amendment 16, to which I have added my name. We have to stop rogue landlords prospering. Of course, they already do prosper, and that is what the Bill is all about: stopping abuses or restricting behaviour which, though lawful, ought not to be. Those with a great deal of power in a contractual relationship, the landlords, are imposing oppressive terms on those with very little power, the leaseholders. And those who impose the most care the least. Rogue landlords will weigh up the risks and rewards and reach a commercial judgment. They can easily afford to treat the penalty system as a small marginal cost as it stands; they know it will not even cost them £500 per breach but only £500 per breach which leads to a successful prosecution—that is quite a different thing.
That successful prosecution will be rare without Amendments 14 and 15, which seek to generate the money for there to be a team of people who can enforce it. That is where the importance of Amendment 16 lies, in introducing an effective banning order regime. Only with a clear process for banning repeat offenders, driving them out of the market, can the stakes be raised sufficiently high to deter rogue landlords and, in the most egregious cases, drive them out of business.
I want to hear the Minister say to your Lordships that he genuinely wants this Bill to deliver an effective regime of penalties and punishments that will safeguard the good intentions of this legislation against the small minority of unscrupulous landlords who seek to bypass it and who continue to exploit leaseholders regardless. One way the Minister can do that is by accepting these three amendments. The Bill as drafted certainly does not give us those assurances. If he does not accept the amendments, he surely has a duty to your Lordships, and to leaseholders themselves, to explain what alternative mechanisms he proposes to put in their place instead.
Lord Lennie (Lab) [V]
My Lords, Amendments 14 and 15 refer to the penalties contained in the Bill, whereas Amendment 16, as we have heard, refers to the banning orders regime. I am pleased that the noble Baroness, Lady Grender, has introduced these, so that the Committee can consider whether these current penalties are appropriate and whether the banning orders should be extended.
First, on the issue of financial penalties, as we have heard, the amendments would increase the minimum financial penalty from £500 to £5,000, and increase the maximum penalty from £5,000 to £30,000. Given the sums of money which are involved in leasehold arrangements and the costs associated with ground rent, the current penalties seem lower than would be expected. If the Minister is not able to accept the noble Baroness’s amendment, I hope he will explain and justify how the Government arrived at those figures.
On the banning order regime, the noble Baroness brings forward the question of whether the provisions of the Housing and Planning Act should be strengthened. The amendment proposes the banning of landlords from collecting ground rents if they receive multiple penalties. On the same issue, I would be grateful if the Minister could explain whether consideration has been given to banning landlords from renting properties at all when they receive financial multiple penalties. Tenants must be protected from rogue landlords who break legislation over and over again. I hope that the Government will detail what steps they are taking to hold these repeat offenders to account.
The Minister of State, Home Office and Ministry of Housing, Communities and Local Government (Lord Greenhalgh) (Con)
My Lords, I also join the noble Baroness, Lady Grender, in recognising that today marks the fourth anniversary of the Grenfell Tower tragedy, which was the largest loss of life seen in a residential fire since the Second World War. My thoughts are with the survivors and the bereaved.
I thank noble Lords present and those participating virtually for all their time and effort in scrutinising the Bill so far. We have had very good discussions in this Committee and through our engagement meetings. I am grateful for the commitment from all noble Lords to improve the Bill and to reform leasehold more generally.
I have listened to the concerns raised by noble Lords that the penalties set out in the Bill are not high enough and that there should be more significant consequences for those who breach the provisions of the Bill multiple times. It is vital that the Bill contains enforcement measures that offer a strong deterrent to any freeholders and their managing agents who try to get around its provisions, and in so doing protects leaseholders. Amendments 14 and 15 in the name of the noble Baroness, Lady Grender, would raise the penalties that can be imposed per breach from a minimum of £500 and a maximum of £5,000 to a minimum of £5,000 and a maximum of £30,000 pounds —and my noble friend Lord Naseby would seek to quintuple it to a maximum of £25,000 pounds.
In response to the noble Lord, Lord Lennie, penalties in the Bill have been set with reference to the typical ground rent collected currently by landlords. I believe that the penalties have been set at an appropriate level to act as an effective deterrent without resulting in a disproportionate enforcement regime. I point out that £500 is a minimum only and that freeholders could easily be liable for multiple fines for the same building; a flat containing 40 leases could leave a freeholder exposed to a maximum fine of £200,000, which is a significant penalty. I ask noble Lords to also note that, through the Bill, we are introducing a minimum penalty amount. I believe this is the first time that this has happened in leasehold law—we have not seen this in other leasehold legislation. This will act as a strong deterrent to any landlord who considers breaching the provisions of the Bill. In addition, the penalty applies per lease, so freeholders of multiple properties could receive higher penalties if they breach the legislation multiple times.
In addition to any financial penalties, enforcement authorities and the tribunal can order the freeholder or their agent to refund any prohibited rent within 28 days, including interest. As I said, the enforcement regime in the Bill is the first time that a penalty regime has been applied to ground rent. This landmark change will ensure a strong deterrent in the protection of leaseholders.
Amendment 16 from the noble Baroness, Lady Grender, and the noble Lord, Lord Stunell, seeks to allow a housing authority in England to apply a banning order under the Housing and Planning Act 2016 against landlords who receive three or more maximum penalties from an enforcement authority under the Bill. Banning orders under the Housing and Planning Act 2016 are intended for the most serious rogue private sector landlords and are not intended for leasehold housing. I note again that the penalties in the Bill apply per lease, so enforcement authorities can impose multiple penalties on freeholders who commit multiple breaches. Enforcement authorities and the tribunal can also order a refund of any prohibited rent.
The noble Baroness, Lady Grender, asked what incentives there are for local authorities to carry out enforcement penalties set at this level. They retain proceeds and, as I have pointed out, multiple breaches incur multiple penalties. There is also a point of principle here: that local authorities should not consider the potential financial windfall when deciding to take enforcement action; they should seek to set fines relating to the breach, and therefore they should be proportionate.
Baroness Grender (LD)
I thank the Minister for his response. I am very interested in his response about redress schemes—that is something that we could possibly explore at Report. Just to put things in perspective, the Government have recently published a draft online safety Bill which would enable a new online regulator to fine companies up to £18 million or 10% of their annual global turnover, whichever is higher. We are looking at those kinds of equivalents here.
The point about local authorities contemplating a possible windfall is the very opposite of the current scenario, where a local authority will look at a potential freeholder and ask whether, if it goes down the route of attempting to fine for breach of lease, three days’ work alone by somebody with no legal skills will use up the £500 that it would get from the fine. While I appreciate that, as I said in my opening remarks, fines would be across all leases, there is a problem when, if there are multiple breaches for one lease, that is not recognised in the legislation as drafted.
The most important issue is that we need to understand that the penalties and punishments will actually work. We know that there are significant challenges for local authorities to enforce the current systems and that these new systems will seriously struggle and be seriously challenged.
I thank all noble Lords who have expressed their support for these arguments and amendments. Obviously, we will want to revisit this. We will look at the Official Report and see what can be done to continue to pursue this issue, which is all-important because, without enforcement, the Bill is simply not going to work. I beg leave to withdraw the amendment.
Lord Lennie
“Assessment of financial impact for tenants in long leases of dwellings
(1) Within 30 days of the day on which section 3 comes into force (for any kind of lease), the Secretary of State must publish an assessment of the financial impact of this Act for tenants in long leases of dwellings.(2) The assessment must consider whether further legislation is necessary to address the financial consequences of this Act for tenants in long leases of dwellings, including but not limited to in relation to—(a) lease forfeiture;(b) transfer fees;(c) redress schemes;(d) enfranchisement.(3) The Secretary of State must lay the assessment before Parliament.”Member’s explanatory statement
This amendment would ensure that the Government must publish an assessment considering the financial impact of this Act for leaseholders, and whether further legislation is required.
Lord Lennie (Lab) [V]
My Lords, this Bill has the support of these Benches because it begins to address the myriad problems facing leaseholders across the UK, but unfortunately it barely scratches the surface. That is why Amendment 19 would require the Government to
“consider whether further legislation is necessary”
in four areas: lease forfeiture, transfer fees, redress schemes and enfranchisement.
On lease forfeiture—the concept of a freeholder taking possession of a property over a debt of a few thousand pounds—there is a clear need for reform. The Law Commission has already consulted on this. Transfer fees—where freeholders place a charge on the sale of a property, often of around 0.25% of the sale price—are preventing home owners selling their homes. There seems no justification for the continued existence of these fees. Meanwhile, the potential for redress schemes should be evaluated to consider the most serious of leasehold abuses. On enfranchisement—the process of extending a leasehold or purchasing a share of the freehold—the Government must look at some of the obstacles currently in place. All in all, as I said earlier, the Bill barely scratches the surface of the issues facing leaseholders. Further legislation in this area is clearly required.
I am pleased that the noble Baroness, Lady Pinnock, has tabled Amendment 20, which raises the question of
“whether a further extension of the ground rents ban could benefit existing leaseholders, especially those facing bills for fire remediation work.”
The issue of remedial costs was brought up in my earlier Amendment 9, and I hope that, this time, the Minister will give a cast-iron date for when the Government will bring forward legislation to properly protect leaseholders.
In Amendment 21A, the noble Lord, Lord Berkeley, probes the application of ground rents charged by the Crown, including the Duchy of Cornwall. The noble Lord is right to probe the issue and to draw attention to the Law Commission’s work in this area. I look forward to clarification from the Minister. I would be interested to hear whether the Minister can confirm how many Crown properties this relates to and whether the Government intend to engage the residents of these homes.
Baroness Pinnock (LD) [V]
My Lords, I will speak to Amendment 20 in my name and that of my noble friend Lady Grender. I draw the Grand Committee’s attention to my relevant interests, recorded in the register, as a member of Kirklees Council and a vice-president of the Local Government Association.
Today marks four years since the Grenfell tragedy, which cost the lives of 72 people. It took away from many others their homes and their livelihoods. Those who survived will for ever have the dreadful memory of that night, leaving a dark mark on the rest of their lives. That tragedy has rightly cast a long shadow over the construction industry. Questions asked immediately following Grenfell are still failing to be adequately answered.
The Government know that the Grenfell fire was accelerated by the use of flammable cladding. They know that hundreds of other buildings have the same or similar cladding, with the same fire risk. They also know that post-Grenfell investigations of these self-same buildings have uncovered further fire safety defects, such as the lack of building regulation-required fire breaks. The Government’s response to this life-threatening catalogue of errors is half-hearted at best. Leaseholders are being forced by the Government to carry the financial and emotional burden of the total inadequacy of the Government’s response.
The reform of leaseholders’ obligations is of course a central purpose of this Bill. I understand that the Bill seeks to prevent future unwarranted financial burdens being placed on leaseholders through ground rent demands. The purpose of Amendment 20, in my name and that of my noble friend Lady Grender, is for the Government to assess the financial impact on leaseholders of this Bill after six months. It is a perfectly reasonable and sensible amendment that I hope the Government will be minded to accept.
The cladding scandal has revealed the enormous financial impact on leaseholders. In a housing association block of flats in the Manchester area, leaseholders have been sent bills for £95,000, when those very flats were built to enable people on lower incomes to buy their own homes. Given that the value of their asset is now zero, paying any bill of that size is simply impossible for the leaseholders.
Those leaseholders who have, often unknowingly, signed up to escalating ground rent penalties are also omitted from the Government’s thinking. For instance, one leaseholder found that his annual ground rent for a one-bed flat in London was to double every five years on a flat that was purchased for £170,000 in 2018. In 20 years’ time, the ground rent will have risen from an affordable £1,050 per annum to a completely unaffordable £16,800 per annum. As with the innocent victims of the cladding scandal, these leaseholders need help from the Government, hence subsection (2) of my amendment.
There is an accumulation of evidence that leaseholders are not getting fair treatment as malpractices are uncovered. Those leaseholders facing massive bills for putting right fire safety defects have done everything right and nothing wrong. Those leaseholders who face increasingly large bills, having unwittingly signed up to ground rent clauses, are also victims of a housing scandal.
Amendment 20 is the opportunity for the Government to turn their attention to righting failures in the housing system for leaseholders, current and past. On the day when we remember Grenfell, let this also be the day when the Government finally agree to find financial solutions for leaseholders who have been left to pay the enormous price of the wrongs of the housing industry. I look forward to the Minister’s response.
Lord Berkeley (Lab)
My Lords, my Amendment 21A is grouped with Amendments 19 and 20, spoken to by the noble Lord, Lord Lennie, and the noble Baroness, Lady Pinnock. They have one thing in common, in seeking further information and reports from the Government to clarify and provide more information to help us debate not only this Bill but subsequent ones. I will confine my remarks to the Crown issues listed in Clause 23(2), which comprise the Crown Estate, the Duchy of Lancaster, the Duchy of Cornwall and government departments in summary, and in particular the definitions and scope of excepted areas.
It is interesting to refer to paragraphs 7.149 and following in the Law Commission’s report. These basically suggest that the Crown, in its totality, is happy to comply with whatever legislation the Government put forward on these issues, except in relation to what are called “excepted areas”, which are listed in paragraph 7.151. To summarise, those are:
“(1) where the relevant property stands on land which is held inalienably; (2) where particular security considerations apply”—
which is fair enough—
“(3) where the property is in”
or closely connected to
“historic Royal Parks and Palaces; and … (4) where the property … has a long historic or particular association with the Crown”.
When it comes to the Duchy of Cornwall, which of course claims to be part of the Crown, the report goes on to say that the Duchy of Cornwall estates
“are specifically stated to fall within the fourth category”.
I would challenge that; I think that it is specifically stated by the Duchy, and I will come on to why.
Baroness Ritchie of Downpatrick (Non-Afl) [V]
My Lords, I support Amendment 19, in the names of the noble Lords, Lord Kennedy of Southwark and Lord Lennie, and Amendment 20, in the name of the noble Baroness, Lady Pinnock.
Like other noble Lords, I pay tribute to the 72 people who lost their lives in the Grenfell tragedy some four years ago. There have been many lessons from that tragedy for housing management purposes, and I hope that the Government and housing organisations learn much from them.
As it currently stands, this legislation will undoubtedly have a potential long-term financial impact for existing long-term leaseholders, as they will be excluded from it. I agree with the noble Lord, Lord Lennie, who said that, while the legislation is welcome—I definitely welcome it, and the Northern Ireland devolved authorities introduced similar legislation—it barely scratches the surface. There is no doubt that existing leaseholders will have to pay onerous ground rents with no sense of freehold. Amendment 18, which the noble Lord did not move, referred specifically to the need to remove ground rent for all leaseholders.
This legislation is quite limited and the Government have promised other legislation. When will that be brought forward? Can the Minister give us a revised timeframe with exact dates therein? The delay in bringing forward this limited legislation and the need for other aspects in relation to enfranchisement were raised at Second Reading and again today. I welcome the Bill’s proposals, but I feel that enacting the amendments would ensure that the Government could bring forward legislation at a later stage and provide the important financial assessment on the holders of long leases that is urgently required.
To introduce fairness and equity into the property market, the new clause introduced by Amendment 19 should be accepted by the Government to ensure that an assessment takes place of the financial impact for tenants in long leases of dwellings that examines lease forfeiture, transfer fees, redress schemes and enfranchisement. The Law Commission report made recommendations in respect of enfranchisement following promises by Theresa May’s Government in 2017 to tackle unfair and unreasonable abuses of leasehold, particularly the sale of new leasehold houses and onerous ground rents. With the legislation applying only to new leases, why are the Government allowing developers to exploit home owners through exorbitant ground rents? Why the piecemeal approach to this legislation? Why did the Government not bring forward more comprehensive legislation?
I believe the Government should accept Amendment 19. If enacted, it would enable the Government to have an assessment of the current housing situation to indicate whether further legislation to ameliorate the situation is required. I fully agree with Amendment 20, in the name of the noble Baroness, Lady Pinnock, which tries to help those facing fire remediation work. Again, I think of the whole area of Grenfell.
There is also a view in some quarters, particularly in the management of the property sector, that the government impact assessment accompanying this Bill demonstrates the negative impact of this legislation on the housing market: increasing house prices and creating more barriers to entry for consumers trying to get on to the property ladder. It has been suggested that, without proper and careful consideration of the detail and, in particular, the effects of these changes on apartment buildings, this legislation could have far-reaching implications across a range of issues, including building management, accountability and, crucially, the safety of apartment buildings. This is on top of the immediate impacts on the price of flats and the ability of prospective owners to buy new builds, which have been revealed in the impact assessment. Would it be possible for the Minister to comment on these observations in relation to the management of the property sector? Do the Government have any solutions in mind?
I look forward to the Minister’s answers to all these questions. I support the amendments in the names of my noble friends Lord Lennie and Lord Kennedy of Southwark, and of the noble Baroness, Lady Pinnock.
Baroness Jones of Moulsecoomb (GP) [V]
My Lords, I regret to say that I found the Minister’s rejection of the previous group of amendments extremely thin. I have always been puzzled why, when we have so many experts in your Lordships’ House—I do not include myself in that number—the Government would not listen to common sense and accept amendments that would have an impact and massively improve the legislation. I very much hope that we will bring these amendments back on Report and win a majority of the House round, so that the Government have to listen and improve the legislation, which is extremely thin.
When I was on the London Assembly, I was chair of the housing committee at one time. Just a few years before Grenfell we had a very similar incident in the area I lived in. Because it was so close to me, I was able to visit the block and see the problems. The housing committee wrote a short report and, although very short, the things we found wrong with the building—Lakanal, down in Camberwell—were almost exactly the same things that went wrong at Grenfell. We could have learned from Lakanal; we could learn from Grenfell and the awful death toll experienced there. We have to say that we cannot let people get away with making the same mistakes again and again.
It is welcome that the Bill bans exploitative ground rents in new leases, but it offers absolutely nothing to the thousands of leaseholders already trapped in exploitative ground rent arrangements. I think in particular of the dreadful time that the thousands of residents in hundreds of flammable apartment blocks are currently experiencing. Again, I do not live in such a block and do not have a vested interest. There is sheer chaos and uncertainty, particularly in blocks recently deemed safe but which have since been re-categorised as dangerous and needing expensive remedial work. Many of these blocks now need waking watches to patrol 24 hours a day—a little bit like in your Lordships’ House—and ensure that the building is evacuated in the event of fire. Fire systems that were previously deemed state of the art are now considered woefully inadequate and have to be totally replaced, so that every single apartment unit is individually alarmed.
Lord Naseby (Con)
My Lords, I think most legislators would agree that there should always be a review of legislation. Unfortunately, that has not always happened in the past, and I have put down a number of amendments to certain Bills to say that there should be a review. But quite frankly, to have a review within 30 days is totally unrealistic; it is far too fast. Given that we have Christmas holidays, Easter holidays and bank holidays—and even the occasional pandemic, with people working at home—I am sorry to say that proposed subsection (1) in Amendment 19 is not the least bit viable.
However, when we move on to Amendment 20, we come to a more realistic basis: that within six months of the Act being passed a review of its financial impact on leaseholders must be carried out. That is eminently sensible and a reasonable length of time. The Minister may have a different view, but looking at it from the outside—again, I speak as someone who has been involved in housing matters—I would have thought that it was a reasonable length of time.
Whether proposed subsection (2) in Amendment 20 is correct, I am not sure. It says:
“The review must make a recommendation”.
I do not think it is the point of a review that it “must” do something. The whole point of a review is that it should look at all aspects of whatever it is reviewing and then make recommendations. That is a technicality, but it seems a more sensitive way of doing it.
I make one further point on the fire remediation work. I think Her Majesty’s Government, and this Government in particular, have tried very hard to get a grip on this very difficult area. One sees daily the outbreak of fire because of cladding, and each one seems to be different. I do not have the experience or the wisdom to know whether Her Majesty’s Government are doing enough in this area. I would appreciate from my noble friend, as would Parliament, a regular update on exactly what is happening on cladding. There is a great deal of confusion out there and clarity would help us all.
I was fascinated by Amendment 21A from my colleague the noble Lord, Lord Berkeley. I am conscious of having visited the model village that was formed in the Duchy of Cornwall—I cannot remember its name but I think it is in Dorset.
Lord Naseby (Con)
Yes, thank you so much.
I declare an interest in that I happen to own 40 acres around my home. Somebody suggested the other week that maybe a small bit of this—say five acres—might be a help to the housing market. I certainly would not think of having it on a leasehold basis. If I am going to build houses in the interests of the community in Bedfordshire, they will be sold, because if something is sold the family involved have real ownership. When they own their home it is not a disincentive but an incentive to do something good for their home; it is in their interests. I suspect that it is a disincentive to do so for most leaseholders.
I think the noble Lord is right to ask the question. I think he said that he sent three letters to the Duchy. The least that the Duchy should do is come back to the questions he asked. I hope that will go on the record. I say to my noble friend on the Front Bench that none of these are black and white, other than the fact that there should be a review within the six-month period.
Lord Stunell (LD) [V]
My Lords, this has been a very interesting debate. Everybody has spoken with a sense of understanding and concern, remembering that today is four years since the Grenfell tragedy. It should be a matter of particular regret in the kind of debate that we are having that, four years on, so few of the deep issues that have been revealed subsequent to that fire have yet been fully dealt with or accounted for. It is a matter of regret to me that the building safety Bill is still somewhat on the distant horizon, and that we have not yet solved at all the question of who will pay for the costs of this tragedy, since it affects households right across the country.
Noble Lords would expect me to focus particularly on Amendment 20 in the rest of my remarks. Before I do, I will comment briefly on Amendment 19 from the noble Lords, Lord Kennedy and Lord Lennie, which calls for a review. I will skip the number of days and focus on the four issues that they have said need urgent reform and which every speaker in this debate and anybody who has considered the issue would agree on: lease forfeiture, transfer fees, redress schemes and enfranchisement. The Bill does not deal with those four issues. It is time that the Government face up to that and present to Parliament—preferably in the form of legislation, but if not a published report—precisely what their view is on those issues.
The move of the noble Lord, Lord Berkeley, to clarify where Crown exemptions come into play for leaseholders raises an issue that he has brought to your Lordships on a number of occasions. I would be very interested indeed to hear whether the Minister is brave enough to accept his challenge to write to the Duchy of Cornwall and get it to answer the noble Lord’s letter. Your Lordships certainly deserve to hear from the Duchy precisely how it intends to proceed. If the legislation needs change and reform to take account of that, we need to hear the Minister say that he is ready to do that and to make sure that Crown exemptions are used with appropriate discretion and not in any way at all to put residential leaseholders of Crown land in a more disadvantageous place than those holding leases where the freeholder is a private body.
On Amendment 20, my noble friend Lady Pinnock set out, as she has done many times before to your Lordships, the grievous burdens placed on leaseholders across the country as a consequence of the remediation made necessary following property inspections post Grenfell. Before I go on, I remind noble Lords that I served as a Minister in the Department for Communities and Local Government, as it then was, with responsibilities for building regulations between 2010 and 2012.
The Grenfell inquiry has been hearing evidence of failures at many levels: building owners, building managers, designers, materials suppliers, on-site contractors, inspection teams and enforcement bodies. No one has escaped damning evidence of their failures. What there has not been is any evidence at all of failure by residents or leaseholders. On the contrary, it was the residents of Grenfell Tower who repeatedly warned of the dangers that other people chose to ignore. That led to the terrible tragedy, the deaths and the unmeasurable impact on so many lives of families in and around Grenfell Tower who survived that night.
It also led to the discovery that this was not an isolated case of many unfortunate things coming together in a sequence of horrible coincidences to make a one-off dangerous, combustible building. We now know that more than 400 other residential blocks have been found to have similar dangerous cladding, and the enforced inspection of those blocks has brought to light many other fire safety defects, costing billions of pounds in total. Many of those blocks are occupied by blameless leaseholders who find that they now live in a dangerous and unsaleable home and are being presented with enormous bills for remediation under the terms of their leases.
The Minister will say that this is not the place to insert a proper compensation scheme—nor does Amendment 20 do that—but he needs literally to take stock. That is what Amendment 20 tabled by my noble friend Lady Pinnock does. It asks for a taking stock of the impact of this Bill on leaseholders who live in those defective properties.
Time after time your Lordships have pressed the Government to come forward with a proper scheme of compensation for leaseholders all over the country who have been unwittingly caught up in the Grenfell scandal. Every time your Lordships have pressed Ministers—this Minister in particular—we are told, “Not here and not now”. Meanwhile, as my noble friend Lady Pinnock spelt out, leaseholders are being sent five-figure bills with 28 days to settle or face the forfeiture of their lease. They cannot raise finance on their now-worthless properties, and the Government still have not issued the vital information on how they can even access the loan scheme the Government announced months ago.
Will the Minister tell your Lordships today when those missing loan scheme criteria will be published and what the distribution system of those loans will be? Please can he assure us that it will not be administered via an outsourcing company such as that in Virginia, USA, which earlier this year was the nemesis of the green homes grant fiasco? Let this piece of work be started soon, carried out efficiently and delivered to the benefit of leaseholders as quickly as possible.
Secondly, will he urgently bring forward a proper compensation scheme and lift the threat of forfeiture and bankruptcy from innocent leaseholders trapped in these blocks? Will he, as an earnest of good intent, accept my noble friend Lady Pinnock’s amendment today so as, at the very least, to commit to take stock of the impact that a ground rent ban could have on those affected leaseholders and tenants?
Lord Greenhalgh (Con)
My Lords, I turn to Amendments 19 and 20 from the noble Lords, Lord Kennedy and Lord Lennie, and the noble Baronesses, Lady Pinnock and Lady Grender.
Under Amendment 19 the Government would be required to carry out a financial assessment of the Bill within 30 days of Clause 3 coming into force. The Government would also be required to consider whether further legislation would be necessary to address any financial consequences related to the Bill
“for tenants in long leases of dwellings, including but not limited to in relation to … lease forfeiture … transfer fees … redress schemes”
and
“enfranchisement.”
The effect of Amendment 20 would be to require the Secretary of State to complete a financial assessment of the impact of the Bill on leaseholders, specifically with regards to building remediation costs.
Lord Lennie (Lab) [V]
My Lords, I thank the Minister and all noble Lords who have spoken in this debate. The Minister’s response seemed to be that the amendments are unacceptable to the Government, either because they deal with future leaseholders or because they would delay the Bill being enacted. I find that quite astonishing. As a number of noble Lords have said, this is the fourth anniversary of Grenfell. The Minister’s suggestion that we are waiting for the building safety Bill—still to be proposed—to help deal with some of the issues of Grenfell is quite shocking. It will be even more shockingly felt by the families who suffered loss there. The Government were given the opportunity to build a better Bill, get a grip on the situation and give this rather timid legislation some proper teeth and real purpose, but that does not seem to be their will. We will wait for Report but, in the meantime, I beg leave to withdraw the amendment.
Lord Young of Cookham
Member’s explanatory statement
This amendment probes whether the Government can improve the definition of “rent” for the purposes of the Bill. It is derived from definitions in the Leasehold Reform Act 1967 and the Landlord and Tenant Act 1985. It is extended to include fixed service charges and index-linked service charges akin to monetary ground rents.
Lord Young of Cookham (Con)
My Lords, one of the themes in our debate on Second Reading was the need for a clear definition of what exactly a ground rent is. In addition to those who have taken part in Committee, I recall the contribution of my noble friend Lord Hammond of Runnymede, who drew on his experience in this area to outline some issues about definition. The helpful briefing that we have all had from the Law Society has as its first priority the need to amend the definition of rent in the Bill. It says:
“The main issue with the Bill at present is the failure to distinguish between different types of rent. Although the Government’s clear intention is to tackle ground rents alone, the Bill does not make this focus clear.”
During the proceedings this afternoon, I have had a further email from Mr Hugo Forshaw of the Law Society saying that he is supportive of the spirit of my amendment; he has offered support for a tweaked amendment on Report because, apparently, mine is not absolutely perfect, in his view.
Amendment 21 deals with this important issue. We need an effective and clear definition if the legislation is to work in practice. There is no current clear definition. Clause 22(2) says:
“‘rent’ includes anything in the nature of rent, whatever it is called”.
If I may say so, that is reminiscent of the controversy about self-identification and the context of gender identification—that if you say something is the case, then it is. The Government’s current approach will, I fear, result in litigation to determine the scope of what counts as ground rent. While such litigation is ongoing, leaseholders will have to continue to pay ground rents in all but name to avoid forfeiture. It is therefore essential that there is a workable definition from the day this legislation is commenced, without leaseholders needing to engage in litigation with landlords to establish that definition.
I listened to my noble friend the Minister’s point at Second Reading that the drafting of “rent” had been left deliberately wide so as to avoid providing a target for landlords to work around, but I am not sure this is wise. The drafters of our tax legislation face similar challenges, for example, yet manage to achieve a greater degree of precision than has been achieved here. There is value in ensuring that future leaseholders and their advisers can determine with certainty what is and what is not ground rent. That way, they can at least seek amendments to a proposed lease to avoid ever agreeing to pay a disguised ground rent. This broad definition risks capturing sums often reserved in the lease as rent, and therefore called rent, which may be perfectly legitimate service charges or insurance contributions. As my noble friend Lord Hammond said at Second Reading, they risk capturing market rents granted under a long lease, which is not the Government’s intention.
Leading law firms have echoed the Law Society and my noble friend Lord Hammond in requesting a clear definition of ground rent, lest there be serious unintended consequences. For example, Herbert Smith Freehills says:
“As currently drafted, the form of the legislation does not differentiate between ground rent and any other kind of rent: in short, anything reserved as rent (eg service charge, insurance rent) would be cancelled and unenforceable. Similarly, there is no reference to the rent being of the nature of a ground rent, so if the lease exceeds 21 years, there would, as the Bill currently is drafted, be no way of granting a long residential lease without a premium and at a market rent. We expect these points are likely to be addressed as the Bill proceeds through Parliamentary readings.”
The definition I offer is based on that found in Section 4 of the Leasehold Reform Act 1967, which is also the definition recommended by the Law Society. But I have added to that definition words that relate to any fixed charge, or a charge which varies or may vary by reference to an amount of money, a fixed measure—for example, RPI inflation—or a period of time: for example, a charge which doubles every 10 years. The aim of this drafting is to include within the definition of ground rent any charge that does not vary in accordance with the cost of providing a service or an item. This is done using the well-known and well-understood definition of “relevant costs” in Section 18 of the Landlord and Tenant Act 1985, for which there is already much case law.
The wording of Amendment 21 is deliberately extended to include fixed service charges, for which currently leaseholders have no means of redress. At least one set of barristers’ chambers—Landmark Chambers—has already identified this as a potential weak point in the legislation, allowing ground rents to continue in a different guise. The aim of this drafting is to ensure that charges made in exchange for a tangible service, which may vary in accordance with the cost of a tangible service, are not within the definition of ground rent. That reflects the Government’s policy, as set out in the Explanatory Notes. This strikes a necessary balance between bona fide service charges reserved as rent and any attempt to circumvent the ban on monetary ground rents by adding fixed service charges or index-linked service charges, or escalating fixed service charges which function as ground rents but which are not given that label.
My noble friend may say that, as the Bill applies only to future leases, some of these uncertainties can be resolved by drafting new standard leases for future use. But if either this Bill is amended or a future Bill implements government policy to enable existing leaseholders to buy out their ground rents, this definition may well be used to cover existing leases, so the need for clarity is even greater.
Paradoxically, the existing definition may catch items that are not ground rents— the case mentioned by my noble friend Lord Hammond—but may not capture fixed service charges that should be caught. On that basis, I beg to move my amendment.
Baroness Grender (LD)
My Lords, the definition of rent is an area that requires detailed scrutiny when looking at loopholes during the passage of the Bill. As we heard from the noble Lord, Lord Young of Cookham, at present, as drafted in Clause 22(2),
“‘rent’ includes anything in the nature of rent, whatever it is called.”
This wide definition has set alarm bells ringing. We therefore strongly support this probing amendment by the noble Lord, Lord Young.
As I described in the debate on the first group of amendments today, this is a billion-pound industry which will not let its grip on the market go lightly. It relies heavily on borrowed money to acquire freeholds, all secured on the basis of future ground rents. With the potential of a “rent” unpaid and forfeiture as the pot at the end of the rainbow, we need to make sure that there is some very specific detail in the Bill as to what “rent” means.
The danger is clear, especially on forfeiture, as defining any service charge as “rent” means it must be paid to avoid that forfeiture before a leaseholder can even protest or start to take legal action against the amount charged. The Leasehold Knowledge Partnership has warned that “rent” or a contractual arrangement, as we heard from the noble Lord, Lord Young, could take the form of a fixed payment for arranging buildings insurance or for appointing and supervising the managing agent. Can the Minister say whether, for instance, it is possible to include in a future lease a payment of, say, £200 per year rising in line with CPI inflation as a payment for the landlord’s expenses in arranging buildings insurance if that exists as a fixed service charge rather than a prohibited ground rent caught by the new law? Does he accept or recognise that it would not be possible for leaseholders to challenge that payment as the law stands or is proposed in the Bill? What measures has the Minister’s department taken to ameliorate this all-important issue?
The Bill says that no rent under a lease other than a peppercorn is permitted unless the lease is one of the types of lease excepted from the Bill. But in the Explanatory Notes we are told that the Act is intended to capture any payment under a lease that does not impose an obligation on the landlord to provide a service. LKP trustee Liam Spender put it this way:
“In modern leases, and modern case law, ‘rent’ often has a broader meaning. Many modern leases will define ‘rent’ as including both ground rent and service charges. Some modern leases also specify separate ‘insurance rents’ to cover the costs of buildings insurance arranged by the landlord. It is uncertain if the bill intends to force future leases to be redrafted so that these provisions are no longer described as part of the ‘rent’, or if the bill is not intended to capture these provisions because they are payments for tangible services.”
I look forward to the Minister clarifying some of those points.
Lord Lennie (Lab) [V]
My Lords, we also strongly support Amendment 21. It rightly asks whether the Government can improve the definition of “rent”. Unfortunately—we heard much of this from the noble Baroness, Lady Grender—there is a litany of housing legislation that is in desperate need of modernisation. I hope the Minister will use today’s debate to explain what further legislation is planned to bring the provisions up to date.
On the specific issue raised by the noble Lord, Lord Young of Cookham, can the Minister confirm what engagement the Government have had with NGOs and representatives of tenants on the issue thus far? Can he confirm whether the Government have any plans, as suggested by the noble Baroness, Lady Grender, to update the definitions available in the Leasehold Reform Act 1967 and the Landlord and Tenant Act 1985?
Lord Greenhalgh (Con)
My Lords, this amendment from my noble friend Lord Young seeks to capture within the definition of rent other charges, such as fixed service charges, if they are reserved as rent in leases. It also seeks to exclude from the definition of rent variable charges or insurance if they are reserved or form part of the rent. The comments on a proposal regarding the definition of rent received from my noble friend Lord Young and other noble Lords continue to be carefully considered. I am very grateful to all those who have given it such close examination and look forward to hearing the further deliberations from the Law Society.
This is an important point to discuss today, as the treatment of what is meant by a ground rent and a rent lies at the heart of what the Government wish to convey through the Bill. It sets the tone for leasehold reform legislation to follow. On the specific meaning of rent, I am not unsympathetic to my noble friend Lord Young’s intention in his amendment. Since the very outset, this Government have been alert to defining what is meant by a ground rent in such a way as to discourage avoidance activity by sectors of the property market which make a habit of such activity. I believe we are all agreed that preventing such activity is of the utmost importance.
To give noble Lords some more of the context behind our reasoning for this definition, we started from a similar position to many of the Committee when approaching this issue by seeking to define closely what is meant by a ground rent. It is a logical approach; tightly drawn definitions are often meat and drink to a strong legislating body such as this House. However, I ask your Lordships to reflect on the seeming ease with which some parts of the leasehold sector have found ways around generation after generation of leasehold legislation, drafted with the greatest care and scrutinised in both this House and the other place, as my noble friend Lord Young knows well.
After very extensive consideration, we have concluded that we would need to take a different approach to the definition of rent for the leasehold sector. We therefore purposely defined rent widely to prevent landlords avoiding the restrictions in the Bill by including spurious periodic changes under any other name. As stated at Second Reading, the Bill intentionally uses a wide definition so that it includes anything in the nature of rent, whatever it is called. For example, we are mindful of not wanting to allow for a new garden rent or parking space rent replacing ground rent after the Bill is passed. That is why the meaning of rent in the Bill is drafted in such broad terms.
Any change faced by leaseholders that looks and sounds like a rent, whatever it is called, will therefore be open to challenge through trading standards and the First-tier Tribunal. Freeholders, landlords and even managing agents acting on behalf of a landlord will be able to refund this rental charge, whatever it is called, and may face a penalty fine. This imposes a potential liability on managing agents and ensures that they will scrutinise future contracts with great care.
We agree that it is not necessary for a lease to reserve charges, such as service charges and insurance, as rent. Under the Bill’s definition of rent, landlords will need to consider whether to itemise other charges separately in the lease. I point out that fixed service charges are a valid way for freeholders to charge for services where leaseholders and freeholders enter into a lease agreement. We are aware of criticism of the misuse of fixed service charges on occasion; these charges are generally in payment for a tangible service and differ from ground rent. Under the Bill, landlords will need to consider whether to itemise these in the lease agreement, and to be clear what the charge is and what a leaseholder receives in return.
I thank my noble friend Lord Young for raising the points made previously by my noble friend Lord Hammond of Runnymede. He raised two specific points, one on the definition of a ground rent for long leases over 21 years where a rack market rent is charged. I welcomed my noble friend Lord Hammond’s thoughts on this and am happy to undertake today that my officials and I will continue to engage with him and others as we look further into this matter. My noble friend Lord Hammond also raised a point on intermediate leases where there is a head lease or multiple properties. I point out that there are a number of potential options to address the complexities in this scenario. Once again, I am grateful to him for raising this issue and will continue to explore the matter further before Report.
Above all, I welcome the efforts of my noble friend Lord Young to achieve our shared objective of a clear definition of rent. However, I fear that my noble friend’s amendment would add complexity and provide opportunities for landlords to find workarounds to a Bill otherwise closed off by the simple definition it currently contains. I am interested to see what the Law Society comes up with and to see the revised drafting.
In response to the noble Lord, Lord Lennie, we have engaged with a number of NGOs and stakeholders in preparation for the Bill and I am happy to provide details of that in writing. While I appreciate the intention behind my noble friend’s amendment and I am happy to continue discussions with him, I ask him to withdraw his amendment.
Lord Young of Cookham (Con)
My Lords, I am grateful to all those who have taken part, as this is a modest Back-Bench amendment which has generated three Front-Bench responses. The noble Baroness, Lady Grender, reminded us that there is a lot of money riding on the definition of ground rent; there are huge financial instruments at stake. We do not want a shaky foundation for that market.
I listened to the Minister’s reply. I will say only that he has so far failed to convince the Law Society or the lawyers I referred to, who do not believe that the broad definition adopted by his department is the right way to proceed. I am not sure that I was reassured by the Minister saying that, if there was any doubt, tenants could go to tribunals. The whole point of the amendment is to try to avoid doubt and grey areas and reduce the need for litigation.
At the beginning of his response, my noble friend said that his department continues to carefully consider the issue of the definition and that he was not unsympathetic to what I was trying to do. I am grateful for those responses. On the basis that discussions will continue between the noble Lord, Lord Hammond, and the department, the Law Society and the department, and indeed, those solicitors who have expressed serious doubts about the current definition, I am happy to withdraw the amendment.
Lord Lennie
Member’s explanatory statement
This amendment would ensure that the Bill comes into force within 6 months of the day on which it is passed, if regulations are not introduced by then.
Lord Lennie (Lab) [V]
My Lords, this final group of amendments is in relation to commencement. The Minister will be aware that different clauses of the Bill are intended to come into force on different dates and the Minister has the power to determine when certain parts are introduced. This is not a rare practice for primary legislation, but the Government should explain when they intend to reserve the power of commencement and whether there are any circumstances whereby the commencement could be postponed indefinitely.
Amendment 24 places a six-month limit, whereby the provisions will come into force if the Government have not already introduced them. I would be grateful if the Minister could confirm whether the Government intend for the provisions to come into force within six months and, if so, whether they would be minded to accept this amendment by way of a guarantee. As I have said during previous groupings, the provisions of the Bill are welcome, and I am sure that the whole Committee will want to see their introduction without delay. I am sure that the Government are determined to commence the provisions as soon as suitable but I am concerned that unforeseen events could lead to unnecessary postponement.
Lord Blencathra (Con) [V]
My Lords, I declare a personal interest as someone who pays ground rent on my London flat. I am coming at this from a slightly different angle from the noble Lord, Lord Lennie.
My noble friend the Minister is an honourable man, and I therefore believe him when he says that the Government want this Bill to come into force as soon as possible; he has urged us not to push any amendments which might delay its passage. I am therefore mystified at Clause 25 and the very bitty commencement dates. As the noble Lord, Lord Lennie, said, Bills often have different commencement dates, but the only things coming into effect on Royal Assent are the regulation-making powers and the usual consequentials at the end of the Bill, which we have just voted through on the nod. If the Bill is as urgent as the Government and we on this Committee say it is, why have we no date for the commencement of the only thing which really matters—the abolition of new ground rents and their replacement by the new peppercorn regime? Every week which goes by allows more iniquitous leases to be created.
I understand that the residential homes sector has been granted more time to adjust. I am sure that Messrs McCarthy and Stone and others will put that time to good use, adjusting their service charges to take account of any future ground rent losses. But as we consider what to do about the commencement dates at Report, we really need to know, very firmly on the record, when we will see the second and third legs of this three-legged stool. When will the Government introduce a fully-fledged leasehold reform and abolition Bill, and when will they introduce provisions like those advocated by my noble friend Lord Young of Cookham and my noble and learned friend Lord Mackay of Clashfern to have a proper ground rent buyout system?
I know that my noble friend the Minister will say that it is up to the usual channels and that he cannot make promises on when other Bills will be introduced, but we need to stress to him, and to the rest of the Government, that we will be very impatient unless we hear a firm commitment that this will be as soon as possible—ideally, in the next Session of Parliament and not sometime in this whole parliamentary period.
We have all said that this Bill is a good first start—a very good one leg of the stool—but we must see firm promises on the introduction of the next two legs or I, at any rate, will not be content to agree the commencement mishmash in Clause 25 when we come to Report.
Lord Stunell (LD) [V]
My Lords, I address my remarks to Amendment 26, just spoken to by the noble Lord, Lord Blencathra. I strongly support what he said and the arguments that he put forward in support of his amendment.
One key risk of separating out the legislation for all new domestic leases from those of the 4.5 million existing domestic leases is that a gap will open up in the market between homes traded under existing leases and those traded under the new regime. As the noble Lord, Lord Blencathra, has just said, the existing leases are very disadvantageous compared to those that will be formed under the new Bill. In many respects, existing leaseholders will be under a double disadvantage. They will have a home that may be identical in every respect to one that is subject to the new Bill, with a lease signed a week after Royal Assent—or maybe in two years, when it is finally implemented. The existing leaseholder will be at a permanent long-term disadvantage up to the point when stage 2 of this reform comes into force.
This amendment would bring the Bill into force immediately. It would mean that the long tail behind the existing leaseholder system would be cut off. There would be no new leaseholders stuck with the old system, with a Bill that has had Royal Assent but not been brought into effect. It would, as quickly as possible, create a bigger market of those with new leases rather than old leases.
In its turn, that will throw up disparities between the two categories of leaseholder resident. Those who have an existing lease—particularly those with an informal lease extension, which might have huge escalating charges written into it—will find that the gap between them and their near neighbours under the new system widens and widens. Inevitably, that will lead to a two-tier market; perhaps at first only at the margins but, over time, as the number and proportion of new leases on the market increase in relation to the number of existing leases, that gap will widen. The disadvantage suffered by those holding existing leaseholders will also widen and will be twofold: first, they will find it harder to sell their leases on, because they will be less attractive to purchasers than those leases available under this Bill; and, secondly, in the meantime, they will be stuck with paying through the nose the exorbitant terms of their existing lease.
Amendment 26 from the noble Lord, Lord Blencathra, is a good step forward in the absence of any real commitment by the Government to bring much closer together this Bill, stage 1 of reform, and the next Bill, stage 2 of reform. The noble Lord is absolutely right to press the Government and to express his concern that that announcement has not yet been forthcoming. Indeed, Ministers have been very reluctant to make it. We need to know when stage 2 will be before your Lordships’ House. We need to know how soon it will be that the follies, injustices and oppressions of the current system will be stopped. We need to make sure that as few people as possible find themselves in the unenviable position of hearing, “Take it on these terms or take it on no terms.”
In an earlier debate we debated the four things that the noble Lord, Lord Kennedy, thought should be reviewed. The Government did not accept that. In our first day’s work we tried to make sure that there was some definite timetable for future reform. The Government were not willing to accept that. Today’s amendment from the noble Lord, Lord Blencathra, would, unfortunately, still not achieve it, but it might be a powerful lever to force the Government toward bringing these two stages of reform closer together, cutting off the tail of existing leases being signed as quickly as possible, and, as soon as possible, reforming the whole system.
Lord Naseby (Con)
My Lords, I do not want to be repetitive because much has been said by those who have taken a particular interest in the Bill—and indeed the market, which is why we are taking an interest in the Bill. I have little to add, but if I was sitting in my noble friend’s position, as the Minister responsible, I would see merit in the timeframe of six months from the noble Lord, Lord Kennedy. That would be the maximum break.
I declare an interest in that I share an office with my noble friend Lord Blencathra. He is very clear on his views in life and he is more often right than wrong. My noble friend on the Front Bench needs to reflect on this.
We know that this has been a very difficult area and I have sympathy with my noble friend on the Front Bench. But we cannot have a situation where phase 1 happens—I think we all have confidence that it will, whether immediately, as my noble friend Lord Blencathra says, or along the lines of the amendment from the noble Lord, Lord Kennedy—but the second half is to happen only sometime in the distant future. I again reflect on the period when I was chairman of the housing committee in Islington. You could not have had a situation where people in one section of society had their problems sorted out but those in another section—almost identical, except that they are a bit earlier in life—did not, and their problems were kicked into the long grass. My dear friend on the Front Bench has to come back, maybe not today but on subsequent sittings on this Bill, with a firm commitment that the second stage will happen and with a timeframe for it to happen.
Lord Young of Cookham (Con)
My Lords, before I speak in strong support of Amendment 26, I raise an issue on commencement, which I think I raised at Second Reading—namely, whether it is possible to have different commencement dates in England and Wales. It is not entirely clear from Clause 25, as I read it, whether one could specify different dates and whether the possibility exists, for example, for the Welsh Assembly to come to the Minister and say, “We would very much like this Bill to be enacted in Wales way ahead of what you are minded to do in England.”
I turn to Amendment 26. During our first Sitting, my noble friend said:
“In order to move on to further legislative action on leasehold reform, we need to get this Bill through as speedily as possible.”—[Official Report, 9/6/21; col. GC 283.]
When he replied to Amendments 19 and 20 this afternoon he repeated that imperative for speed. This need for a swift passage has been behind the resistance to amendments even when, as we discovered last week, it was an amendment that delivered government policy.
As my noble friend Lord Blencathra said, the force of the Government’s argument is weakened if they will not give a firm date for implementation. All we know is that retirement homes will not be affected for another two years. It seems entirely reasonable for my noble friend Lord Blencathra to argue, as in Amendment 26, for a quid pro quo: swift passage in return for swift implementation.
The other leg of the Government’s argument has been, “Don’t worry if this Bill doesn’t do everything. Another one is right behind.” I expressed some scepticism about this last week; we are still waiting for stage 2 of Lords reform promised in 1997. I know my noble friend’s heart is in the right place but all he has been able to say is that stage 2 will be later in this Parliament, which is scheduled to last until December 2024. That legislation could then have a later enactment date, as this Bill does, so I think it fair to press the Government for clarity. Why not publish a draft Bill later in this Session and introduce it in the next one?
I end with a comment that adds weight to this need for clarity. This Bill was introduced in your Lordships’ House and has had a relatively easy ride, but the other place is full of MPs under pressure from leaseholders in their constituencies. Even the at times assertive language of my noble friend Lord Blencathra will pale in comparison with what Ministers will hear in the Commons, so I strongly urge my noble friend to develop what is known in the trade as a concession strategy on dates if the Government really do want to see the Bill proceed to the statute book without delay.
Baroness Grender (LD)
My Lords, I am really confused by the Government’s approach on this. It seems to be summarised as follows: “Give us this Bill as quickly as possible so that we can take as long as we can and as long as we like to implement it.” The problem is that there is a whole load of future leaseholders out there—and more importantly the marketplace, which believes that this lacks clarity.
Please do not take my word for it. I was reading a blog by Gary Murphy, an auctioneer on behalf of Allsop, which at the moment sells almost half of all London ground rents traded at auction. He notes the intention for this to change over a very long period of time, in the Landlord and Tenant Act 1987, the Leasehold Reform, Housing and Urban Development Act 1993 and the Commonhold and Leasehold Reform Act 2002. He goes on to say:
“Before freeholders panic, and new investors smell blood, we have to remember that reforms in this area have been on the cards since 2017. Recent announcements have amounted to little more than a press release. Whilst effective in courting headlines, they have changed nothing for the immediate future.”
The critical issue is that the marketplace, which needs to be convinced the most that this change is imminent and about to happen, is even less convinced than the noble Lords from whom the Committee has heard this afternoon. Until it is this market will continue, even if it is traded at slightly lower reserves.
Lord Greenhalgh (Con)
My Lords, these amendments seek to set a fixed date or timescale for the commencement of the provisions of the Bill. I sympathise with that and thank noble Lords for raising this issue. The Government also wish to bring an end to the unjustified charging of ground rents as soon as it is feasible. Clause 25 provides that the Bill’s substantive provisions will come into force on a day appointed by the Secretary of State by regulations. Noble Lords can rest assured that we do not intend to have an unnecessary delay in implementation.
Although I am grateful to my noble friend Lord Blencathra for his enthusiasm to see the Government’s legislation come into force, commencing all the Bill’s clauses immediately on Royal Assent is simply not workable. This would leave no time for the laying of regulations and other important matters relating to the implementation process. While most of the delegated powers in the Bill are intended for later use should the need arise—such as to close a loophole—some will be beneficial when the rest of the clauses are commenced and will need to be prepared prior to this. For example, regulations under Clause 2, specifying the form and content of notices to be exchanged by landlords and leaseholders in respect of a business lease, will aid transparency and understanding of the obligations of both parties under this legislation—an outcome which I am sure noble Lords would welcome. I am sure that noble Lords will want the Government to get such regulations right. I am also sure that the noble Lord will appreciate that, with the unpredictability of the parliamentary timetable, I cannot give a guarantee that the Act can come into force on the day it is passed.
Amendment 24, in the name of the noble Lords, Lord Kennedy and Lord Lennie, and the noble Baroness, Lady Grender, recognises that time is needed before the Act can come into force. Again, I appreciate the sentiment of wanting to see the Act brought into force as quickly as it can be. However, it is not appropriate at this point to set a hard deadline for commencement, as proposed in the amendment. The Government are mindful of the necessity of ensuring careful implementation of this new legislation and to allow for a planned transition to a leasehold sector without financial ground rents. As noble Lords would expect, we will work closely with the sector, enforcement bodies and others to ensure that the Bill is implemented as smoothly and speedily as possible. I again assure noble Lords that the Government are fully committed to bringing the Bill’s provisions into force without delay.
My eagle-eyed noble friend Lord Young has spotted that the Bill applies to England and Wales and that, as currently drafted, there could be different commencement dates. Conversations with the Welsh Government continue to ensure that we meet the needs of leaseholders in England and Wales and address any commencement concerns.
I state again that I have listened carefully to noble Lords’ concerns and will look at whether we can be more specific about commencement dates as we move to Report. I look forward to further discussions with noble Lords on this issue. Once again, the intention is to get the second stage of leasehold reform through in this Parliament, ideally in the third Session. However, I cannot make any hard and fast commitment to that, so I ask the noble Lord to withdraw his amendment.
The Deputy Chairman of Committees (Lord Faulkner of Worcester) (Lab)
I thought I had a request from the noble Baroness, Lady Grender, to speak after the Minister. Does she now not want to do so?
Baroness Grender (LD)
I will take the opportunity, since I have created so much confusion. I thank the Minister for saying that he will go back and see whether it is at least possible to specify some kind of commencement date. I would very much like to say to him that I think all sides of this House will happily work with him and his department and take recommendations if it is at all possible to specify a date in order to counter the market scepticism that I described to him. If it is at all possible to put a date by the end of this process, we would be very grateful for that move.
Lord Greenhalgh (Con)
Of course, as a Minister I would like to have stronger lines at this stage but it is important to recognise that we need to lay the regulations and ensure that the enforcement of this works, and there are communications challenges. However, taking that all into account, I am sure that we can reach a situation where we provide much greater clarity and we can be more specific around commencement dates. We can work towards that as the Bill moves through this House and on to the next stage.
Lord Lennie (Lab) [V]
My Lords, the Minister seems to be trying to take three positions at the same time in response to this amendment: no unnecessary delay; to get the regulation right; and either not to have a date or to have a date depending on whether he can go away and get the stronger line from the ministry. I wish him well with that, because we are all saying that either a date needs to be hard, fast and managed or stage two must be timetabled into the legislative process. We welcome the review that will take place between now and Report and we look forward to something concrete coming back from the Minister in advance of Report. However, in the meantime, I beg leave to withdraw the amendment.
The Deputy Chairman of Committees (Lord Faulkner of Worcester) (Lab)
That concludes the Committee’s proceedings on the Bill. I remind Members to sanitise their desks and chairs before leaving the Room.
Leasehold Reform (Ground Rent) Bill [HL]
Tuesday 20th July 2021
(2 years, 9 months ago)
Lords ChamberRead Full debate Leasehold Reform (Ground Rent) Act 2022 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 1-R-I Marshalled list for Report - (15 Jul 2021)
15:46 - Division conducted remotely on Amendment 9 - Ayes: 243 / Noes: 238 - Amendment 9 agreed.
16:11 - Division conducted remotely on Amendment 26 - Ayes: 219 / Noes: 243 - Amendment 26 disagreed.
16:51 - Division conducted remotely on Amendment 27 - Ayes: 245 / Noes: 256 - Amendment 27 disagreed.
Lord Greenhalgh
That the Report be now received.
Clause 1: Regulated leases
Amendment 1
Lord Greenhalgh
Member’s explanatory statement
This amendment excludes leases of multiple dwellings from the definition of “regulated lease”.
The Minister of State, Home Office and Ministry of Housing, Communities and Local Government (Lord Greenhalgh) (Con)
My Lords, I take this opportunity to thank all noble Lords who have participated so far in the debates on the Bill and who have met me to discuss the policy and principles behind it. These discussions have led directly to the first set of amendments under consideration today. The government amendments in this group provide greater clarity in two key areas—rack rents and intermediate long leases—addressing issues that emerged both at Second Reading and in Committee.
First, government Amendment 1 inserts the word “single” into Clause 1 to put beyond any doubt or ambiguity the fact that the Bill is intended to apply only to a lease of an individual dwelling. My noble friend Lord Hammond has noted, both in this Chamber and in various meetings, that, as drafted, the Bill could perhaps be interpreted as also applying to cases where a lease is made up of multiple dwellings, held collectively.
Where a lease is for multiple dwellings, such as a where a business has a lease for all or part of a building, the intention of the policy is that there should be no restriction on such leaseholders arranging their finances with the superior landlord in a manner that suits the commercial needs of both parties. This amendment clarifies that the Bill is intended not to capture such leases but to protect individual leaseholders.
Noble Lords will have heard me say many times that this is narrowly focused legislation. Ending this legitimate practice is not, and never has been, the intention of this Government. By amending this clause so that it refers to a long lease of a “single” dwelling, we ensure that this legislation does not inadvertently put an end to this business model. The addition of this word provides welcome clarity on this matter, and I hope that the amendment will attract support from across the House.
Government Amendments 2 and 38 concern the exemption from the provisions of the Bill in cases where a leaseholder has taken up a long residential lease without the customary payment of a premium and instead pays a full rent for the term of the lease. As I am sure your Lordships are aware by now, the purpose of the Bill is to protect the large majority of leaseholders who pay a substantial premium on the granting of a lease, often with a mortgage, from further rental charges. Our guiding ambition here has been to put an end to the otherwise continuing unfairness of such leasehold arrangements.
It has been brought to my attention by noble Lords, particularly my noble friend Lord Hammond, that a small number of long residential leases are let where no premium is paid for the granting of the lease and where, instead, a market rent is paid by the leaseholder. I thank once again my noble friend Lord Hammond for drawing our attention to this issue with the drafting of the Bill. It is perhaps no surprise that a former Chancellor should have such attention to detail, and we are grateful to him.
Although such arrangements would still be possible for a lease of 21 years or less, we understand that there are occasions when such arrangements may take place with leases over 21 years—a commonly understood definition of a long lease. I reiterate that it is not the intention for the Bill to apply to long rental leases such as these, so, for the purposes of clarity, the Government have tabled these amendments. They provide that regulated leases will be only those leases granted in exchange for a premium; as a consequence, we have also defined a “premium” in government Amendment 38 as
“any consideration in money or money’s worth for the grant of a lease, other than rent”.
I trust that this allays the concerns of the House on the matter of market rents for long leases.
Amendment 3, in the name of the noble and learned Lord, Lord Etherton, would remove new leases where there is a “deemed surrender and regrant” from the provisions of the Bill. I am grateful for his explanation that his amendment is to address concern that landlords may be reluctant to change a lease, even where requested to by a leaseholder, if this would result in a deemed surrender and regrant because this would mean that the peppercorn limit would apply.
The noble and learned Lord has explained that the two common circumstances where a leaseholder may request that a lease is varied are a change to the demise —for example, to include additional land or property—or to change the term. I will address the concerns about the change to the demise first. We agree that such variations would usually take place in a way that results in a deemed surrender and regrant and that the Bill would discourage that because the resulting new lease would need to be for a peppercorn ground rent.
However, the same outcome can also be achieved with the agreement of the leaseholder by the grant of an additional separate lease, meaning that the ground rent can remain on the unaltered existing lease. This might also be done by altering the lease and extending the lease for a single day. This would then be caught by Clause 6, thereby allowing the ground rent for the existing term to be retained. As we have discussed previously, any extension would be at a peppercorn rate. We believe that this is an achievable workaround that means that variations for the leaseholder’s benefit can be introduced without detriment to the landlord’s existing rights.
Lord Etherton (CB)
I wish to speak to Amendment 3, in my name. I am extremely grateful to the Minister for speaking to me about my concerns about Clause 1(4). It is important that today, we have had an acknowledgement that Clause 6, which I understand is the way the Government intend to deal with preserving the right of a landlord to continued receipt of ground rent for the duration of the original lease, does not extend to a situation where the tenant requests, and the landlord might otherwise agree, subject to this Bill, to grant an extended demise or an extended grant of property.
At the moment, the Bill does not address one of the two circumstances in which, in the normal course of events, there will be a deemed surrender and regrant by operation of law, which operates irrespective of the intention or awareness of the parties. The Minister says that it does not matter because the landlord can always agree with the tenant to grant a separate lease of any extended area of land which the tenant wishes to include in the lease, and that the landlord would otherwise be willing to grant. This leaves a very messy situation. Clause 6—which, with respect, is not entirely straight- forward—is intended to deal with the second situation whereby there is a deemed grant and surrender, and that is where there is any extension to the duration of the lease.
The second normal circumstance is not addressed at all. It is an everyday occurrence, not an unusual one, for a tenant and a landlord to agree informally to changes in the area of the lease. Therefore, subject to the solution that is proposed, which is a separate lease of this grant of extended land included within the lease, there is nothing in the Bill that addresses this. This can be dealt with quite simply, either by taking out Clause 1(4) or by extending Clause 6 to include this second situation, which is the granting of greater land than is currently within the original lease. It makes absolutely no sense to include something dealing with the one but not the other, when those are the only two circumstances which would normally give rise to a deemed grant and surrender. It leaves a lacuna in the Bill, in that there still may well be a landlord who is not aware of the terms of the Bill and who may not appreciate that granting, in accordance with the tenant’s request, a greater piece of land to them has the effect of removing the ground rent to which the landlord would otherwise be entitled.
Although I very much welcome what the Minister has said about many of the amendments he has tabled, and his explanation, legally speaking we are left with a very untidy situation. There is now a distinction between the two circumstances in which there is a deemed surrender and regrant, one being expressly dealt with in Clause 6, and the other not at all. That could lead to a landlord with no awareness of the situation—and with no intention of doing so—losing the benefit of the ground rent under the original lease.
The Earl of Lytton (CB) [V]
My Lords, it is a pleasure to follow the noble and learned Lord, Lord Etherton, and I thank the Minister for introducing this group of amendments, in which I have two: 5 and 39. I declare my property interest but hasten to add that it does not involve long leasehold; I also declare my interest as a property professional. I particularly thank the Minister for meeting me this morning at short notice; I very much appreciate that and I think it is fair to say that we had a frank and generally constructive conversation. I am indebted to the British Property Federation for the comments it sent me, to the Wallace Partnership Group for its observations on the Bill, and to the Homes for Later Living group, which is a retirement homes specialist.
The pivotal point here is the question of who takes on the responsibilities of property management and things such as safety oversight, particularly in complex buildings. I am thinking of developments such as Salford Quays, but there are others in the pipeline, including King’s Cross and Battersea, that will come on stream and are in the process of evolving even as I speak.
The British Property Federation believes—and I agree with it—that most leaseholders in these large, complex, often urban developments will not want to take on the sort of responsibilities implicit in the management and future-proofing of the common areas and common parts of buildings in these multi-occupied developments. Hardly had I considered that point when it was pointed out to me that a poll by Savanta found that only 31% of people would willingly take on the management of their apartment block, even when faced with the option of saving on ground rent. I have some experience that reinforces this, so much more so when we come to the scale of some of these urban and often redevelopment situations that are truly industrial in their complexity.
A buy-to-let investor is hardly going to have interest in participating in the day-to-day running of an estate. Freeholders, with a nil or peppercorn rent and no other interest beyond the maintenance and management charges that may be taken away from them by right to manage, are hardly going to have an interest in taking on costs that they might not be able to recover. By that I mean costs on things such as long-term capital expenditure on visual improvements or repurposing parts of the development—matters that are not a service charge and therefore there is some question as to the degree to which they could be recovered. With no skin in the game, how is the freeholder going to finance or forward-fund these things? For practical purposes, the Bill ends up providing us with the opportunity for non-responsive freeholders.
If leaseholder-led arrangements fail or the leaseholders want to hand back the management process, an effective freeholder is traditionally there as a backstop to take on the responsibilities. Curiously, under the Bill that onus will persist, with the freeholder having a peppercorn rent. I question whether the liabilities will in fact be shouldered in that way or can be imposed in practice.
I do not intend to press either of my amendments, but it is worth my while going into Amendment 5 in a little more detail. The amendment would make leases that meet certain criteria excepted leases and therefore still able to operate on a ground rent principle. Freeholders would thereby be incentivised to invest in the property in the long term and to bring their expertise, their ability to deal with complex developments at scale and their property management skills and safety oversight.
As buyers of individual long leaseholds, consumers would still have the choice at the market-wide level as to whether they wanted to live in a block run by a freeholder and pay a ground rent or to purchase a flat in a communally run block. Consumers would also retain the right, as they have now, to enfranchise or exercise their right to manage and take over the block, which the Government have said they will seek to make easier as they work on a second leasehold reform Bill.
I propose the choice of a functioning leasehold system in larger and particularly complex apartment building arrangements because, as I say, there is good evidence that a lot of leaseholders do not want the responsibility of running these blocks. It must be pointed out that service charges relate to current expenditure. They do not customarily cover future investment, improvement or adaption and may potentially be challengeable by leaseholders.
A point about retirement developments was rather eloquently made by Homes for Later Living. These often have specialised development models, including extensive communal facilities, so although they are not the same as these large, mixed-use commercial redevelopments, they have some of the same problems.
Lord Stunell (LD)
My Lords, my noble friend Lady Grender is very sorry that she is not able to be present, having led for this side of the House in the previous stages of the Bill. She has put into my somewhat inadequate hands the job of taking us to the next stage. I thank the Minister for his very helpful approach to all sides of the debate so far—in the preceding stages and, indeed, right up to this morning, as the noble Earl, Lord Lytton, has commented.
These government amendments are examples of clarifications that have emerged as a result of our discussions; I am sure we would all agree that they are leading to an improvement on the Bill in its original form. Not all of us brought to bear the knowledge and background of a former Chancellor of the Exchequer, which was credited by the Minister a few minutes ago, but, even so, we have been treated with courtesy and respect, and we very much appreciate that.
I turn briefly to the proposals tabled by the noble and learned Lord, Lord Etherton, and the noble Earl, Lord Lytton. The noble and learned Lord made the point that an untidy situation will be left should his amendment not be adopted by the Government. The noble Earl, in his extremely technical presentation of the difficulties and intricacies of leases on big developments, has also shown very clearly the further unfinished business that the Bill by no means addresses. Because of my own interest in the Building Safety Bill, I picked out his suggestion that that Bill—in its current form, at least—could put on to property owners obligations that they will no longer be funded to support should various scenarios sketched out by the noble Earl come to pass.
The Minister’s initial response was that he could not accept Amendment 5; I take that to mean that neither does he accept the arguments that the noble Earl has just presented to your Lordships’ House. It seems to me that, if not here then at some later stage, he will have to answer and have properly investigated the question of whether the Building Safety Bill, if enacted in its present form, would lead to an unacceptable outcome because it would mean that the obligation to inspect, certify and rectify would be placed on the shoulders of a person or body without the means to do it.
The Minister has very helpfully said that he will consider the practical consequences outlined by the noble Earl in relation to Amendment 35. I will be very interested to see how that proceeds. He gave us a little hint that something might come up at a later stage of the Bill. I hope that that will be the case.
In conclusion, I say only that the Minister has been presented with strong evidence from every side that this is an incomplete Bill. It does not tackle the whole problem even in terms of its own limited reference point. I am grateful, as I think the whole House will be, that improvements are being made, but further improvements are needed and the urgency of proceeding to the second stage of leasehold reform is underlined every time one of your Lordships contributes to this debate.
Lord Lennie (Lab)
My Lords, the amendments in this first group, like most that have been tabled on Report, are technical amendments that do not alter the central provisions of the Bill but none the less aim to improve its application. Amendments 1, 2 and 38, each tabled by the Minister, deal with the definition of “regulated leases”. Specifically, they exclude leases of multiple dwellings, with Amendment 2 adding that a regulated lease is considered such only
“if it is granted for a premium”.
Can the Minister confirm whether there have been any impact assessments or informal consultations on the application of these changes?
Amendment 5, tabled by the noble Earl, Lord Lytton, probes the relationship between the Bill and “large and complex buildings”. He gave a large and complex explanation of his amendment. In there somewhere, I think he said that the commonhold might present a solution to the complex problem raised, but it is probably a little more difficult than that. These Benches fully support the removal of ground rent for all leaseholders, but I hope the Minister can confirm what support and engagement are ongoing with this impacted group.
The noble and learned Lord, Lord Etherton, has probed the provision on “deemed surrender and regrant”. I look forward to further clarification from the Minister on this as well—to tidy up the somewhat contradictory nature of the legislation in Clause 1(4) and Clause 6, as the noble and learned Lord explained.
Lord Greenhalgh (Con)
I thank noble Lords for their ongoing engagement and for the substantive points raised. I want to pick up on the issue raised by the noble Earl, Lord Lytton, of orphan freehold syndrome, in particular with regard to complex leases. I point out that leaseholders can collectively exercise the right to manage; they can appoint a managing agent to discharge the stewardship function that the noble Earl outlined.
The noble Lord, Lord Lennie, asked whether we carried out an impact assessment for the two technical changes, which really preserve what is happening today and were not meant to be captured by the provisions of this narrow Bill. We have not carried out any impact assessments. We are looking to continue a practice that we see as being sensible, on occasion. It was never meant to be captured as part of this Bill, so it is not something that requires a full impact assessment as such.
Once again, I commend Amendments 1, 2 and 38 in my name. These changes address important points raised by noble Lords in previous debates on the Bill. I thank noble Lords for recognising that they do so. I think they will agree that they improve the legislation—indeed, as a direct result of the scrutiny in this House—and that it will not have effects beyond those intended. I have listened carefully to the noble Earl, Lord Lytton, on his two amendments; I remain of the view that Amendment 5 is inconsistent with the intent of the Bill and that the case for Amendment 39 needs further consideration.
The Deputy Speaker (Lord Brougham and Vaux) (Con)
I have received a request from the noble Baroness, Lady Greengross, to speak after the Minister.
Baroness Greengross (CB) [V]
My Lords, can the Minister confirm that the definition of rent in the Bill is not intended to include other fees and charges, such as event fees and indexed service and management charges, which the Law Commission has concluded play a key role in supporting consumer choice in the UK retirement community sector? Do the Government still intend to implement the Law Commission’s recommendations in this area?
Lord Greenhalgh (Con)
My Lords, I can confirm that the definition of rent does not include the items that the noble Baroness, Lady Greengross, mentioned. I cannot state, at this stage, exactly how we will take forward the legislation for the next stage beyond the measures that we have already announced, which are to make enfranchisement easier, to adopt full-throated commonhold—we have already created a commonhold council—and to look at issues around the right to manage, but I am sure that we will be able to give the noble Baroness a response in due course, and that will play a part in the next stage of reform.
Lord Greenhalgh
“(aa) it is granted for a premium,”Member’s explanatory statement
This amendment provides that a lease will only be a regulated lease if it is granted for a premium. “Premium” is defined in Lord Greenhalgh’s first amendment to Clause 22, page 13, line 28.
The Deputy Speaker (Lord Brougham and Vaux) (Con)
We now come to the group beginning with Amendment 4. I remind noble Lords that anybody wishing to press this or anything else in this group to a Division must declare that in debate.
Clause 2: Excepted leases
Amendment 4
Lord Greenhalgh
Member’s explanatory statement
This amendment, with Lord Greenhalgh’s second amendment to Clause 22, page 13, line 28, allows the Welsh Ministers to make regulations under Clause 2(6)(b) in relation to premises in Wales.
Lord Greenhalgh (Con)
My Lords, all the amendments in this group relate specifically to Wales. This legislation applies to Wales as well as England, and it is our intention that it works in the best way possible for leaseholders in both England and Wales. We have been working with colleagues in the Welsh Government to understand how the Bill might impact leaseholders in Wales. I take this opportunity to thank Ministers and officials within the Welsh Government for their constructive engagement on the legislation.
Amendments 14 to 24, 45 and 46 make a common-sense change to the legislation that I hope all noble Lords will agree is appropriate. They would see breaches in Wales taken to the relevant residential property tribunal—the leasehold valuation tribunal—instead of the First-tier Tribunal. These are pragmatic amendments, and I hope that they will have support of noble Lords from across the House.
The other amendments in this group confer powers on Welsh Ministers that would, as the legislation is currently drafted, be exercised by the Secretary of State. We have carefully considered which of these powers it would be appropriate to confer and which should be restricted. For instance, we share the concerns that my noble friend Lord Young of Cookham raised at Second Reading about the potential for different commencement dates in England and Wales. This would cause unnecessary confusion for both leaseholders and developers working in both jurisdictions. However, there are areas where we believe that powers should be given to Welsh Ministers to allow them to align these reforms with the housing policy that they are pursuing for Wales.
First, Amendment 4, read with Amendment 40, would give Welsh Ministers the power to update definitions of excepted leases in relation to community housing. This would give the Welsh Government more flexibility and allow them to ensure that this legislation is fit for the purpose of Welsh community housing schemes, including work related to co-operative housing. These amendments recognise the importance of the devolution settlement and are intended to facilitate the Welsh Government in exercising their powers in relation to housing policy.
Secondly, Amendments 11 and 12, read with Amendment 40, would allow Welsh Ministers to increase the size of the penalty in line with changes in the value of money. This would allow them to ensure consistency of approach with other penalties in their competence. For example, they could increase the penalties for breaching the provisions of this Bill in line with increases to other housing-related penalties set by the Welsh Government, even if the UK Government decided not to increase the penalty in England. Conversely, the Welsh Government could decide not to increase penalties even where they were raised in England. However, it is important to note again that any increase, whether in England or in Wales, would only be in line with inflation. It is therefore unlikely that we would see a large gap open up between the levels of penalties in the two jurisdictions.
Amendment 13 would enable the Welsh Government to produce their own guidance for enforcement authorities to achieve the best fit with the Welsh context. This recognises that the Welsh Government’s understanding of the different local authority structures in Wales would ensure the effective implementation of this legislation there. The Welsh Government would also ensure that the guidance is translated into Welsh. We will, of course, work closely with the Welsh Government to ensure consistency across all guidance on enforcement.
I mention at this point that we no longer intend to move Amendments 31 to 34, 36 and 37, related to conferring the powers for Welsh Ministers to make consequential amendments in relation to the Bill. As noble Lords will know, consequential amendments are essential in ensuring consistency across legislation. While we have made every effort to identify where existing legislation needs to be updated in drafting the Bill, we need to ensure that further changes can be made when needed.
Not moving these amendments today does not mean that we are no longer seeking to provide Welsh Ministers with the appropriate powers. However, following discussions late last week with the Welsh Government, we both agree that further engagement is required to ensure that we achieve the right result in setting out how Welsh Ministers and the Secretary of State should exercise their respective powers under Clause 20. To that end, we intend to continue our constructive discussions over the summer and reach an agreeable position to bring forward any appropriate amendments at a later stage. The Welsh Government want to ensure alignment of this legislation, including within the context of their ongoing codification of Welsh law. Our continued joint working should ensure that this can be achieved.
Amendment 35, the final amendment in this group, provides that the default procedure for regulations made under the Bill by Welsh Ministers is the negative procedure.
Taken together, the amendments in this group will ensure that the Bill works in the Welsh context. They recognise the interconnected nature of property law and housing policy and give reasonable powers to Welsh Ministers to adapt this legislation to ensure the best fit for Wales. The amendments that we have not moved will continue to be discussed and do not have a significant impact on the operation of the Bill as currently drafted. I beg to move.
Lord Lennie (Lab)
My Lords, I welcome these technical amendments to recognise the role of the Welsh Government in these matters. While I will not go through each in turn, I would appreciate clarification on a few broad points.
First, the Government stated that provisions are not within the legislative competence of the Senedd Cymru. Can the Minister confirm whether the Government received any advice to the contrary, and whether this was anything to do with the decision to withdraw the amendments that were originally scheduled? Secondly, why were the amendments not included in the initial draft of the Bill? Thirdly and finally, can the Minister detail how the Government have engaged with both the Welsh Government and the wider Senedd during the passage of the Bill?
I am sure the Minister will agree that the principle of devolution has become a cornerstone of our modern democracy; that is exactly why I welcome these amendments. I look forward to clarification on the questions that I have put to the Minister.
Lord Greenhalgh (Con)
My Lords, I will have to write to the noble Lord on exactly what occurred. I know that this issue raised its head only very late last week. I am happy to outline that and put a copy in the Library in response to those questions.
We want to ensure that this legislation works for both England and Wales. This group of amendments achieves this by giving certain powers to Welsh Ministers that would otherwise be exercised by the Secretary of State. We have worked closely with the Welsh Government on this issue and I hope that these amendments will have your Lordships’ support.
The Deputy Speaker (Lord Brougham and Vaux) (Con)
We now come to the group beginning with Amendment 6. Anyone wishing to press this or anything else in the group to a Division must make that clear in debate.
Amendment 6
Lord Mackay of Clashfern
“Leases with an option of redemption
(1) In this Act a lease with an option of redemption means a lease which meets the following conditions—(a) it is a long lease of a dwelling,(b) it is in force on the “relevant transition date”, and(c) it is not an excepted lease.(2) The “relevant transition date” is the day on which this section and the other relevant provisions of this Act come into force in relation to leases of that kind.(3) After the relevant transition date the tenant has an option to pay a capital sum to the landlord, on payment of which the rent payable under the lease shall be a peppercorn rent.(4) The capital sum in subsection (3) shall be calculated in accordance with a formula specified by regulations made by the Secretary of State.(5) The option to pay a capital sum to the landlord set out in subsection (3) may only be exercised within two years of the relevant transition date.”
Lord Mackay of Clashfern (Con)
My Lords, this amendment repeats one I put forward in Committee. It is obvious that the Government’s policy suggests that the ground rent arrangements that apply at the moment are unfair to many people. This Bill prevents that kind of arrangement being made for the future but does not cover many people suffering from the present disadvantage.
It has been made clear to me by the Minister—indeed, fairly clear from the start—that dealing with the existing position is quite complex. The Competition and Markets Authority has dealt with it, and we have seen some arrangements that have come out of that. I was particularly pleased to notice that one at least of these arrangements looked quite like what I had proposed in the new clause in Amendment 6—paying off what remained of the obligation according to some formula.
I move this amendment only to emphasise the need for early implementation of the next stage. I am sure that the Government wish to move quite quickly, but I think we need as a House to make sure that that is made quite clear to the Government. I know that among the other proposals is one to make it easier to move to commonhold. Long ago when I was Lord Chancellor, I was keen to promote the idea of commonhold, because I had been brought up under a system of tenement property where people owned their own property. I was keen to seek to avoid the idea of leasing all the property. Of course, commonhold was difficult, but it has come in as a reasonable proposal now, and I would be very keen to see it being easier to get there than it has been in the past.
I very much welcome what the Government are proposing in this area. I am supported very much in that by my noble friend Lord Young of Cookham who did the much more difficult task of tabling a very full amendment in Committee for dealing with the matter. I left the main difficulty with the Minister, which I think is always quite a wise thing to do.
I simply move this amendment for the purpose I have mentioned and do not propose to insist on it at all.
Lord Berkeley (Lab)
My Lords, I support the amendments in this group and I am grateful to the Minister for finding the time to have a meeting with me. It was very helpful.
I shall come on to another amendment I have later. For this group, the noble and learned Lord, Lord Mackay, mentioned the need to speed things up. I entirely support that. We should get the rest of the Law Commission’s report on the statute book as quickly as possible. The noble and learned Lord’s amendment and that from my noble friend Lord Lennie are fundamental in trying to, shall we say, stem the tide of very unfair practices that seem to have developed in some parts of the market. I do not know how widespread it is, and I am quite surprised that the CMA has not been more helpful because its role, after all, is to look after the interests of consumers. Sometimes I feel that it possibly does not do that, but we can discuss that another time.
I have the pleasure of being on your Lordships’ Built Environment Committee that has just started one inquiry—out of two—into housing. At our meeting this morning, I was struck by three of the witnesses all saying that security of tenure was one of the biggest problems in housing. Whether it is leasehold or rental, it does not really matter very much. It is important to understand that people need to have some comfort that they can continue to live where they are living if they want to, and that the amount that they pay cannot go shooting up because of the wishes of the owners or other people involved in a way that could not have been foreseen when they took out the lease. It is not good when people are locked in—there are many press comments about it—and cannot sell. What do they do? That is before you get into the problem of cladding, which again is outside this discussion.
I am not sure whether my noble friend’s amendment or that of the noble and learned Lord is the best one. They both try to find some way of providing financial comfort to those who have been caught in this sudden upsurge—to me anyway—of increasing ground rents or other similar charges.
When we do these stages, it is funny that the Minister answers before the amendment has actually been proposed—but that is another thing we will get to. I look forward to my noble friend speaking on this matter, as he is much more knowledgeable than I am on it. I shall also be very interested to hear what the Minister has to say. It is really important that something like this is done very quickly, long before the next stage of the Law Commission’s report becomes a Bill.
The Earl of Lytton (CB) [V]
My Lords, I am largely supportive of this group of amendments, particularly the one moved by the noble and learned Lord, Lord Mackay of Clashfern. It always seemed to me that some of these clauses, particularly relating to escalating ground rents, were unfair, with hidden implications that were not apparent to purchasers at the time when they were entered into. The CMA intervention is welcome but the ongoing blight continues. This is certainly an evil that causes me to support this amendment very much.
I also support Amendment 9. This seems to be a logical provision against pre-emption and creates, as I see it, greater transparency, which really should be the hallmark of landlord/tenant relationships in this area.
It is unfortunate perhaps that I am speaking before Amendment 26 has been spoken to. I see it as potentially retroactive, and think it might remove the value of an asset without fair compensation. In its specific scope, it would not distinguish between a fair and reasonable ground rent and one that was flagrantly unfair. I do not in any way defend leasehold interests as such, but if we go down this road it has much wider public interest and property law implications.
Again with Amendment 30, I would have liked to have spoken after the noble Lord, Lord Stunell, whom I believe will speak to it, but, from a technical standpoint, the question of rent is a payment that in this instance the tenant makes to the landlord for the bits of the property which exist but which are not within the tenant’s specific demise under their leasehold. It is not a service charge. Are we at risk of getting rent and services provided for rent confused—in other words, the use of property as opposed to a tangible benefit in terms of the service charge? In general, however, subject to those points, I support this group of amendments.
Lord Stunell (LD)
My Lords, I will speak to Amendments 7, 8, 9 and 30. I will focus most of my remarks on Amendment 9, but I cannot speak without first saying that the amendment tabled by the noble and learned Lord, Lord Mackay of Clashfern, which I see as essentially introducing an early buy-out option for existing leaseholders, is the next necessary step and should have been endorsed by the Minister and incorporated in this legislation. It is yet another of the unfinished bits of business dogging our debates on the Bill. Like others, I am looking forward to Amendment 26 being presented by the noble Lord, Lord Lennie, which, as far as I understand its meaning and intention, has essentially the same purpose of moving forward the implementation of leasehold reform for that cohort of existing leaseholders who will be left out of this legislation. As such, in principle, we support that strongly.
Amendments 7, 8, 9 and 30, tabled by my noble friend Lady Grender and myself, are various alternative approaches to ensure that if the limited circumstances of this Bill are as far as the Minister is prepared to go, it is at least not a cause of exploitation of existing leaseholders who may be very close to agreeing an informal lease extension. The process of informal lease extensions is a well-accepted norm in the leasehold industry and, as was discussed extensively at previous stages of this legislation, one which comes into play when the existing lease is within sight of its end. That may be some distance away but nevertheless the value of the lease is declining rapidly, and perhaps its mortgageability on resale is compromised because there is not a sufficient existing term of the lease. If a completely new lease is not to be entered into, an informal lease extension may be negotiated between the leaseholder and the proprietor.
The noble Earl, Lord Lytton, described Amendment 9 as an anti pre-emption provision. Perhaps his three-word soundbite says it all. The risk at the moment is that an owner—or, should we say, one of the less-scrupulous landlords—may see this as an opportunity to preserve the value of his asset by offering an informal leasehold extension on terms which would be applicable under the current legislation now to pre-empt the possibility of that extension value declining to nil once the new legislation comes into force.
The Government have set their face against either of the approaches set out by the noble and learned Lord, Lord Mackay of Clashfern, at least at this stage, and I suspect that they will strongly resist the amendment proposed by the noble Lord, Lord Lennie. That is a pity and comes despite the evidence that has been put on the table by the Leasehold Knowledge Partnership and the examples given by my noble friend Lady Grender in Committee, which were referred to extensively at Second Reading. That leaves precisely the problem that I have outlined. An informal leasehold extension may very well be useful to both parties when the leaseholder is shortly to sell or is making arrangements prior to disposal, but clearly it is dangerous if the leaseholder simply wants to continue their lease.
It is also dangerous if the condition for entering negotiations is that the lawyers will be appointed by the owner, and it is dangerous if the new terms which are inserted into that leasehold extension are not drawn properly to the attention of the leaseholder. The evidence shows that it is not unusual for escalator clauses to be built into those leasehold extensions, which are not transparent and not brought clearly to the notice of the leaseholder who is going to sign. The risk is that unscrupulous landlords can see very clearly that, after Royal Assent, their golden goose will be stuffed. If I can mix my metaphors, they have an incentive to offer new lamps for old when it comes to extensions. To offer informal leasehold extensions to unsuspecting leaseholders locks them into a new, unfavourable set of terms when, if they had waited, under the full enactment of the Bill they would have been eligible for its new provisions limiting the ground rent to a peppercorn.
We have tried to fix this statutorily. Amendments 7 and 8 set this out in different ways, but Ministers resisted our efforts strenuously. We have had discussions with the Minister, which I have very much welcomed. He has been very generous with his time and with his officials’ time in working on this problem. Amendment 9 is therefore really quite modest in its intent and its impact. It simply proposes that landlords should have an obligation to alert their leaseholders in advance of these changes coming into force of informal leasehold extension terms being altered by this new legislation. It is a proportionate safeguard which is not onerous on landlords but gives leaseholders a clear sight of the forthcoming changes before they commit to less favourable terms under the existing law. It does not prevent those to whom the balance of advantage still lies with a speedy signature on the existing terms for an informal leasehold extension from choosing to do so, but it seeks to protect the unwary from making a costly mistake which ultimately, as in one or two of the examples which my noble friend Lady Grender brought to the House in Committee, may lead to them losing that property entirely.
I intend to test the opinion of the House on Amendment 9 when the appropriate moment arises.
Lord Lennie (Lab)
My Lords, I will speak primarily to Amendment 26 in my name, which would ensure that the Government bring forward legislation to end ground rent for existing leaseholders. I also add my thanks to the Minister for making himself and his officials available and for seeking to explore whether there is any chance of a solution to this. There was not, although he described this problem as “a top priority for the Government”. That is something that the noble Lord, Lord Young, heard when, in the other House, he was trying to deal with the question of hereditary Peers in this place. He was persuaded not to move an amendment by the then Government and was promised that legislation would be forthcoming. That was 20 years ago.
Millions of people are trapped in these contracts and the Government must end the feudal system for them as well as for new leaseholders. That is the whole purpose of this amendment—to make life equal for all leaseholders. Almost 5 million properties in England are leasehold dwellings—around one in five of all homes —and the House will be aware that many of them, if not all, are seeing their ground rent increase at incredible rates. The noble Lord, Lord Blencathra, memorably described this in Committee as a legal racket. That is what it is: it leaves a loophole available which sees rents increasing without any explanation, for no service whatever to leaseholders. It is creating immense misery and financial difficulties and there is no reason for the Government to maintain the system when they have already acknowledged how outdated ground rent is.
That is why the amendment would ensure that the Government bring forward early legislation within 30 days to end the practice once and for all. The amendment of the noble and learned Lord, Lord Mackay, identifies the same issue and tries to deal with it, but I am afraid I do not believe it goes far enough. Ground rent must be ended for leaseholders, including those in existing arrangements, and for that reason I will be testing the opinion of the House on Amendment 26 at the appropriate time.
I confirm the support of these Benches for Amendment 9 in the name of the noble Lord, Lord Stunell, and I also welcome other amendments he has tabled to probe aspects of these provisions. Amendment 9 raises the crucial point that leaseholders must always be informed of arrangements, and I hope the Minister will accept that point. With that, however, I will leave it to the Minister to respond.
Lord Greenhalgh (Con)
My Lords, several issues have been raised in relation to existing leaseholders in previous debates and engagements, and I thank noble Lords for their close examination and engagement with the Government on these issues. However, as I have stated previously, this Bill is deliberately focused tightly on only new residential long leases.
As noble Lords will know well by now, the Government are approaching their leasehold reform programme in two stages. First, the ground rent Bill before us today is intended to look ahead and transform the economic relationship between leaseholders, freeholders and developers. A comprehensive leasehold reform Bill will follow during the course of this Parliament to end unfair practices in the leasehold market, ensure that consumers are protected from abuse and poor service, and reinvigorate commonhold.
Noble Lords are understandably keen to know precisely when this second and more comprehensive leasehold reform Bill will be introduced. They will of course understand that scheduling of legislation is a complex process, and that consideration must be given to the Government’s wider legislative agenda. It is therefore simply not possible to make such concrete commitments at this stage. However, your Lordships should rest assured that the Government have no intention of going slowly when it comes to leasehold reform, which is one of the Secretary of State’s top priorities.
Amendments 6, 7, 8, 26, and 30 ultimately seek to widen the scope of the Bill so that it applies to existing leaseholders. Amendment 6, moved by my noble and learned friend, Lord Mackay of Clashfern, would allow existing leaseholders to pay a capital sum to reduce their ground rent to a peppercorn. As I have laid out in previous debates on the Bill, while we are sympathetic to the aims of this amendment, the Government do not believe that it is necessary. Existing legislation already allows leaseholders of flats to reduce their ground rent to a peppercorn on extending their lease through the statutory route. Meanwhile, leaseholders of houses can buy the freehold of their property and so eliminate ground rent altogether.
In January of this year, the Government committed to allowing existing leaseholders to buy out their ground rent without the need to extend the term of their lease: for example, where their lease is already long. For the purposes of calculating the premium payable for this, the ground rent will be capped at 0.1% of the property value, making it significantly cheaper for leaseholders with onerous ground rents. We will also introduce an online calculator to simplify the process of enfranchisement and ensure standardisation and fairness. We believe that these measures will achieve broadly the same effect as my noble and learned friend’s amendment, so I cannot accept it today.
Amendment 7, in the name of the noble Baroness, Lady Grender, and the noble Lord, Lord Stunell, would restrict ground rent for existing leaseholders who enter into non-statutory lease extensions to 0.1% of the value of the landlord’s interest in the dwelling. It is important to state for the record that the peppercorn requirement will apply to the newly extended portion of the lease once an extension has been granted under the voluntary route. In addition, for the period of the lease that reflects the term that remained on the original lease, the ground rent cannot be higher than in that lease. There will be no opportunity for a landlord to use the point of lease extension to increase ground rent.
I have discussed Amendment 8 with the noble Baroness, Lady Grender, and the noble Lord, Lord Stunell, and we are of course all of the view that we do not wish to see exploitation of this legislation. However, it cannot be right that we take away the option of a non-statutory lease extension which would enable the leaseholder to pay a lower premium in return for continuing to pay some ground rent on the remaining term of their lease, with limitations as set out in the Bill. Where a leaseholder wishes to follow this route, Clause 6 allows for a monetary ground rent to continue to be paid on the remaining part of a lease—that is, the “pre-commencement lease”. This can be common where the leaseholder wishes to agree this approach with their landlord in return for a reduced premium payment.
The “voluntary” or non-statutory process is a more flexible route to lease extension and can in some cases actually be more cost effective and quicker for both the leaseholder and the freeholder. Naturally, therefore, as I am sure we would all agree, we do not want to remove that option from the Bill. I can reassure the House that as part of taking forward the Law Commission’s recommendations on leasehold enfranchisement we will be considering the matter of non-statutory extensions further, and when the time comes we will again seek input from noble Lords on this important issue.
Amendment 9 is also in the name of the noble Lord, Lord Stunell, and the noble Baroness, Lady Grender. Attempting to amend the Bill as proposed in the amendment will not guarantee the outcome that the noble Baroness, Lady Grender, wishes to see, and the Government continue to consider this issue a matter of implementation detail rather than something to change on the face of the Bill. Amendment 9 would require all landlords to inform leaseholders of the changes introduced by the Bill before entering a formal or informal renegotiation or extension of an existing lease. Where a landlord failed to do so, they would face a penalty of between £500 and £30,000. However, the drafting of this amendment means that it would cover only the period from Royal Assent to the commencement date.
I appreciate that consumer rights and awareness is of particular concern to the noble Baroness, Lady Grender, and indeed the noble Lord, Lord Stunell, and I would be very keen to work with them and others on the issue of implementation. We have concerns that, while we recognise the need to ensure that leaseholders are aware of their rights and are not rushed into a lease extension before this Bill can take effect, we also need to ensure that any penalties are fair, justified and as far as possible are not incurred accidentally. Were the fines set out in the amendment to apply immediately upon Royal Assent, there is limited time to ensure that landlords are aware of the requirements and could end up receiving a fine for extending a lease in line with a request from a leaseholder.
We agree with the principle of this amendment, and I have discussed with the noble Baroness that we would like to work with her on the implementation of the Bill. This will include, for example, provision of comprehensive information to conveyancers, landlord representatives and leaseholder groups to ensure awareness of the new ground rent limits.
I have had constructive conversations with the noble Lord, Lord Stunell, and the noble Baroness, Lady Grender, about how we might get the word out about these upcoming changes. Several solutions were proposed and I was particularly taken by the noble Lord’s suggestion about engagement with the legal profession to ensure that it can best advise its leaseholder clients. I have asked my officials to consider how we might take forward these proposals. This is important not just so that leaseholders are aware of their rights but so that landlords know what is required of them and do not inadvertently receive a large fine. However, we do not believe that financial penalties should apply as proposed by the noble Lord’s amendment, and I hope that he will not move it.
Amendment 30, again in the names of the noble Lord, Lord Stunell, and the noble Baroness, Lady Grender, would put a requirement on landlords to write to their leaseholders to justify the payments by reference to the expenses to be met from the ground rent, or else to confirm that the ground rent is not used to pay any expenses. We agree that transparency is vital in the leasehold sector. However, we do not believe that this is the appropriate way to ensure that existing leaseholders are better informed about ground rents. As noble Lords know, ground rents are charges paid with no clear service in return. Most leaseholders will be aware of this and it is unclear what benefit they would get from receiving a letter from their freeholder or managing agent to that effect.
However, we are working to prepare the sector and leaseholders alike, assessing where better advice and support can be provided through ongoing regular engagement with the sector and our delivery partners. However, I acknowledge the broader concerns raised by the noble Baroness, Lady Grender, and the noble Lord, Lord Stunell, in their Amendments 7, 8, 9 and 30 about pre-commencement leases and the consumer awareness challenges in the run-up to this legislation coming into force. It is a noble intention, and we are agreed that leaseholders should have the right information to hand when making important decisions about whether to extend or vary their lease.
I am grateful to noble Lords for raising their concerns about the implementation of this Bill. I understand that it is noble Lords’ desire, as it is mine, to improve the Bill and see it delivered as smoothly as possible. That is why my officials are working carefully to craft an implementation plan that takes account of these concerns, as outlined by the noble Lord, Lord Stunell, and the noble Baroness, Lady Grender, to do what we can to ensure that leaseholders are aware that this change in the law is coming and that they are equipped with the information they need to make the decision that is right for them.
This is a good opportunity to inform your Lordships that I can today commit to the House that the commencement date for this legislation will be within six months of Royal Assent, an issue which my noble friend Lord Young raised on numerous occasions. This issue was raised multiple times at previous stages and, while writing the date into the Bill would be inappropriate for reasons that I hope noble Lords will understand, I am pleased to make that commitment today.
More broadly on consumer awareness, the Government are pleased to hear the recent update published by the CMA on 23 June, whereby settlements secured with a leading housing developer and an investor in the leasehold sector have committed them to changes that will benefit thousands of leaseholders by refunding homeowners who saw their ground rents double, and allow leaseholders to buy the freehold of their properties at a discount. One of those companies has also committed to extending the timeframe that prospective buyers are given to exchange contracts after reserving a property, and to providing people with more up-front information about the annual costs of buying a home.
I am sure that noble Lords will also be pleased to hear that that includes ensuring that all marketing materials provided to consumers before the signing of a reservation agreement clearly and prominently state a greater level of information of benefit to the leaseholder—for example, the tenure of the property, the ground rent payable and any circumstances that may potentially lead to an increase in service charges. These landmark commitments will ensure greater transparency for leaseholders, thereby helping future buyers to make informed decisions without feeling pressured by time constraints. The CMA has made excellent progress, and that is just the start. We support the ongoing investigation and believe it will send a clear signal to others in this sector to follow this lead or face legal action.
Finally, Amendment 26, tabled by the noble Lord, Lord Lennie, would require the Government to produce draft legislation within 30 days to reduce ground rents to a peppercorn in existing long residential leases. I have listened carefully and appreciate the noble Lord’s sense of urgency in wanting to address issues faced by existing leaseholders. I can reassure the House that the Government are working at pace to bring these reforms forward. However, I must once again state that arbitrary deadlines are not useful in this context. It is, frankly, not possible to publish a Bill to the timescale proposed by that amendment. The reforms we are planning are a once-in-a-generation shake-up of the leasehold system, with the effects being felt for years to come.
I have outlined some of the changes, including on enfranchisement, transparency, a commitment on commencement and the ongoing work of the Competition and Markets Authority. I hope that the information I have given satisfies noble Lords that we take the issues facing existing leaseholders very seriously and that we are working at pace to deliver the improvements that all noble Lords here today want to see. As they will no doubt appreciate, this ambitious reform programme is complex and has many interdependencies. Therefore, while being mindful of the need for progress, it is important to take the time required to get it right. It is for these reasons that the Government cannot accept these amendments and I urge that they be withdrawn or not moved.
Lord Mackay of Clashfern (Con)
My Lords, I am greatly obliged to the Minister for his answers and, so far as I am concerned, the commitment to bring the legislation into effect is an important one that we were given some time ago. So far as my amendment is concerned, I am keen that the new proposals come forward quickly but their nature is such that it would be impossible to formulate them in a clear timescale of the kind suggested. However, that is for others say. I beg leave to withdraw my amendment.
Lord Stunell
“Duty to inform the tenant
(1) Before entering a formal or informal renegotiation or extension of an existing lease, the landlord must inform the tenant of the changes introduced by this Act, if the sections of the Act in relation to prohibited rent are not yet in force.(2) An enforcement authority may impose a financial penalty on a person if the authority is satisfied beyond reasonable doubt that the person has breached the duty in this section.(3) The amount of the financial penalty under subsection (2) is to be such amount as the authority determines but—(a) is not to be less than £500, and(b) is not to be more than £30,000.(4) This section comes into force on the day on which this Act is passed.”Member’s explanatory statement
This amendment would require landlords to let tenants know of the upcoming changes to ground rents to try and prevent lease extensions before the changes in this Bill are implemented.
The Deputy Speaker (Lord McNicol of West Kilbride) (Lab)
My Lords, we now come to the group consisting of Amendment 10. Anyone wishing to press this amendment to a Division must make that clear in the debate.
Clause 9: Financial penalties
Amendment 10
Lord Greenhalgh
Member’s explanatory statement
This amendment increases the maximum penalty that an enforcement authority may impose.
Lord Greenhalgh (Con)
My Lords, in constructing a penalty regime for any landlords who breach the provisions of this legislation, we wanted to set the penalty at a level that was proportionate but acted as a deterrent. As the average ground rent is around £250 per year, we felt that £500 would be a reasonable and proportionate minimum penalty. Once again, I remind noble Lords that this would be paid in addition to repaying the prohibited rent with any interest due, and that £500 is a minimum penalty amount. Breaches across multiple leases could also be penalised, resulting in heavy fines.
However, both at Second Reading and in Committee, noble Lords felt that the balance between proportionality and deterrence was not quite right. The noble Baronesses, Lady Grender and Lady Jones of Moulsecoomb, and the noble Lord, Lord Naseby, were among those who made very strong arguments that the proposed regime was set at too low a level to act as a serious enough deterrent to freeholders, particularly larger freeholders with high annual turnover. In addition, while local authorities should not design their enforcement strategy to function as a revenue stream, we have been clear that we believe that any penalty recovered through the enforcement process should cover the cost of that enforcement.
I have listened carefully to the arguments made in Committee in favour of higher financial penalties and considered the impact that changing these amounts would have. We have concluded that the maximum should be raised to £30,000 which, as some noble Lords may know, is in line with this Government’s Tenant Fees Act 2019. However, we intend to keep the minimum penalty at £500, in recognition that this is proportionate where, for example, a small freeholder charges a non-peppercorn rent.
For those noble Lords who think we are a soft touch, I note that this is the first example of a minimum penalty in leasehold law. This amendment will significantly strengthen the enforcement regime and further deter freeholders from attempting to breach this legislation. I beg to move.
Lord Stunell (LD)
My Lords, I enthusiastically welcome this amendment from the Government. I am very pleased that the Minister has seen the strength of the arguments put forward by noble Lords from all around the House on this issue. It is not just that the original figure would not have been a significant deterrent for those determined to carry on with bad practice. Worse than that, it was not going to be sufficient to fund or permit trading standards to carry out their enforcement duties. The enforcing body around the country is short of funds and staff, and a new burden placed on it to enforce this provision without the means to do so was a recipe for failure. I am delighted that the Minister has seen the compelling strength of the view that my noble friend Lady Grender and others advanced passionately and congratulate him on persuading his colleagues around government of the need to move forward on this as he has.
Lord Lennie (Lab)
My Lords, the sole amendment in this group increases the maximum penalty to £30,000 per lease, in line with other housing legislation—namely, the Tenant Fees Act. I am pleased that the Minister has brought forward this change following concerns raised in Committee, but I trust that the sum of £30,000 has not been decided purely based on precedent —not just because there is not a direct precedent to compare it to. The use of £30,000 penalties in this legislation will apply to freeholders, many of which are incredibly wealthy businesses. Does the Minister believe that £30,000 will be sufficient deterrent in such cases? As I said, I am concerned that this figure has been chosen because of the so-called precedent. Can the Minister dissuade us of that notion by confirming that an impact assessment has been carried out and, if so, tell us when it will be published?
We welcome an increase in the maximum penalty, but I am not entirely confident that it will be sufficient deterrent. I look forward to the Minister’s assurances.
Lord Greenhalgh (Con)
My Lords, I point out that the maximum penalty would apply per lease and, for highly complex buildings, that soon multiplies to a substantial amount of money, so we believe that we have got the balance right in meeting the need for deterrence while recognising that some freeholders are not in the class of those that own considerable amounts of property. The amendment should be broadly welcomed and will strengthen the enforcement regime as a result, responding directly to the points made at various stages of the Bill. I believe it significantly strengthens the legislation.
Lord Greenhalgh
“(9) The relevant authority may by regulations amend this section so as to change the minimum amount or the maximum amount.”Member’s explanatory statement
This amendment, with Lord Greenhalgh’s second amendment to Clause 22, page 13, line 28, enables the Welsh Ministers (instead of the Secretary of State) to make regulations changing the amount of the minimum and maximum penalties for breaches of Clause 3 in relation to leases of premises in Wales.
Member’s explanatory statement
This amendment is consequential on Lord Greenhalgh’s amendment to Clause 9, page 7, line 37.
Lord Greenhalgh
(b) the Welsh Ministers about the exercise of its functions under this Act in relation to a lease of premises in Wales.”Member’s explanatory statement
This amendment requires enforcement authorities to have regard to guidance issued by the Secretary of State in relation to enforcement action in England and by the Welsh Ministers in relation to enforcement action in Wales.
Lord Greenhalgh
Member’s explanatory statement
This amendment, with Lord Greenhalgh’s amendment to Clause 17, page 11, line 17, requires applications for the recovery of prohibited rent paid under a lease of premises in Wales to be made to a leasehold valuation tribunal (instead of the First-tier Tribunal).
Member’s explanatory statement
This amendment is consequential on Lord Greenhalgh’s amendment to Clause 13, page 9, line 24.
Member’s explanatory statement
This amendment is consequential on Lord Greenhalgh’s amendment to Clause 13, page 9, line 24.
Lord Greenhalgh
Member’s explanatory statement
This amendment and Lord Greenhalgh’s amendment to Clause 14, page 10, line 5 are consequential on Lord Greenhalgh’s amendments to Clause 13, and enable a leasehold valuation tribunal to order interest to be paid on amounts of prohibited rent that it orders to be repaid to the tenant under that Clause.
Member’s explanatory statement
See the explanatory statement to Lord Greenhalgh’s amendment to Clause 14, page 10, line 4.
Lord Greenhalgh
Member’s explanatory statement
This amendment, with Lord Greenhalgh’s amendment to Clause 17, page 11, line 17, requires applications as to the effect of Clause 7 on the terms of a lease of premises in Wales to be made to a leasehold valuation tribunal (instead of the First-tier Tribunal).
Member’s explanatory statement
This amendment is consequential on Lord Greenhalgh’s amendment to Clause 15, page 10, line 19.
Member’s explanatory statement
This amendment is consequential on Lord Greenhalgh’s amendment to Clause 15, page 10, line 19.
Member’s explanatory statement
This amendment is consequential on Lord Greenhalgh’s amendment to Clause 15, page 10, line 19.
Lord Greenhalgh
Member’s explanatory statement
This amendment is consequential on Lord Greenhalgh’s amendments to Clause 13.
Lord Greenhalgh
“(1) For the purposes of sections 13 to 16 and the Schedule, the “appropriate tribunal” is— (a) in relation to a lease of premises in England, the First- tier Tribunal;(b) in relation to a lease of premises in Wales, a leasehold valuation tribunal.”Member’s explanatory statement
This amendment defines the “appropriate tribunal” for the purposes of Lord Greenhalgh’s amendments to Clauses 13 to 16 and the Schedule.
Lord Greenhalgh
Member’s explanatory statement
This amendment corrects the drafting of Clause 17(b) to reflect the fact that the right to apply to a tribunal for a declaration as to the effect of the Bill on the terms of a lease does not extend to a tenant’s guarantor.
Lord Greenhalgh (Con)
My Lords, I will speak very briefly on government Amendment 25, which is a minor technical change to correct a small drafting error.
Clause 17 defines “tenant” for the purposes of Clauses 10, 13 and 16. Clause 16(1)(b) enables an enforcement authority to assist a tenant in an application as to the effect of Clause 7—that is, in regard to the effect of a term reserving a prohibited rent on the terms of a regulated lease. This amendment rectifies a discrepancy in the Bill, in that the assistance provided under Clause 16 would not extend to the tenant’s guarantor, as a guarantor does not have the right to apply for a direction as to the effect of Clause 7. This amendment ensures that there is no discrepancy between the clauses of the Bill. I beg to move.
Lord Lennie (Lab)
My Lords, obviously we welcome this amendment to the drafting error in the original Bill. Can the Minister explain briefly what the consequences would have been if it had not been identified? I mean briefly; I do not want a whole essay on the subject. Is there a risk that similar errors could be identified in other legislation which relates to guarantors?
Lord Greenhalgh (Con)
I thank the noble Lord for testing my knowledge of the consequences of a small technical amendment. I am just glad that we picked it up; I will have to write to the noble Lord on what the consequences would have been had we not done so. This happens from time to time. I am fairly new to the House but, when we find these errors, there are plenty of opportunities to correct them before the Bill receives Royal Assent.
Lord Lennie
“Ground rent for existing long leases
Within 30 days of the day on which section 3 comes into force (for any kind of lease), the Secretary of State must publish draft legislation to restrict ground rents on all existing long residential leases to a peppercorn.” Member’s explanatory statement
This amendment aims to ensure that the Government introduces further legislation to remove ground rent for all leaseholders, whereas the Act currently only applies to newly established leases.
Lord Lennie (Lab)
My Lords, I beg to move and wish to test the opinion of the House.
The Deputy Speaker (Lord McNicol of West Kilbride) (Lab)
My Lords, we now come to the group beginning with Amendment 27. Anyone wishing to press this or anything else in this group to a Division must make that clear in the debate.
Amendment 27
Baroness Pinnock
“Review of the financial impact of the Act
(1) Within 6 months of the day on which this Act is passed the Secretary of State must carry out a review of the financial impact of this Act on leaseholders.(2) The review must make a recommendation as to whether further legislation should be introduced to extend the ban on ground rents to existing long leases.(3) The recommendation in subsection (2) must take into account the potential financial impact of an extension of the ban on ground rents on those leaseholders and tenants who have been charged for the cost of fire remediation work.”Member’s explanatory statement
This amendment would require a review of the financial impact of this Act and make a recommendation as to whether a further extension of the ground rents ban could benefit existing leaseholders, especially those facing bills for fire remediation work.
Baroness Pinnock (LD) [V]
My Lords, I speak to Amendment 27 in my name and those of my noble friends Lady Grender and Lord Stunell. I draw the attention of the House to my relevant interests in the register as a member of Kirklees Council and a vice-president of the Local Government Association.
Amendment 27 asks that:
“Within 6 months of the day on which this Act is passed”
the Government
“carry out a review of the financial impact”
on leaseholders. Reviewing the impact of legislation is important, especially in instances such as these, where changes to an already complex situation are likely to result in unforeseen consequences—despite many noble Lords and the Minister doing their utmost to ensure that all aspects are fully considered. The amendment then goes further to ask that the review actively considers and makes a recommendation about “further legislation” —either for or against it.
Subsection (3) of the proposed new clause makes specific reference to those leaseholders and tenants who have been charged for “fire remediation work” consequent to the Grenfell tragedy. Noble Lords will notice that I am taking the opportunity provided by this Bill to raise again very grave concerns many of us have for those leaseholders and tenants who are, through no fault of theirs, at the heart of the cladding scandal.
The fact that up to 1.3 million households are at a very considerable risk of bankruptcy as a direct result of serious construction failings must never be allowed by decision-makers to remain unresolved. Leaseholders have done everything right and nothing wrong, yet they are being expected to pay for the failures of construction, developers and materials manufacturers.
I recognise that the Government have provided over £5 billion towards remediation but the total cost is anticipated to be over £15 billion—the vast proportion of which is being passed via so-called service charges to leaseholders. We are not talking about charges that are in any way affordable. For example, Pippa in Leeds has a bill for £140,000. The highest bill I have seen was reported in the latest article on this issue in the Sunday Times: a staggering £204,000.
Perhaps the Minister will be able to provide advice on how these leaseholders are to pay the bills that have landed on their doormats. He will be aware that a leaseholder’s major asset is their flat and that, currently, has no value. It is not only the costs of remediation that are pressing down on leaseholders, there are service charge increases—consequent, again, to the cladding scandal.
I have heard from a leaseholder today, who says: “I am knee-deep in service charge admin. I am being harassed with bills that I know are inflated and incorrect, and with huge penalties for late payment. No one should have to live like this. It takes a toll on every aspect of your life, and that is before consideration of planning bills.”
It is not only leaseholders who fear the worst. The Investors Chronicle has reported in the last two weeks that this may become the next PPI scandal. Flat sales are in decline. They affected flats are neither sellable nor mortgageable. Before long, the Government will have to take action to save leaseholders from bankruptcy and homelessness and the housing market in flats from collapse. This amendment simply asks the Government to take stock within six months and, in doing so, to be cognisant of the leaseholders whose dreadful plight I have described. The leaseholders have done everything right and nothing wrong, which is a phrase I cannot attribute to developers, constructors, material manufacturers or the Government, as the final regulator. Between them, they have responsibility for this absolute scandal.
I will listen carefully to the Minister’s response. However, if he is not inclined to accept this simple amendment, I give notice of my intention to seek the opinion of the House. I beg to move.
The Earl of Lytton (CB) [V]
My Lords, I welcome the opportunity to speak to the amendment just moved by the noble Baroness, Lady Pinnock.
I am a fan of what I see as post-occupation evaluation. I welcome the amendment for that alone. I would more comfortable if it did not just refer to leaseholders, because the whole dynamic—as regards the ongoing interaction between leaseholders, freeholders, management and so on—is ever moving. That needs to be seen in the round. It should include not just the financial matters referred to in the amendment but a more holistic measure in terms of the sense of place, security, ability to control or influence outcomes and user contentment. I suspect that the Government have a system anyway for reviewing the effects of legislation, but I ask whether that is frequent enough to meet the noble Baroness’s objectives. In general, I support the other amendments in this group.
The noble Baroness referred to the driver behind this being the tragedy of Grenfell. Although the process of evaluation and what has come out of it may be seen, in government terms, to be moving at lightning speed, it has not been nearly fast enough for leaseholders and those who pay service charges. The consequences of that have been amply exposed by the noble Baroness and are ongoing. This is truly a tragedy for many households, which have walked unknowingly into a situation created by the neglect of others. The auguries are not particularly good. The proposal, as I interpret it, to leave the power in the hands of leaseholders to claim—admittedly on a longer timeframe—against those who did not observe basic construction standards creates an almost insuperable hurdle.
It is appropriate that I pay tribute to those outside the House who have promoted the polluter pays principle. I know that this matter has been brought to the attention of the Government, and it would place the basic strict liability on those who failed to make the grade in construction standards. My question is: when are the Government going to act on it? I consider the matter of such importance that if the noble Baroness decides to test the opinion of the House, I shall be voting with her.
Lord Stunell (LD)
My Lords, this is a devastating case, again, of unfinished business. We have talked several times about unfinished business in respect of reforming the whole leasehold system. The noble Baroness, Lady Pinnock, has spoken with great passion about the need to deal with the unfinished business of getting the damaged blocks discovered since the Grenfell fire put back in a safe and workmanlike position. That is a terrible story, which is still unravelling and still producing—I think we can say—shock and amazement as the evidence comes out of the inquiry at Grenfell. As the noble Baroness, Lady Pinnock, said, it is not an isolated failure. I ought to have started by reminding the House that I was the Minister with responsibility for building regulations between 2010 and 2012, which was well before this but is nevertheless relevant.
There was a failure of regulation, a failure at every level of the supply chain, a failure of the designers and a failure of those responsible for monitoring progress. Of course, the fallout is not simply that one building was found to be dangerous and defective and burned at the cost of 72 lives, but that more than 400 other buildings have been found to be equally defective or worse. As is so often the case, once you begin to look, you see plenty else. The British Woodworking Federation estimates that 600,000 defective fire doors are installed in buildings in this country. In that context, it is good to know that the Government have come forward with a compensation scheme, allocating £5 billion. Perhaps the Minister can tell us whether the guidelines for applying for that compensation have yet been published. My last understanding is that they have not, but maybe he can bring some information to your Lordships’ House today.
It has to be right that this House considers the situation facing those leaseholders and, in so far as we can, safeguards their position. This is actually a very modest amendment; it calls only for a review within six months, not for the spending of government money, so there is nothing for Ministers to shy away from. It would simply make sure that this legislation, relevant to the ongoing tragedy of Grenfell and the ongoing battle that hundreds of thousands of leaseholders are facing with enormous bills—which the noble Baroness, Lady Pinnock, eloquently spelled out—cannot be passed by your Lordships’ House without serious consideration.
I know that the Minister has repeatedly found himself at the Dispatch Box having to say essentially the same thing: “This is not the time; this is not the place; this is not the right legislation.” We have to reply to him: “Well, when is the time? Where is the place? Where is the legislation?” We need to see some answers. Certainly, this is a matter we wish to press in the oncoming vote.
Lord Lennie (Lab)
My Lords, I will speak to Amendments 28 and 29, in my name, and welcome Amendment 27, moved by the noble Baroness, Lady Pinnock, and also in the name of the noble Lord, Lord Stunell.
Amendment 28 is intended to raise four issues, which I have focused on at previous stages of the Bill: lease forfeiture, transfer fees, redress schemes and enfranchisement. This amendment is intended to probe, and, while I will not introduce each issue again, I hope that the Minister can provide clarification in the following areas. On lease forfeiture, can the Minister confirm that legislation will be forthcoming to prevent possession being taken over small debts? On transfer fees, has the Minister made an estimate of how many freeholders are placing charges on the sale of properties? On redress schemes, will the Minister consider a trial for the most serious of leasehold abuses? Finally, on enfranchisement, what assessment have the Government made of the obstacles currently in place?
The intention of Amendment 29 is to raise the need for the Government to champion commonhold arrangements. The House will be aware that the Mayor of London is committed to furthering commonhold, and his manifesto pledged to trial the arrangements in London. Can the Minister confirm what support will be offered to the mayor as part of these pilots? Will he make a statement on the Government’s policy on commonhold?
Finally, I turn to Amendment 27, which calls for a review of the relationship between the Bill and those facing bills for “fire remediation work”. Unfortunately, the Government have again ignored those people during the drafting of this legislation. This Government’s continued mismanagement of the remediation work is one of their most shameful aspects. I hope that the Minister will use this opportunity to finally change track and at last deal with the issues of remediation costs being charged to leaseholders for building safety faults. Rather than another betrayal of their promises to leaseholders, we need legal protections to ensure that millions of pounds of building safety remediation costs are not passed on to innocent home owners and tenants.
Lord Greenhalgh (Con)
My Lords, this group of amendments calls for a variety of impact assessments to be produced. It is, of course, very important that we understand the impact that this legislation will have. That is why we have already produced an impact assessment, which I would encourage all noble Lords to read.
Amendments 27 and 28 would both require impact assessments relating to how this legislation would impact on issues facing existing leaseholders. As throughout the passage of the Bill, I understand noble Lords’ desire to assist existing leaseholders. Noble Lords will be well aware by this point that this is just the first of a two-part legislative programme, with further leasehold reform due later in this Parliament.
We have considered the impact of the Bill on existing leaseholders, and this is informing the process of policy development, ahead of future legislation. This is within the broader context of the important work being done by the Competition and Markets Authority to address unfair terms and mis-selling. As discussed previously, we are committed to measures to help existing leaseholders through significant changes to the enfranchisement valuation calculation, making it cheaper for many leaseholders to extend their lease, buy their freehold or buy out their ground rents.
Noble Lords can rest assured that my officials have been listening very carefully to all of the points that have been raised during the debates on the Bill. However, producing detailed impact assessments is likely only to distract from the important work that is being done on leasehold reform.
The noble Baroness, Lady Pinnock, again raised historic fire and building safety remediation costs. I was struck by the very high bill of around £204,000 per leaseholder that was quoted. This may be a building in Manchester, but I would be very keen to know further details and to understand the approach that has been taken. Very often, when I have inquired and understood the situation, I have found that the most proportionate response is not necessarily considered by the building owner—but I would be very interested to look into that case in more detail.
In response to the noble Lord, Lord Stunell, I say that we are very aware of the polluter pays Bill and the work that is being led by Steve Day of RAQ. We are looking at it very carefully to see whether it could further enhance the proposed Building Safety Bill. Of course, we have already looked at strengthening redress by extending the statutory limitation period in the Defective Premises Act 1972 from six to 15 years, applied retrospectively. This could provide further support to ensure that it is the polluter who pays. We are looking at that very carefully, as I said.
Also in response to the noble Lord, Lord Stunell, on the Building Safety Bill, I say that the first £1 billion of this has of course been in play and spent. In fact, the fund is very much overcommitted. Further details around the further £3.5 billion will be published in September, but works are not being delayed because of that. I am happy to provide assurance that the further expenditure will therefore be outlined at that stage.
Baroness Pinnock (LD) [V]
My Lords, I thank all noble Lords for their contributions and support on the very important issue I have raised again today. I particularly thank the noble Earl, Lord Lytton, for his supportive contribution. He is a recognised expert on these issues, and he expanded on my points. He has raised them before, and I certainly think the Government need to listen carefully to what he has to say.
The Minister has been handed the impossible task of defending the indefensible. Unfortunately, he always has to rely on the fact that future Bills will help solve this problem—but the future will never come soon enough for leaseholders struggling now. They have these bills now and will have to pay them by the end of the year.
As my noble friend Lord Stunell said, this is just a modest amendment. All it seeks is a review of the Bill’s impact in six months, with special reference to leaseholders who have been adversely and gravely affected by the consequences of the Grenfell tragedy.
I apologise to the House for not having moved my amendment formally at the end of my initial speech. I beg to move it now, but I also have to say that, having heard what the Minister said, I wish to seek the opinion of the House on this matter.
Lord Greenhalgh
(b) Senedd Cymru, if the regulations are made by the Welsh Ministers,”Member’s explanatory statement
This amendment provides that the default procedure for regulations made under the Bill by the Welsh Ministers is the negative procedure.
Lord Greenhalgh
““premium” means any consideration in money or money’s worth for the grant of a lease, other than rent;”Member’s explanatory statement
See the explanatory statement for Lord Greenhalgh’s second amendment to Clause 1, page 1, line 5.
Lord Greenhalgh
““relevant authority” means—(a) in relation to a lease of premises in England, the Secretary of State;(b) in relation to a lease of premises in Wales, the Welsh Ministers;”Member’s explanatory statement
This amendment defines “relevant authority” for the purpose of Lord Greenhalgh’s amendments to Clause 2, page 2, line 21 and Clause 9, page 7, lines 37 and 39.
The Deputy Speaker (Lord Duncan of Springbank) (Con)
We come to Amendment 41. Anyone wishing to press this amendment to a Division must make that clear during the debate.
Amendment 41
Lord Greenhalgh
“(2A) A sum expressed to be payable in respect of rates, council tax, services, repairs, maintenance, insurance or other ancillary matters is not rent for the purposes of this Act merely because it is reserved as rent in the lease.”Member’s explanatory statement
This amendment clarifies that service charges and similar payments are not to be treated as rent only because they are reserved as rent in the lease.
Lord Greenhalgh (Con)
My Lords, before coming to the detail of this amendment, I want to stress the importance of the broad definition of “rent” as it appears in the Bill. Your Lordships are aware of the Government’s position. We believe it is vital for the effectiveness of the Bill that the definition of ground rent is drawn up in such a way as to head off the potential for avoidance measures by the small proportion of landlords who are intent on abusing the leasehold sector for their own financial gain. Any attempts to change this approach would do little more than provide a fixed obstacle around which a nimble landlord may divert with relative ease, certainty and confidence.
Alternative versions for the definition of a rent that stray away from this approach have been considered but they all reached the same conclusion and were found to be lacking. It is precisely because of the broad definition of rent in the Bill that any landlords and their investors seeking to charge what is in essence a ground rent by any other name will need to think very carefully if they believe the definition provided in the Bill offers an easy workaround—it does not. That is to say, if a landlord were to attempt to charge a ground rent by any other name and that charge provided no meaningful benefit or service to the leaseholder, that charge may be considered within the nature of a rent for the purposes of the Bill, and a tribunal or enforcement authority could consider the case for enforcement against that landlord.
I believe that Amendment 41 will provide further clarity regarding the meaning of a “rent” for the purposes of the Bill. Noble Lords will recall that there was a good deal of debate over that definition in the Bill in Committee. My noble friend Lord Young made reference to the Law Society and raised his concerns that the wide definition of rent contained in the Bill could give rise to unnecessary litigation as the lawfulness of certain charges being able to continue as being “reserved as rent” was not wholly clear.
I have listened carefully to the arguments made by my noble friend and others and am not unsympathetic to the views expressed that tighter wording of what is considered a rent would provide even greater clarity for both leaseholders and landlords. The amendment therefore provides that valid charges, even if they are “reserved as rent” in a lease, are not intended to be captured by the provisions in the Bill just because they are “reserved as rent” within a lease.
It is not our intention for valid charges, such as the charging of insurance or service charges, to be adversely affected by the Bill. Neither is it the purpose of the Bill to address the practice of reserving as a rent charges that are not in fact rent. The amendment simply clarifies that, just because a charge is reserved as a rent, it does not automatically follow that it is a prohibited rent for the purposes of the Bill.
I reassure noble Lords that the amendment does not give a green light for landlords seeking to avoid the measures of the Bill to merely reserve any charge as a “rent”. As I have described, the definition of a rent is drawn deliberately as widely as possible and will capture any charge that is in fact in the nature of a rent, whatever it is called. I beg to move.
Lord Stunell (LD)
My Lords, I always welcome efforts by Ministers to clarify the law, although I sometimes struggle to understand exactly how the law has been clarified. It has been suggested that this is, if you like, a step of relaxation or at least inclusion that will permit landlords to get away with—I think that is the technical term—bad practice. I am sure the Minister will reassure me that that is absolutely not the case and, far from opening a door, it is trying to make sure that the door is firmly shut.
I fear that the technicalities of this will be worked out in the law courts over time, whatever provision the Minister puts in the Bill or takes out of it. I wish him luck and I hope he has succeeded in what he hopes to succeed in. I guess we shall find out, when we do the evaluation in a year or two, how accurate that is.
Lord Lennie (Lab)
My Lords, the Minister will be glad to hear that this amendment is another technical change that we on these Benches fully support. However, has the department identified whether the same drafting issue is present in any earlier legislation?
Lord Greenhalgh (Con)
My Lords, we could not have had more different responses to the government’s amendment. I would like to assure the noble Lord, Lord Stunell, that this is indeed a clarification around enabling landlords to continue to pass legitimate valid charges. It will not promote the practice of continuing ground rents by another name, and I made that point very clearly in outlining this in my speech. I am sorry it was quite technical; obviously, people with legal eyes helped me to formulate the syntax but I give that assurance. But the noble Lord is right: only time will tell how the legislation will work in practice.
In response to the noble Lord, Lord Lennie, I have never heard anything quite so overwhelmingly positive about an amendment that I have moved—perhaps we are reaching a new era in understanding. I am not aware of this being relevant in any other part of our approach to the reform agenda that we are putting forward. However, leaseholder legislation covers many decades. Despite having studied some land law in the 1980s, I am not in a position to give a very detailed legal answer on that point.
The Deputy Speaker (Lord Duncan of Springbank) (Con)
We now come to the group beginning with Amendment 42. Anyone wishing to press this or anything else in the group to a Division must make this clear in the debate.
Clause 23: Crown application
Amendment 42
Lord Berkeley
Member’s explanatory statement
This would remove the Duchy of Cornwall from the definition of Crown Land since the Duchy describes itself as a private estate.
Lord Berkeley (Lab)
My Lords, in moving the amendment in my name, Amendment 42, I will speak also to Amendment 43. This returns to the subject of the Duchy of Cornwall, which we discussed at some length in Committee. The Minister responded very helpfully, at col. GC 362, setting out the current exemptions from existing legislation for the right to buy. He also mentioned that the Crown Estate had given a parliamentary undertaking that it will not seek any special arrangements. He mentioned the comments on the Law Commission report about the concerns that the Duchy of Cornwall had on enfranchisement itself. Not much has happened since then.
The Minister did say that he would write to the Duchy of Cornwall. I would be interested to know whether he has written, whether he will put a copy of the letter in the Library and whether he has had an answer. If he has, it will be the first that any Minister has published—a first certainly for any noble Lords who have written. As I have mentioned before, the Duchy of Lancaster and the Crown Estate respond very helpfully and in a timely manner to letters from me and others; that does not apply to the Duchy of Cornwall. Mind you, the Duke of Cornwall is visiting the Isles of Scilly today; maybe that will remind him that there needs to be an answer, but I am not holding my breath.
The Duchy of Cornwall has confirmed, in its latest annual report, that it is in the private sector. On that basis, I would like to reinforce my argument: if it is in the private sector, as it says it is, then it should obey the same rules, laws and everything else that the rest of the private sector has to. There are many other private estates—earlier today, somebody mentioned the Grosvenor Estate—and they will all comply with the legislation, I am quite sure. Therefore, it seems to me that, in respect of this particular clause, the Duchy of Cornwall should be removed from it, which would turn it into the private estate that it says it is.
Amendment 43 reinforces the arguments about Crown land not including land belonging to the Duchy of Cornwall. This is the continuation of my probing amendment. I certainly will not seek the opinion of the House, but I will be interested to hear whether the Minister has made any progress on this, because it will, I hope, have much more effect on the next Bill, which we hope will come soon. I beg to move.
Lord Lennie (Lab)
My Lords, I welcome the amendment of my noble friend Lord Berkeley, which returns the House’s attention to the application of ground rents charged by the Crown, such as the Duchy of Cornwall. It is a bad day to be away from the Scilly Isles, but there you go. My noble friend is probing the issue again, after clearly incomplete answers in Committee. I look forward to the Minister’s response.
Since the Minister was also unable to provide answers to my questions during Committee, I hope he will be able to do so on this occasion. They are these. First, can he confirm how many Crown properties this relates to? Secondly, do the Government intend to engage the residents of these homes?
Lord Greenhalgh (Con)
I now turn to Amendments 42 and 43, brought to your Lordships’ House by the noble Lord, Lord Berkeley. I understand that it is his wish for the Duchy of Cornwall to be considered as private land and not Crown land under this Bill. Irrespective of the definition, both Crown land and private land are captured by the Bill. This Bill will therefore apply to the Crown Estate, of which the Bill stipulates the Duchy of Cornwall is part. As I am sure noble Lords are all aware, the Duchy of Cornwall is a private estate which has a Crown exemption. However, the purpose of this Bill is not to decide how these estates are defined; rather it is to get a better deal for future leaseholders to prevent them being exploited by ground rent in the leasehold market.
The Duke of Cornwall’s estates will be treated as any other private landlord under the provisions of this Bill and will no longer be able to collect ground rent in future leases. I will clarify again that this Bill is narrowly focused on ground rents and not all leasehold matters. That is why, in response to the noble Lord, Lord Berkeley, we have not yet written to the Duchy of Cornwall about the issues around enfranchisement and other matters, but we will be doing so as part of the second stage of the legislation. I will obviously keep noble Lords informed if we get a response, but the noble Lord, Lord Berkeley, seems rather sceptical of that. Nevertheless, we have made that commitment and will write at that stage.
The Government have committed to an ambitious, large-scale reform programme, and we will deal with all these other issues not related to ground rents in the near future. I am very sorry that, on two occasions now, I have not been able to give a precise response to the noble Lord, Lord Lennie, but I will make sure that we get the information to him at the earliest opportunity, in writing, and lay a copy in the Library—I believe that is precisely what you have to do in these circumstances.
The Government will consider the concern of the noble Lord, Lord Berkeley, regarding the Crown Estate exemptions from the parliamentary undertaking on enfranchisement rights for leaseholders in the next stage of the leasehold reform programme. I can also reassure the noble Lord that the Government will consider his concern in tandem with the Law Commission’s recommendations on the issue of enfranchisement rights for leaseholders. On that basis, I ask the noble Lord to withdraw the amendment.
Lord Berkeley (Lab)
My Lords, I am very grateful for the Minister’s response and I will read it with great interest. He has tried to answer most of my questions, even if he has not yet got my noble friend’s numbers. We will look forward to seeing them in the Library. It is very important that what he has said may well set a precedent for the next Bill. That is why we will need to read what he has said with great interest. In the meantime, I beg leave to withdraw the amendment.
The Deputy Speaker (Lord Duncan of Springbank) (Con)
We now come to the group consisting of Amendment 44. Anyone wishing to press this amendment to a division must make this clear in the debate.
Clause 25: Commencement
Amendment 44
Lord Lennie
Member’s explanatory statement
This amendment aims to ensure that the provisions also apply to retirement properties, whereas at present the Bill will prevent provisions coming into force for retirement properties before April 2023.
Lord Lennie (Lab)
My Lords, this amendment may be the final one to be considered by the House today, but I hope the Minister agrees that the issue at hand is very important none the less. It relates to retirement properties, which are excluded from the main provisions of the Bill. I was grateful for the Minister’s confirmation in Committee that they will soon be included, following the transition period. While this is welcome, I hope the Minister confirms that there are no reasonable circumstances in which this period would be extended.
Over 50,000 people in the UK live in retirement community units and they each deserve the same housing rights as everyone else. That is why I remain concerned that they will not benefit from the provisions until much later. I have no intention to divide the House on this issue, but I hope the Minister recognises that I am not alone in raising it, given the interest in Committee.
Finally, I ask the Minister to confirm how the department is informing these 50,000 residents of their leasehold rights and that they will be delayed by at least two years. I beg to move.
Lord Stunell (LD)
My Lords, I speak only briefly to say that the noble Lord, Lord Lennie, has raised an important issue that was debated in Committee, to some extent, when I heard voices calling in both directions. The overwhelming requirement of this legislation is that it leaves certainty in the market about the position of leaseholders. However partial or slow it may be, or however much you might criticise it overall, the noble Lord, Lord Lennie, has advanced a very strong case that this should apply to all leasehold contracts from a set date and not with a phased introduction.
I would be interested to know if there is a reason for this staggered introduction and, if so, what it is. A number of major landlords run very large businesses on the leaseholding of retirement homes, not all of which have always proceeded entirely ethically. There have been some well-evidenced scandals, one of which I played a part in unravelling when I was at the other end of this building. I hope the Minister has not been too influenced on this provision by any pressure he may have received from landlords about some complexity, difficulty or whatever with an earlier introduction. I would be interested to hear the Minister’s justification for the subsection that the noble Lord, Lord Lennie, is proposing to delete.
Lord Greenhalgh (Con)
My Lords, in considering Amendment 44 in the name of the noble Lord, Lord Lennie, it is important to once again lay out the rationale for the transition period for the retirement sector. In October 2018, the Government launched a consultation on reforms to the leasehold system, which attracted over 1,200 responses. In our response to the consultation, published in June 2019, we announced that we would
“proceed with the proposal to exempt retirement properties”
from the peppercorn ground rents policy. This decision was made on the basis that developers of retirement properties incur additional costs, as a result of the communal spaces that are characteristics of these kinds of developments.
However, having reviewed this in further detail, we concluded that arguments in favour of an exception did not outweigh the desirability of ensuring that those who purchase retirement homes are able to benefit from the same reform as other future leaseholders. Therefore, we decided to capture retirement properties in the Bill, so that those who live in retirement housing are protected from exploitation in the same way as other leaseholders. We announced this in January this year, and it is effectively a change in the Government’s position. I am sure all noble Lords agree that, as a basic matter of fairness, those buying retirement properties should also benefit from these reforms.
As a result of this change, we have consulted closely with the retirement sector and continue to do so. As such, we have decided to grant a transition period in recognition. As a result of their initial exemption, this new transition period will allow developers of retirement properties time to adapt to the forthcoming changes. We believe this transition period has been fairly granted, in balancing the needs of developers and fairness to leaseholders. It will be sufficient to allow the retirement sector to adapt to the changes. The Government do not wish to extend the period at the expense of leaseholders. I give that undertaking; we believe we have got it right.
As it stands, the commencement date for retirement properties is no earlier than 1 April 2023. We have no reason to believe that the commencement date will be any later than this. Given the sector was first informed in January this year, this commencement date has given them over two years’ notice.
This issue has been carefully considered and we believe we have struck the right balance for both lease- holders and developers. Indeed, in Committee, we had a competing amendment from the noble Lord, Lord Best, which would have extended this transition period. I am sure noble Lords agree that our proposals are a pragmatic and fair compromise between these two positions. I beg to move that the noble Lord withdraws Amendment 44.
Lord Lennie (Lab)
I will briefly comment on the position that has been arrived at on retirement properties. Initially, there was to be an exception for retirement properties; then it was decided that there would not be. That was from 1 April this year, giving two years’ notice. The main argument of the noble Lord, Lord Best, was that this would cause price rises, as it would falsely inflate the market from people not receiving ground rent and prices would therefore go up. That may have had some justification, but was not part of the Government’s assessment of what would happen to retirement properties. I am happy to withdraw the amendment, but we need to look closely at the impact this has on retirement property leaseholders.
Lord Greenhalgh
Member’s explanatory statement
This amendment, with Lord Greenhalgh’s amendment to Clause 17, page 11, line 17, requires an appeal against action taken by an enforcement authority in relation to a lease of premises in Wales to be made to a leasehold valuation tribunal (instead of the First-tier Tribunal).
Member’s explanatory statement
This amendment is consequential on Lord Greenhalgh’s amendment to the Schedule, page 16, line 37.
Leasehold Reform (Ground Rent) Bill [HL]
Tuesday 14th September 2021
(2 years, 7 months ago)
Lords ChamberRead Full debate Leasehold Reform (Ground Rent) Act 2022 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 1-R-I Marshalled list for Report - (15 Jul 2021)
Lord Ashton of Hyde (Con)
My Lords, I have it in command from Her Majesty the Queen and His Royal Highness the Prince of Wales to acquaint the House that they, having been informed of the purport of the Leasehold Reform (Ground Rent) Bill, have consented to place their interests, so far as they are affected by the Bill, at the disposal of Parliament for the purposes of the Bill.
The Minister of State, Home Office and Ministry of Housing, Communities and Local Government (Lord Greenhalgh) (Con)
My Lords, before we progress with Third Reading, I will make a very brief statement and update on legislative consent in respect of the Bill. As the UK Government have made clear throughout the earlier stages of the Bill, we are committed to working closely with the Welsh Government on this legislation in order for it to be of the greatest benefit to leaseholders in both England and Wales. While the law of property is a restricted matter under the Government of Wales Act 2006, we have worked closely with our colleagues in the Welsh Government and taken note of their views in a spirit of collaboration and joint working. This has led to a series of amendments to ensure that the Bill works in the best possible way for the benefit of leaseholders wherever they live.
In summary, these amendments transfer executive competence to Welsh Ministers, meaning that the Bill now engages with the legislative consent process in the Senedd Cymru. The Welsh Government laid a legislative consent memorandum for the Bill before the Senedd in May this year, and we have had continued correspondence with Ministers advising that they share the same policy ambitions as the UK Government in this area. Senedd Cymru has not yet considered its position on legislative consent at this relatively early stage in the Bill’s passage through Parliament. However, I assure noble Lords that we are intent on securing legislative consent for this Bill and will continue to work with the Welsh Government in order to realise this ambition.
Motion
Lord Greenhalgh (Con)
My Lords, I start by thanking noble Lords from all sides of the House for the constructive approach that they have taken to this important legislation. The Bill leaves your Lordships’ House as better legislation than when it arrived, and I thank noble Lords for their engagement with me both here and elsewhere. Leasehold legislation can be incredibly complex, but we are lucky in this place to have the benefit of a vast amount of knowledge and experience on these matters. I express my gratitude in particular to my noble friends Lord Hammond of Runnymede and Lord Young of Cookham, and to my noble and learned friend Lord Mackay of Clashfern, for the time they have given to me and my officials in sharing their knowledge and expertise, which has led directly to amendments that have improved the Bill.
I am pleased to say that there has been recognition across the House of the importance of getting this Bill on the statute book. I thank the noble Lord, Lord Lennie, and, before him, the noble Lord, Lord Kennedy of Southwark, on the Benches opposite, for the constructive nature of the conversations that we have had on this legislation. I also pay tribute to the noble Baroness, Lady Grender, for her work on the Bill, particularly on the vital issue of transparency.
There were, of course, other issues raised with the Bill. I thank the noble Lords, Lord Best and Lord Stunell, the noble Baroness, Lady Greengross, and my noble and learned friend Lord Mackay of Clashfern, for their engagement on the issues of the retirement sector and the transition period that the Government have proposed. Noble Lords who have been carefully watching the Bill’s progress will know that there have been competing views on the length and, indeed, existence of this transition period, including how it should apply to developments that are part-sold. While I remain convinced that our proposal strikes the right balance between the sector and consumers, I have appreciated debating the issue with noble Lords.
I thank the noble and learned Lord, Lord Etherton, and the noble Earl, Lord Lytton, for their scrutiny of the Bill; both have made valuable contributions to the debate. My thanks also go to the officials who have worked so hard to get us to this position: the Bill team of Jo Cagney, Rosie Gray, Tom Sedgwick, Sema Ashami, Isabel Hendy, Jenny Frew, Ian Martin, Harriet Fisher, Elly-Marie Connolly and David Gethin, my own private office, Sam Loxton, the Whips, Senedd officials, the Office of the Parliamentary Counsel and clerks in this place.
Finally, I will take the opportunity to thank the Competition and Markets Authority for its work on behalf of existing leaseholders who have found themselves at the sharp end of unfair practices in the leasehold sector. The CMA’s ongoing investigation is playing a vital role in reforming and improving the sector, and I am sure that the whole House will want to join me in paying tribute to its efforts. The Bill will provide transparency and fairness to a new generation of leaseholders. It is a vital first step towards realising our vision of a reformed and improved leasehold system free from the unfair practices that have been the experience for far too many homeowners. I beg to move.
Lord Kennedy of Southwark (Lab Co-op)
My Lords, I join the Minister in thanking Members on all sides of the House for their contributions and expertise in working to get the Bill to where it is today. I also thank the Minister, the noble Lord, Lord Greenhalgh, for his courtesy in his dealings with my noble friend Lord Lennie and myself. We appreciate that very much. I also thank all the officials and his Bill team for their work with us. I place on record my thanks to Ben Wood and the office of the Leader of the Opposition for the work that they did.
My involvement was in the Second Reading of the Bill. I then became the Chief Whip, so I departed the scene, leaving it all to my noble friend Lord Lennie. I have come back to make these final remarks as my noble friend cannot be here today. I thank him in particular for all the work he did in taking up the Bill very much at short notice. I think we have made the Bill better than it was when it first came to this House. This is the first stage in leasehold reform; there is very much more to be done. We look forward to the work of the Law Commission and to a Bill that will address other leaseholder problems—but this is a good first stage and I am very happy with where we have got to so far.
Lord Stunell (LD)
My Lords, I too offer my thanks to those who have contributed to the improvement of the Bill and, in particular, to say that the Minister has been exceptionally helpful and generous with his time in proceeding with it through Committee and at the intermediate stages. My noble friend Lady Grender would have liked to be here, but I am speaking in her place on this occasion.
I have given notice to the Minister that I believe there is one aspect of this that still requires a word of clarification, which I hope he will be able to give as we move on. It is clearly very important that this Bill makes rapid progress, and even more important that the second Bill, long promised, follows close on its heels. The issue relates to retirement homes and those blocks that are partially occupied at the time that the changes instigated by this Bill come into force. There is a serious risk of a two-tier market in those blocks if this is introduced wholesale across every part of the same block. I hope that the Minister will be able to clarify the Government’s intent and the effect of this legislation, so that those who have made representations to me can have some understanding of the direction in which this legislation will now proceed. With those few words, I am very happy to see the Bill pass into law.
Lord Greenhalgh (Con)
My Lords, I thank the noble Lord, Lord Stunell, for giving me advance notice of his question. I have pushed to give him a clear answer on that. It is clear that there is a transition period until 1 April 2023. The Government propose not to exclude part-occupied developments from that cut-off period once the legislation takes effect, which will obviously be later than for all other areas. That is the balance that we are trying to strike, in the interests of consumers but also of the sector.
Leasehold Reform (Ground Rent) Bill [Lords]
Monday 29th November 2021
(2 years, 4 months ago)
Commons ChamberRead Full debate Leasehold Reform (Ground Rent) Act 2022 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 1-R-I Marshalled list for Report - (15 Jul 2021)
The Parliamentary Under-Secretary of State for Levelling Up, Housing and Communities (Eddie Hughes)
I beg to move, That the Bill be now read a Second time.
As hon. Members may know, I have long championed a root and branch comprehensive reform of our leasehold system. It has been a long journey to get here from my private Member’s Bill—Ground Rents (Leasehold Properties) Bill—to try to overhaul the regulations on ground rents. It is particularly gratifying to be standing here today as the Minister responsible for this hugely important legislation.
The Bill will make home ownership fairer and more transparent for future generations of leaseholders. We will do this by reducing the ground rent on new residential long leases where a premium is paid to a peppercorn. I am sure that this change, which will benefit thousands of future leaseholders, will be welcomed right across the House.
Sir Desmond Swayne (New Forest West) (Con)
I lobbied for an exemption for the retirement living industry, which was granted and then withdrawn in January this year. Why was that?
Eddie Hughes
I appreciate my right hon. Friend’s strong lobbying on this matter. I think the Government decided that it was appropriate to treat all leaseholders the same and therefore we made that change, although we did allow an extension in the introduction of that to April 2023.
Chris Bryant (Rhondda) (Lab)
The bit I do not understand is why we have leasehold at all. It is just preposterous nonsense, is it not? It is a feudal relic. Would it not make far more sense to have some kind of commonhold situation for flats, which is what they have in nearly every other country in the world and, I think I am right in saying, also in Scotland? Does that not make far more sense? We can then just get rid of leasehold completely.
Eddie Hughes
I thank the hon. Gentleman for his intervention. I wonder why, in the brief periods when Labour has been in control, it has not done so itself. I guess English law is pretty complex, so it would not be so straightforward to simply withdraw it on the basis that he suggests. Perhaps when Labour is in power again at some point in the distant future, it will be able to return to this matter.
Catherine West (Hornsey and Wood Green) (Lab)
The Minister is being generous in giving way. He may not wish to be as radical as my hon. Friend the Member for Rhondda (Chris Bryant) is suggesting, but does he share my concern at some of the greedier developers, which are insisting on a year-by-year, annual increase? For example, ground rents are going up and up in New River Village in Hornsey. I have to name the Berkeley Group, because it really should know better. It has done very well, including throughout coronavirus, given all the leg-ups that it has had from the Government through various coronavirus packages, and it really should not be demanding multiples every year from my poor old leaseholders.
Eddie Hughes
I largely agree with the hon. Lady, not least because the ten-minute rule Bill to which I referred, which I brought to the House when I was a Back Bencher, completely endorsed her points. It is unfortunate that some people include such egregious terms in ground rents.
Mark Tami (Alyn and Deeside) (Lab)
Does the Minister agree that this issue is about not only ground rents, but the admin fees that are often associated with any minor changes that the owner of the property wants to make? A lot of these properties are also linked with extra charges for management fees for the land and other things. The levels of charges placed on leaseholders are becoming totally unacceptable.
Eddie Hughes
I do not want to jump forward several pages in my speech, but the right hon. Gentleman is predicting—or at least pointing to—the fact that we have identified this problem and have ensured that when we reduce ground rents to a peppercorn, people will not be able to cheat by introducing associated management fees and other charges. If he is looking for further changes, the second part of our seminal legislation, when it comes in due course, will no doubt satisfy his needs.
The starting point for this legislation has to be our shared recognition that for many people, to be a leaseholder is also to be a homeowner, and we are clear that homes that have been bought should be theirs to live in and enjoy, not be treated as cash cows for third-party investors. This Government are on the side of homeowners, which is why in our manifesto we committed to introduce this important legislation.
Hon. Members will be well aware of the problems that many leaseholders have faced in recent years, including, as pointed out by Opposition Members, spiralling ground rents and onerous conditions that have turned the dream of home ownership into a nightmare for some leaseholders. This Bill is the first of our seminal two-part legislation to reform and improve the leasehold system. Further legislation will follow later in this Parliament to continue to address the historic imbalances in the leasehold system.
Andy Carter (Warrington South) (Con)
I pay tribute to the Minister for the work that he has done so far. He may know that constituents on Steinbeck Grange in Warrington South have been calling for changes for almost 10 years. Will he give an update on the current Competition and Markets Authority investigation, which is vital to people living in Warrington?
Eddie Hughes
The work of the CMA has been pivotal so far in already changing the behaviour of a number of significant developers. I have spoken to it recently; further work is ongoing and I hope that it will have further successes in the future. My hon. Friend is completely right to raise that point.
Both this Bill and the wider leasehold reform programme have been informed by consultation. I thank those present here today, including the Opposition Front Benchers, who have taken the time to discuss the issue. I look forward to further discussions over the coming weeks and months.
The Bill has a specific focus: the ground rent in future long residential leases. Some existing leaseholders face substantial difficulties, including costly enfranchisement, a lack of transparency and burdensome lease terms. Escalating ground rents in particular can reach unaffordable levels and make some properties difficult to sell. That is not right, which is why we have asked the Competition and Markets Authority to conduct a thorough investigation into potential mis-selling and unfair terms in the leasehold sector.
Eddie Hughes
Once again the right hon. Gentleman points out an egregious and unfortunate practice that hopefully we will be finding ways to address in future.
Sir Desmond Swayne
That prompts the question of what proposals the Minister may have to enable leaseholders to enforce the purchase of freeholds from such companies. Does he have plans for that?
Eddie Hughes
As my right hon. Friend will know, unfortunately I am not the Secretary of State, much as I would like to be. [Interruption] Not yet, anyway. It is best to leave the fine detail of the formation of future legislation to the Secretary of State to decide. However, I look forward to discussing the matter further with my right hon. Friend as we progress.
Christian Matheson (City of Chester) (Lab)
I have listened to my right hon. Friend the Member for Alyn and Deeside (Mark Tami) and others. The Minister is waiting for the Competition and Markets Authority report, but is he prepared to say, even before that report has concluded, that on the basis of all the evidence we are hearing from right across the House, what we are seeing is nothing more than a financial scam from a bunch of greedy speculators?
Eddie Hughes
I am not sure I can go so far as to agree, but, as a number of hon. Members on both sides of the House have pointed out, it is an unfortunate practice that we will be seeking to address in future legislation.
Catherine West
The Minister is being very generous with his time; he remembers well what it is like to be on the Back Benches. Does he agree that many of the points under discussion will be good for future generations, but it is all a bit “jam tomorrow” if we cannot help our constituents today?
Eddie Hughes
I would say that we are doing a very important thing with today’s legislation, which effectively draws a line in the sand to prevent future onerous ground rent clauses. Once we have done so, we will then have the opportunity to work, hopefully quickly, to deal with the existing ground rent problem.
Kevin Hollinrake (Thirsk and Malton) (Con)
I have been known to swim against the tide once or twice with regard to this particular debate. I draw the House’s attention to my entry in the Register of Members’ Financial Interests. I am a leaseholder, not a freeholder, in this context. Nevertheless, it is not right to think that effectively scrapping leasehold and moving to commonhold is a panacea. For evidence of that, hon. Members should look at the system in Scotland, which moved to a commonhold system. Some 80% of buildings require maintenance and there is a £2 billion unfunded maintenance backlog. We should step forward very carefully. Leasehold does need reform, but I am very concerned that if we effectively scrap it altogether, we will create ourselves a new problem.
Eddie Hughes
I thank my hon. Friend, who is incredibly knowledgeable in this area. I remember discussing my ten-minute rule Bill with him at the time. I completely assure him that we will proceed with caution and seek advice from experts both across the House and outside the House. I look forward to discussing this with him again in the future. I also take this opportunity to thank the former Secretary of State, my right hon. Friend the Member for Newark (Robert Jenrick)—I am delighted to see him in his place—for all the work that he put in in driving forward this agenda. Back in January, he announced measures to make buying a freehold or extending a lease cheaper and easier for many leaseholders.
I now turn to the specifics of the Bill. Ground rent is usually paid annually by leaseholders to their freeholder or landlord, but, crucially, no tangible service is provided in return. The industry is also familiar with the term, “peppercorn rent”, to describe a token or nominal rent used as a payment in forming a contract, which typically is not actually collected in practice. Historically, ground rents were generally very low. The past two decades have seen a surge in properties sold with significant and escalating ground rent. At its worst, this practice can lead to properties becoming unsellable. These unfair practices have caused real misery for those affected and, in turn, have undermined the reputation of the leasehold system. Regardless of whether the ground rent is a nominal peppercorn or thousands of pounds, the fundamental issue is that no meaningful service is provided in return. We want to end this for new leases, and that is why we are legislating so that new residential long leases will have no financial demand for ground rent. Instead, nothing more than an actual peppercorn can be collected from the leaseholder.
Theresa Villiers (Chipping Barnet) (Con)
Will the Minister acknowledge that the situation is slightly different in relation to retirement housing, where the practice has been for ground rents to more or less fund the shared spaces, and ground rents have been part of making retirement housing viable? Will he take care to ensure that the Bill does not have unintended consequences for retirement housing?
Eddie Hughes
The reason why we extended the timeframe for the introduction of this legislation for those properties is to allow people time to adjust their business models, so that they can cope with the change in legislation. To avert the risk of possible future shortages of peppercorns, and to ensure that our meals continue to be well seasoned, I should clarify that we do not expect any landlord to require the actual payment of a physical peppercorn each year. In reality, the new genuine peppercorn rent for future leaseholders means that they will not pay the rent.
The specifics of the Bill apply to residential long leases in England and Wales of over 21 years for which a premium is paid. The inclusion of the requirement for a premium clarifies that normal and legitimate practices relating to rack rents can continue. For leases regulated under the Bill, the rent demanded will not be any more than literally one peppercorn a year.
Following much careful deliberation, we have arrived at a broad and flexible definition of “rent”, using the real-world meaning, and therefore including anything in the conventional nature of rent. The Government are clear that landlords should retain the ability to collect legitimate charges. The definition will ensure that landlords can still collect legitimate charges where the market reserves them as rent, such as charges for services, including building maintenance. The broad definition will deter freeholders or landlords from trying to circumvent the new system by disguising ground rent as a different charge. It will also enable appropriate tribunals to make sound judgments on whether a leaseholder has in fact been charged a prohibited rent.
We plan to leave no loopholes for unscrupulous individuals, so we are also banning the charging of an admin fee for collecting peppercorn rent. Where a prohibited rent or administrative charge is paid, leaseholders will have the right to apply to the first-tier tribunal in England or the leasehold valuation tribunal in Wales. Provided that the tribunal deems the payment inappropriate, the relevant authority can then order the amount to be repaid. In the case of prohibited rent, that must be within 28 days and potentially also with interest.
There are a limited number of exceptions from the provisions of the Bill. The first is leases used purely for a business purpose. The intention behind the Bill has never been to reduce business leases to a peppercorn rent, so through careful consideration, we have excepted business leases that include the use of a dwelling in any way that protects the interest of residential leaseholders and commercial landlords. For mixed-use properties, such as a flat above a shop, the exception will apply only if the residential use significantly contributes to the business purpose of the lease.
Community-led housing may have few other feasible funding schemes that they can use to continue to grow developments that benefit the community, rather than secure profits. To maintain this growth, we have excepted community-led housing schemes. Home finance plan leases are also excepted. That includes regulated home reversion plans, such as equity release and rent-to-buy agreements, where the consumer purchases the freehold at the end of the term. We will also allow shared ownership landlords to continue to collect a market rent on their share of the property. That practice is integral to the shared ownership model.
Kevin Hollinrake
The Minister is setting out a list of exemptions. Are complex developments included in that—for example, a tube station with a cinema or shopping centre attached, and a block of flats above it, all in effect part of the same development? Who will manage the complexity of that development? If I was a long leaseholder in that block of flats, I would not be keen to manage all the mechanical and electrical systems stuff in that development.
Eddie Hughes
I am not sure that I completely understand my hon. Friend’s point. The Bill will not change the management of that building’s operation; it will just prevent ground rent from being charged. If a leaseholder feels that they are being charged ground rent inappropriately, they will have a right of appeal, and the issue will be determined by the ways and means authority.
Kevin Hollinrake
I am sorry; I should clarify my point. The Minister is quite right that a management company could look after the whole entity, but things such as common areas and insurance of the whole building —among many other issues—affect the whole building, and they require somebody to have an overarching view of the entire development. I not sure how that is provided for. In fact, in 2019, when I was a member of the Housing, Communities and Local Government Committee, it looked into that and said there should be an exemption for complex developments on that basis. However, that does not appear in the Bill, despite having been referred to in debates in the Lords.
Eddie Hughes
As I said, the Government’s intention is to ensure that, for fairness, the provision applies in as many circumstances as possible. I am happy to pick that up with my hon. Friend for further discussion after the debate, to which I hope he will contribute.
Statutory lease extensions are the subject of existing legislation and so are not covered by the Bill. The peppercorn limit will apply to the extended portion of any lease extended through the voluntary process.
I should note that there is no longer an exception for the retirement sector. As I said to my right hon. Friend the Member for Chipping Barnet (Theresa Villiers), we believe that all new leaseholders should benefit from the reforms. The measures for retirement properties will apply no earlier than 1 April 2023. Hon. Members, some of whom are in the Chamber, have raised that as a concern in correspondence, and it has been debated at some length in the other place. We feel that the transition period strikes the right balance between the sector and consumers.
The Government recognise that these provisions require a robust and effective enforcement regime. Freeholders and landlords who abuse the system and deliberately seek to charge a non-peppercorn ground rent on leases in contravention of the Bill will be subject to steep fines of up to £30,000. After listening to and considering carefully the view expressed in the other place, we concluded that the level of fines should be higher. The new maximum fine of £30,000 is in line with other housing penalties, including those in the Tenant Fees Act 2019. Fines can be even steeper for more egregious abuses of the system. For example, if a freeholder breaks the law by charging unfair rents at multiple locations, such as in a block of flats, they will pay a penalty per lease. It does not stop there; penalties can be supplemented by the repayment of all prohibited rent collected. Enforcement will be the responsibility of local trading standards authorities, which already do an excellent job of enforcing similar housing regulations. District councils in England will also have the power to take enforcement action if they choose.
We recognise that enforcement will require additional resourcing. That is why authorities can retain any penalties imposed, and put them towards the costs incurred in enforcement of residential leasehold property rules. Taken together, the enforcement regime will act as an effective deterrent, while giving authorities the flexibility that they need to ensure that any enforcement action taken is proportionate.
The Government’s vision for a reformed and improved leasehold system is one anchored in fairness and transparency. For too long, too many leaseholders have been let down by institutional inertia and a ground rent system that has not worked in their interests. The system has been dogged by opaque rules and left many people in the dark. This legislation is targeted on exactly what it should target. By reducing future ground rents to a peppercorn, we will deliver a tangible and meaningful improvement to home ownership for future generations. We have engaged extensively to get to this point, and this process is by no means over. We are clear-eyed about the challenges ahead, and know that there is more to do, but today is a significant step towards fixing our broken leasehold system for good. I commend this Bill to the House.
Lucy Powell (Manchester Central) (Lab/Co-op)
The Leasehold Reform (Ground Rent) Bill sets ground rents on new leasehold homes to peppercorn levels. We welcome this very small step towards reform, and will not oppose the Bill this evening.
Generating income through high ground rents is an outrageous practice, as has been discussed, but serious leasehold reform is long overdue. Leasehold has been the main way that properties in shared blocks or converted flats have been owned in this country. It stems from arcane feudal laws that date back to an era of landed gentry and aristocracy, and it needs reform urgently. In its more recent manifestations, there has been what can only be described as a scam on an industrial scale, as was pointed out by my hon. Friend the Member for City of Chester (Christian Matheson), against innocent leaseholders—and it increasingly affected new houses, not just flats. It is totally wrong, and it needs ending.
Mark Tami
I have been struck by the way that two houses, next door to each other, may be exactly the same, but one can be leasehold and the other freehold. We see that all the time. When a house is advertised, the advert often says, “This is not leasehold”—it points out that fact. Leasehold properties are being devalued by the day.
Lucy Powell
My good and hon. Friend makes an extremely well-made point. The practice of new homes being built as leasehold, and sold as leasehold—buyers often do not even know that at first—has got out of all kilter lately, especially in north Wales and north-west England, where it has been a particularly egregious practice. I welcome this Bill, albeit that it is a bit too little, too late, but it does nothing to protect those trapped in the injustice of leasehold. It does not do anything for those facing excessive ground rent increases today or yesterday, nor does it put an end to some of the most egregious practices, such as selling new houses as leasehold.
The ground rent scandal typifies everything that has gone wrong with our housing market. Housing has become a commodity to be traded, packed up in financial products and thrown into an unregulated market. Large-scale developers and investors have been given free rein to create ever more complex financial products, in order to squeeze money out of homeowners. Many people do not even realise when they buy their house that they will not own the land underneath it, as my right hon. Friend has just made clear. Even worse, the leases often contain clauses that double the ground rent—in some cases, every 10 years, which means that a homeowner in a property worth a modest £200,000 might pay £10,000 a year in ground rents after they have owned the property for 50 years or so.
Catherine West
Does my hon. Friend share my concern that this has got so out of hand? The amounts being charged are rising in excess of the retail prices index, which we would expect to be a basic marker. People feel trapped, in that they cannot sell on.
Lucy Powell
Absolutely. My hon. Friend makes a really good point. People are trapped in this situation, because we all know that when we look to buy a home, we look at the overheads, and the ongoing service charges, ground rents and other costs. In recent years, those things have rightly been added to the affordability criteria, so people often cannot get a mortgage for these homes. That leaves the people living in them trapped in that situation with an unsellable home.
Sir Desmond Swayne
Does this not give rise to an extraordinary question about the legal advice provided by solicitors to those who made such purchases?
Lucy Powell
I am glad the right hon. Gentleman raises that point, because I am sure colleagues around the House will be keen to highlight—
Lucy Powell
I will first try to answer it, and then when I do not answer it very well, I will give way to my right hon. Friend to give a better answer. What I do know is that, unfortunately, many people who bought houses in this situation were advised to use the solicitor of the marketing company or company selling the houses—I have many in my constituency. So they were given poor advice, and this is a mis-selling scam as well. Would my right hon. Friend like to give a better answer?
Mark Tami
My hon. Friend has in many ways made the point I was going to make. These people were often first-time buyers, keen to get on to the housing market and get their first home. They were told, “Don’t use this solicitor or that solicitor; use these ones, and we will give you a discount to use them”, and—shock, horror—many were not even aware, as my hon. Friend has made clear, of the property being leasehold, let alone of all the other charges associated with that.
Lucy Powell
Absolutely; my right hon. Friend makes a very good point as well. Many people, especially first-time buyers, do not understand the difference between leasehold, freehold and so on, and many of these issues come to light only as problems arise later or when they try to sell the property.
Justin Madders (Ellesmere Port and Neston) (Lab)
On legal advice, it is worth pointing out that not only were some people told that they had to use particular solicitors, in breach of Law Society guidelines, but some were also told that they had to complete within a certain period of time, so even if they had used a different solicitor, it just would not have been practical for them to analyse or understand the documents correctly. That suggests to me that there needs to be a complete overhaul and inquiry into how the scandal was allowed to develop in the first place.
Lucy Powell
My hon. Friend makes an excellent point, and there is a very strong basis for a wider mis-selling scandal inquiry. Many properties are affected: in terms of houses, for which the practice has been particularly egregious, more than 500,000 leasehold houses have been built over the past 10 years. The vast majority of them are in the north-west of England and north Wales, which is why so many colleagues from those areas are here this evening.
The rights to collect the ground rents are bought and sold on the financial markets as steady income streams to investors, while leaseholders get nothing back for—in some cases—thousands of pounds a year. There is hardly a clearer illustration of the damaging pervasive tendency to treat housing as an investment opportunity—as a product to trade on the market—rather than as homes where people live and build their lives around. That should be the basis of housing in this country. We have lost somewhere what housing is: homes, places where we live, where lives are built, where we become successful —or not—and where we bring up a family. Housing is not a commodity to be traded on the financial market. We have seen more starkly than ever over the past two years that housing is also a public health issue, an educational issue, and a work, security and happiness issue, and we should begin to treat it as such.
Although we welcome this Bill, it is a very narrow first step; there are many glaring omissions—measures which could have been included even in such a narrow Bill. First, there is nothing to prevent freeholders from simply transferring their income stream from ground rents to service charges or administration or other charges, as has been highlighted. As shown by the ground rent scandal itself, there is no limit to the ingenuity that some freeholders will draw on to capitalise off the back of leaseholders. Service charges and administration charges are opaque at best, and far too hard to challenge. Will the Minister address that issue later on?
Lucy Powell
I will, because my right hon. Friend is an expert on this issue.
Mark Tami
To list just a few examples that I have come across, some leaseholders who—in theory—own a house and the land around it are asked to pay if they want a pet or want to change the flooring in the house or the layout of the garden. People have said to me, “I’m paying a mortgage on a house that I don’t really feel I own.”
Lucy Powell
My right hon. Friend is absolutely right and he gives good examples, some of which I was going to use later. He makes a very good point—some of these charges are outrageous. Will Ministers respond to that and address how we can stop that practice?
Secondly, the millions of people already trapped in leasehold homes will see no benefit whatsoever from the Bill, so none of the examples that we have heard will end as a result of it. The Government have chosen to limit the scope of the Bill to new homes, which means those already facing these bills will see no benefit at all. Delay has real costs for them; the Minister can pass the buck on to us for what happened 11 years ago, but more than 2 million new homeowners have been trapped in this feudal leasehold system since his Government came to power.
The Competition and Markets Authority has done some good work taking down the largest and worst-offending of the freeholders, but we cannot wait for it to take on every single company involved in this outrageous practice. Will the Minister work with us and support our proposal, which we will table in Committee, to protect existing leaseholders?
Thirdly, the Bill does nothing at all to stop new houses being sold as leasehold. Leasehold houses are straightforwardly wrong, for the reasons that we have already heard. At the same time that the Government promised to set ground rents at a peppercorn, which the Bill does, they committed to ending the practice of newly built homes being sold as leasehold.
Half a million houses have been sold as leasehold since 2010, 60% of them in the north-west. Those homeowners face not just exorbitant ground rents but restrictions on how they can alter their homes. We have already heard some examples: if someone wants to have a pet, or if they want to make changes to the building, they have to ask permission. All too often, people are left feeling that they do not really own the home. When the leaseholder tries to escape this nightmare by buying out the freehold, they often discover all kinds of other restrictions that they were not told about when they bought their home. This needs to change.
As recently as 2017, the Government promised legislation to prohibit the granting of new residential long leases on houses. When will that come in, and why is it not included in the Bill? It makes no sense to me whatsoever that that has not made it into the Bill. Again, perhaps Ministers will work with us, and with some of my colleagues who are in the Chamber today, in Committee to end new leaseholds on houses altogether.
There was a lot more that the Government could have done in a simple first-step Bill, but I hope the whole House will recognise that wholesale reform of leasehold is long overdue. The building safety crisis has brought into stark relief how terrible our feudal leasehold laws are. Innocent leaseholders can be passed remediation bills totalling hundreds of thousands of pounds with no right of recourse. It is a David and Goliath situation that is hitting more and more homeowners across the country. Fixing the building safety crisis truly must mean fixing our outdated leasehold laws too.
As the last few years have shown, this is now an urgent task, so we call on the Government to do these simple things when it comes to wider leasehold reform: enable leaseholders to extend the lease or buy the freehold; make commonhold the norm, and make it much easier for properties to operate that way; abolish marriage value, as they promised they would; strengthen leaseholders’ voices and simplify the right to manage; give real teeth and real recourse to the bodies that are supposed to arbitrate and act on behalf of leaseholders, or create new ones altogether; and prevent freeholders in law from passing on extortionate costs for remediation works, or for putting right problems that they have created that are not the problems of the leaseholders, as well as the things that I have already discussed. Those are just some of the reforms that are urgently needed to ensure that no leaseholder is trapped against their will in this broken, outdated system.
In conclusion, the Bill is a tentative attempt at reform. While it is welcome, it represents a massive missed opportunity to transform a leaseholder sector that continues to scam working people on an industrial scale. Even in a slimmed-down Bill, the Government have failed to close loopholes, protect those already in leasehold homes or end the sale of new houses as leasehold altogether. Wholesale reform is urgently needed to ensure that nobody continues to be voiceless, trapped in leasehold homes they cannot sell, and facing ever-growing bills and charges.
Robert Jenrick (Newark) (Con)
It will come as no surprise to right hon. and hon. Members to hear that I strongly support the Bill. It would be surprising if I did not, as I was one of the Ministers who instigated it, although stranger things have happened in politics.
I would like to take this opportunity to thank the Minister for his hard work in bringing the Bill to the House, the noble Lord Greenhalgh who has worked extremely hard on this issue for many months, and the fantastic civil servants at the Department who have taken this forward. There is a very strong, albeit very small, team of civil servants who have been beavering away on this issue for many months and will have a lot of work to do ahead of them not just in taking the Bill forward but, perhaps more importantly, in preparing the next Bill, which I will come on to speak about in a moment.
This is an important step on the road to leasehold reform. It is a road that really began with the Leasehold Reform Act 1967, which gave tenants of houses the right to buy their freehold. It then took the next step forward with the Leasehold Reform, Housing and Urban Development Act 1993, which gave leasehold tenants of flats the right, collectively, to buy their freeholds. There was a great deal of opposition, back during the Major Government, to that reform in this House, the House of Lords and from propertied interests, who said that it would be a disaster for the housing market. It was not and those rights have been enjoyed by hundreds of thousands of people pursuing the dream of home ownership across the country. Then the last Labour Government took it forward one further step, with the Commonhold and Leasehold Reform Act 2002, which introduced commonhold, albeit not nearly as successfully as they would have hoped or as I would like to see taken forward in the years ahead.
The destination of those reforms is not just a better situation for leaseholders, but the gradual elimination of leasehold altogether. It is, as some have said here today, essentially a feudal form of tenure: a product of our rich and ancient history as a country, but one that is no longer fit for purpose. It does not exist in any other developed country and it does not, in essence, have a place in a modern society.
The Bill is, as my predecessor as Housing Secretary, the noble Lord Young, said in the House of Lords, the appetiser for the main course. It is a comprehensive piece of legislation to remove more of the iniquities of the present leasehold system, and to pave the way for the wholesale introduction of commonhold.
Dr Julian Lewis (New Forest East) (Con)
I am very encouraged to hear that my right hon. Friend is so forward-looking on this matter. May I ask him to explain to the House how one rather backward step took place some months ago, which was the allowing of it to become routine that additional storeys could be added to existing blocks of flats? I have lived through that experience and found not only that it is terrible to have a floor inserted above you, but that when things go horribly wrong with the construction and the company goes bust or winds itself up, it is the leaseholders who have to pay thousands upon thousands of pounds to put right the faults. Would he not like to revisit that change that was made and perhaps suggest that it ought to be looked at again?
Robert Jenrick
It would not be for me to revisit that even if we wanted to. The purpose of that legislation, which was supported by many Members, was to deliver more homes—particularly on brownfield sites and in urban areas—as part of the mission of us all to deliver more homes and to tackle the housing crisis, and particularly to enable individual homeowners to build upwards on their home as their household expands, particularly if they have young children or if elderly relatives move into the home. That is an important step forward, but, as with any of these changes, we should keep it under review. If there are common instances of abuse or malpractice, we should see whether there are ways to eliminate them.
Robert Jenrick
I will make progress, if my right hon. Friend does not mind.
The Bill was born out of two issues. One is a recent phenomenon, which the Front Benchers and other hon. Members have mentioned: the abuse of leasehold in recent years. A system that was never perfect and that many of us would wish to see reformed was subject to wholesale abuse and rip-off practices by developers and freeholders, who used ground rents as an income stream and escalated them, leaving leaseholders in a perilous position. Leasehold was used for properties for no good reason, purely to benefit from ground rents. We have heard about such examples, and particularly the use of ground rents for houses. It is difficult to see that any house needs to be built as a leasehold property. In different times, I have bought into the argument that there might be exceptional reasons why one would need to build such a home, but it is very difficult to think what those would be. The system is not used in other countries around the world, including in the United States, where there are gated communities, communities for the elderly—all manner of different homes. They are not being built as leasehold properties, so I do not see why they should be in this country.
Mark Tami
I agree fully with that point. As the right hon. Gentleman said, this practice had largely gone away. For years, houses were not built as leasehold properties, but in the north-west and in north Wales, a group of builders decided that this would be an extra way of scamming—I use that word deliberately—even more money out of the people buying the properties.
Robert Jenrick
The right hon. Gentleman is absolutely right; I do not disagree in any way. The north-west was particularly targeted, for reasons that I do not understand, with tens of thousands of homes built in this manner. It really was disgraceful. It gave leasehold a very bad name and necessitated these changes and others that will be introduced in future. The Bill ends these practices for new properties; that is key. It will ensure that the business model behind ground rents—the creation of such properties as leasehold to benefit commercially—will come to an end. We are already seeing its gradual reduction, and the Bill will lead to its elimination.
I want to address the point that was raised about why the proposals should be extended to retirement properties. As Secretary of State, I came under fierce resistance and lobbying from the retirement property sector. Its lobbyists approached Members of Parliament and my Department and threatened judicial review of our proceedings. I considered it to be an unfair practice, targeted at the most elderly and vulnerable in our society, that in addition to paying their service charge they should pay a ground rent that might escalate at a significant pace. Why not have a fairer and more transparent system where an elderly person knows exactly what they are getting when they pay the purchase price on their property and then when they pay the service charge on an annual basis, instead of receiving two bills every year? I think that is a simple matter of fairness and transparency, and it was the right decision to bring that to an end. We did, however, give a longer period for businesses to transition and to change their business model, which is why that part of the industry will not feel the force of the Bill until 2023.
Matt Rodda (Reading East) (Lab)
I appreciate the work that the right hon. Gentleman has done to try to get the right balance and stand up for the interests of homeowners rather than large corporations. Does he have any reflection, further to the point made by the right hon. Member for New Forest East (Dr Lewis), on the knock-on effects of allowing additional storeys to be built on existing blocks of flats? In my experience, there is an exploitation issue both for people who live in flats with top-hatted development—I think that is the word—and for the neighbours. In the area that I represent, there have certainly been a number of problems for neighbours to those blocks. Does the right hon. Member for Newark (Robert Jenrick) have any further reflections on that point? If he were still Secretary of State, would he have allowed that development to go ahead?
Robert Jenrick
I think it should be kept under review, like any permitted development. As we have seen with past examples, there are always cases at the edges that concern us, and there are usually ways to refine the permitted development over time to ensure that those cases do not happen again. With the permitted development that the hon. Gentleman mentions, I think—from memory —that we ensured that the developer has to work with the local council to ensure that there are not issues with building safety or loss of amenity to the leaseholders in the building, and that the design of the extra storeys is broadly in keeping with the neighbourhood. I certainly think that the issue should be kept under review.
Robert Jenrick
I will, but I appreciate that many other hon. Members want to speak.
Sir Desmond Swayne
As I do!
It would be quite unlawful for the capital cost of the communal areas in a retirement living community to be paid for through an administration charge, so we come back to the question whether it is in the interests of the purchaser to pay a ground rent or to pay the up-front cost in the purchase price. For a category of elderly people, it may well be in their interests to pay the former.
Robert Jenrick
My right hon. Friend gets to the nub of the issue. The debate, exactly as he says, was whether it would be better for a retired person looking to move into such a community to pay a somewhat lower purchase price for the property or the share in it that they were taking, and then, for as long as they live there, pay a ground rent, which might escalate at an unfair level, and a service charge. That is not a system that occurs in any other country in the world, including countries such as the United States that are far more advanced in their take-up of retirement properties. I took the view that it would be much fairer and more transparent for an individual to know exactly what they had to pay from the outset: they pay their purchase price and then their service charge, but they do not have to face escalating ground rent. That makes sense to me; I appreciate that there will be differences of opinion, but it was done as a matter of basic fairness.
I make it clear that the reason for the Bill’s very limited scope was to bring an end to unfair practices as quickly as possible. That was the advice of the Law Commission, which said that it was better to have a two-step process so that the iniquity of escalating ground rents could be brought to a close, and then we could move on to the much more complex piece of legislation that will inevitably take the Department and Parliament a great deal of time to prepare and pass. I think that that was probably the best way to proceed.
Two further points emerge as a postscript to the events of the past few years. First, as my right hon. Friend the Member for New Forest West (Sir Desmond Swayne) said, we need to think about the conveyancing solicitors who gave or failed to give advice in the process of house sales. They failed in their duty to their clients: many constituents have come to my surgeries who were oblivious about the homes that they were buying. That applies not only in the situation we have discussed, but with respect to management fees, which may be very high or—as the right hon. Member for Alyn and Deeside (Mark Tami) mentioned—may involve charges, for example for putting up a satellite dish, building a conservatory and so on. Conveyancing solicitors need to take much greater care to bring such matters to the attention of their clients.
Secondly, the work of the Competition and Markets Authority must move forward at pace. It has already ensured that some of the major developers have settled, but I encourage all developers behind the sale of these properties, many of which they mis-sold to members of the public, to do the decent thing—the inevitable thing—and settle, so that the purchasers get some compensation for the issues that they have faced. I see that many are on the cusp of doing that, but I hope that the remaining ones will do so quickly.
I also hope that the Government will ensure that the second Bill features in the next Queen’s Speech and is delivered early in that Session. There is, as I have said, a great deal of work for the Department to do in preparing that Bill and ensuring that it is sufficiently comprehensive, but I think it extremely important that it does so, and that within the course of this Parliament we deliver comprehensive reform to leasehold. It should include 990-year leases, a simpler, cheaper enfranchisement process, ending marriage value, improving the position of leaseholders in the management of buildings, and ending—as has already been suggested—the building and selling of new houses as leasehold, because there really is no justification for that.
Finally, I hope that that Bill will look to the destination of a world beyond leasehold. That is the end point towards which we must work. I established the Commonhold Council to see how we could chart that course, and it seems to me that all the complex issues that are raised are surmountable—that is the evidence from the council so far. It also seems to me that commonhold will never take shape to any substantial degree in this country without a major Government intervention, which means indicating that it is our tenure of preference, or setting an end date for new leasehold properties. I favour the latter: I think we should say clearly that, beyond a certain date, no property, whether it be a flat or a house, should be built unless it is commonhold. I hope that the Bill to be introduced in the next Session will set that course, because I think it would be an important step towards ending a feudal system and helping us to move forward as a country.
Justin Madders (Ellesmere Port and Neston) (Lab)
Let me first put it on record that, alongside the hon. Members for Worthing West (Sir Peter Bottomley) and for St Albans (Daisy Cooper), l am a co-chair of the all-party parliamentary group on leasehold and commonhold reform. The group is assisted by the Leasehold Knowledge Partnership, which has been campaigning for many years for the kind of reform that we are debating today.
We might have expected the Bill to be a cause for celebration, and indeed any legislation that puts another nail in the coffin of leasehold is to be welcomed, but we are left with a feeling that it is a rather modest measure. Given that it took four years for us to reach this point, it seems that we are making glacial progress. Perhaps four years is not much in comparison with 1,000 years of leasehold, but for those who are still trapped in unsellable or seriously devalued homes because of the leases they signed, progress is not being made quickly enough.
I am not generally a fan of market-based solutions—the market is responsible for most of the egregious injustices that we have seen in leasehold—but, to a significant extent, the market has already moved away from imposing ground rents for most houses, not because those who concocted the leasehold scandal have had a prick of conscience but because a spotlight has been shone on the devastating consequences of their sharp practice. In that respect, I pay tribute to the fantastic work of the National Leasehold Campaign, which has done more than just about anyone to bring the unfairness of leasehold to the public’s attention. It is an irony that those campaigners do not stand to benefit from the Bill because, as has been pointed out already, it does nothing to tackle the existing problems. That said, however, their influence has already benefited my constituents and many others.
A new Redrow estate not far from where I live originally had properties being sold on a leasehold basis. After some pretty determined campaigning from the National Leasehold Campaign, Redrow decided to stop the sale of homes in the second phase as leasehold, but unfortunately not before several hundred people had already bought their homes as leasehold. To be fair to Redrow, I should add that it did then offer them the opportunity to purchase the freehold after two years, although it was a little unfortunate, to say the least, when it subsequently lowered the purchase price for the freehold again, creating another unfairness. While I give Redrow credit for stepping back and weaning itself off the leasehold drug, that should not obscure the fact that all this could have been avoided had it not sold the properties as leasehold in the first place. That takes me back to the basic concern that remains with the Bill, which is that it enshrines in law a two-tier system of home ownership when really we should be ending it altogether.
Very few new houses are now being sold as leasehold, but around 1.5 million houses will remain leasehold after this Bill becomes law. Is there a risk that choking off income streams from those who see other people’s homes as an investment will cause them to turn their attention to redoubling their efforts to squeeze as much as they can out of the existing properties? A number of Members have already mentioned that, and I will return to it later.
Turning to the details of the Bill, I know that a lot of consideration has been given to how we define a ground rent. That debate is instructive, because how can a payment for which nothing is received in return be considered a proper legal payment? The short answer is that it cannot, and I believe that that is another reason to abolish leasehold altogether. The reality is that ground rent is a legal fiction and a method of maintaining control and securing an income for which the recipient is required to do precisely nothing.
It is therefore disappointing that lease extensions for houses are exempt from the Bill, because there is significant concern that freeholders will put in massive multipliers when offering informal lease extensions, just to make the premium look lower and more attractive. They would then make their money back through allowing the ground rents to continue. Let us not forget that both parties do not have equal bargaining power. This all just adds weight to the argument that what we have here is a minor change that will help people in the future, when what we really need to do is to deal with the injustices of the present, and the best way to do that is of course to abolish leasehold altogether.
As I said earlier, we also need to keep an eye on whether those who have been involved in the systematic deception and mis-selling change their sights to deal with the new environment that the Bill represents. They have not gone away, those offshore accounts, those trust funds and those private equity investors who see people’s homes as an opportunity to cream off the cash long after the people living in them think that they have bought them. In particular, we have to keep a close eye on estate management companies, because that is one area in which charges could easily be inflated to more than cover the loss of a ground rent.
Matt Rodda
My hon. Friend is making an important speech and he has hit on a number of central issues, particularly when dealing with his own legal experience of these dysfunctional markets where on the one hand we have developers with enormous financial power and legal resources and on the other we have humble first-time buyers. Does he agree that there needs to be a rebalancing, with far greater protection for first-time buyers and ordinary householders, and with a much greater attempt by the Government to hold these large developers to account?
Justin Madders
My hon. Friend makes an interesting point. There is clearly an imbalance. We have already talked about how some enthusiastic first-time buyers who just want to get into their new homes put their trust in the people who have been assigned to deliver the legal niceties such as putting a value on the property and doing the conveyancing. They put their trust in those people, and sometimes that trust is betrayed through the egregious injustices that we have talked about.
Mark Tami
My hon. Friend has mentioned management fees, which I see as the next scandal coming down the road. People who bought their properties and were being charged perhaps £100 or £200 a year will have thought that that was okay, but that might now have gone up to £500 or £600 and there are often additional charges because, for example, fences or certain parts of the ground are not covered. People have told me that they feel they are paying their council tax twice. That is how they see it, and it is totally unfair.
Justin Madders
I thank my right hon. Friend and neighbour for his intervention, which leads me beautifully into the next section of my speech, in which I shall talk about exactly that.
I will never accept that it is right for developers to choose not to pay a sum to councils to adopt the communal areas, and that they instead save themselves money by passing on that cost to the homeowners and then make even more money from the homeowners by charging them for things that ought to be coming out of their council tax. Like my right hon. Friend, I worry that this trend will be accelerated because the ground rent gravy train is coming to an end, and that we will hear more and more stories of homeowners having no choice but to pay inflated annual service charges that, given the choice, they would prefer to pay through their council tax.
Kevin Hollinrake
The hon. Gentleman is making a good point about what is referred to as “fleecehold.” Does he agree it is entirely within the gift of the local authority to require the development to be made to adoptable standards in terms of roads and drainage, for example? It can then be adopted by the local authority, so people do not have to pay twice for such services.
Justin Madders
That is a fair point in theory, but I find it does not happen in practice. I have estates in my constituency that were built a dozen years ago and still have not been adopted because the developers have not put them up to the required standard. The to and fro never ends, because the developers have left town and they have no interest or incentive to bring those areas up to the adoptable standard.
Christian Matheson
I am grateful for the advice my hon. Friend has given to me and my constituents on this matter, as he is a neighbouring MP with particular expertise. He will be aware of one estate in my constituency that has been parcelled up and given to different developers, and it has been developed at different times. Not only do we have a problem with the local authority, but he will recall that we have a problem with different developers playing themselves off against each other in order not to bring the estate up to standard, as the hon. Member for Thirsk and Malton (Kevin Hollinrake) suggests.
Justin Madders
My hon. Friend and constituency neighbour makes the point well. It all points to the lack of capacity in local authorities to tackle these issues. I do not want to make a party political point, but we have had a decade of austerity and we are now seeing the consequences in how local authorities police these things.
I would like to see a crackdown on unfair fees and contract terms by having an enforceable list of what are considered to be reasonable charges. We should require transparency on those charges and give leaseholders the right to challenge rip-off fees and poor performance. We should also try to ensure that residents are given greater powers to take over the management of their homes, if that is where we are going.
As my hon. Friend the Member for City of Chester (Christian Matheson) said, I do not want to be standing here in a few years’ time talking about another PPI for the house-building industry because the Government have once again failed to act on the warning signs that are there for us all to see.
This Bill must be promptly followed with the promised wider leasehold reforms, particularly the promised reforms for which we have been crying out that will enable leaseholders to buy their freehold quicker, easier and cheaper. I have had a private Member’s Bill ready to go for three years that would allow us to do just that. It could have already become law if there had been the will to take on the freeholder interests that would lose out as a result.
I have now got the message that my Bill will not find favour with the Government. I am aware the Bill would not have meant an end to leasehold, but it would at least have given the victims of this industrial-scale con an opportunity to take back control of their property at an affordable price. I thought this Government were all about taking back control. Do they not realise that leaseholders do not have control?
What is stopping firmer action being taken against freeholders? I know there are legal opinions floating about on freeholders’ human rights, but what about my constituents’ human rights? Do they not have the right to live in their own home without someone else trying to make it into a cash cow? Do they not have the right to expect that the biggest purchase they ever make will be done fairly and will be properly regulated? Do they not have the right to have a Government who are serious about stopping the industrial-scale foul play we have talked about tonight?
It is disappointing that, although on the one hand the Government accept that unfair practices in the leasehold market can turn people’s home-ownership dreams “into a nightmare,” we are still waiting for action for the many leaseholders who have been trapped in this web that they did not sign up to. We have made it clear that there are a number of reasons why they have found themselves in this position, not all of which are resolved by the Bill.
We know that one in three houses sold in the north-west in the past 10 years is leasehold, and those people will not benefit from the Bill. My constituents and my hon. Friend’s constituents have been disproportionately affected by the leasehold scandal, and they are still waiting for something that will help. If we are to talk about levelling up in this place, we should be looking at something like that as it will deliver true justice, fairness and levelling up.
We need some clear timescales from the Minister for when existing leaseholders can expect to see action on their concerns. What commitments can they expect? I think we all agree that what has happened is unfair and a significant injustice, but when are we going to see action to put things right for existing leaseholders? The right hon. Member for Bromsgrove (Sajid Javid), when he was Communities Secretary, promised an outright ban on leasehold for all houses four years ago. That is four years of people being trapped in homes that they cannot sell because of onerous ground rents, and four years of stress and uncertainty about whether they should try to buy their freeholds now or wait until the law is reformed. I get asked regularly, “What should I do? Should I wait until the law changes?” It is very difficult to give an answer on that because we still have no clarity on when that law will be changed. So let us end four years of jam tomorrow. Let us deliver solutions for leaseholders today. Let us stand up to the vested interests and please, finally, abolish leasehold.
Sir Desmond Swayne (New Forest West) (Con)
I have had the nub of my argument with my right hon. Friend the Member for Newark (Robert Jenrick), but it comes down to this: the retirement living industry’s business model funds the capital requirement for the communal areas through a flow of future ground rents from the outset. The Minister said that he has given the industry time to change its business model. My answer to that is: if there was a problem with an escalating ground rent, it would be perfectly appropriate to have dealt in a measure such as this with that specific problem, rather than telling the industry to change its entire model. Nevertheless, this is where we are.
The business model must therefore have changed by 1 April 2023. The difficulty is with the time it takes to sell properties in the retirement living sector. The industry’s estimate is that some 4,000 apartments will remain unsold in part-sold developments. If someone was to complete on one of those properties on 1 April, they would be paying all the capital costs up front, whereas someone who had completed on 31 March would be expecting to pay a ground rent for the remainder of their tenure. That creates a huge legal confusion and a sense of injustice among the tenants in those properties. So I put a solution to the Minister: a technical amendment to the Bill to enable part-sold developments to continue to sell the unsold properties with a ground rent, provided those properties were built when it was lawful to charge a ground rent. That strikes me as proportionate. We are not dealing with a huge problem or a huge number of properties, but with some 4,000. My proposal seeks to avoid the confusion and difficulty that would arise with two different types of tenures in the same development. That seems a not unreasonable thing to ask Ministers to consider in Committee and on Report.
Matt Rodda (Reading East) (Lab)
It is a pleasure to speak in tonight’s debate. I wish not only to address a number of issues that colleagues have raised, but to add in further details that I hope are particular to my constituency but fear may be common around the country.
First, I wish to support the points raised by my hon. Friend the Member for Manchester Central (Lucy Powell). Obviously, I welcome this Bill, which will help, but the broader point about the deep inequities of leasehold still stands true and we should be moving much faster on this important matter, trying to remove leasehold from the system of ownership in this country. Is it not incredible that the UK still has this medieval system of ownership, which, as has been mentioned, so discriminates against first-time buyers, people on lower incomes, older people and many other groups, which in many ways deserve more support and encouragement to get on to the property ladder? They deserve not to have their lives blighted by what is, sadly, sometimes the behaviour of irresponsible developers. I am not saying that all developers are irresponsible, but Members have clearly highlighted some awful and appalling examples of behaviour.
First, Loddon Park is a pleasant development on the edge of Woodley, a suburb of Reading. It is a relatively new and really quite beautiful development, with many attractive homes. The homes are freehold properties but some of the shared areas in the large development are subject to charges. In many ways, the sort of problems described so eloquently by my hon. Friend the Member for Ellesmere Port and Neston (Justin Madders) are also occurring for those at Loddon Park—several hundred people living in an attractive new development on the edge of an urban area in the south-east of England. The residents potentially face unlimited extra costs for the maintenance of some attractive grounds—including meadow areas, large ponds and other areas where children can play—because no cap was written into the charging policy and they did not realise that when they bought their properties.
As explained earlier by my hon. Friends the Members for Ellesmere Port and Neston and for City of Chester (Christian Matheson), as well as other colleagues, some of the first-time buyers we are talking about are unfortunately not always aware of some of the difficulties into which they might get themselves. There is an unequal situation in which on the one hand there are powerful and articulate developers with an excellent team of lawyers and on the other hand there are first-time buyers. That is deeply unfair. In this case, young families face potentially unlimited additional costs to pay for the upkeep of the rather attractive communal areas around their houses. That is very sad and deeply unfair. I respect the fact that the local authority had difficulties in trying to provide the properties, but I wish it had been more careful. There is also an element of involvement from Wokingham Borough Council, which is the local authority involved. Will the Minister look into that issue? I will write to him to explain the situation and ask for his help and support.
Before I mention another egregious example from the Reading East constituency, I offer my support to colleagues who have mentioned the issue of snagging and the problems with developers that prevent the adoption of roads. I know of cases in both Reading borough and Wokingham borough in which different developers have started to build a new estate and completed all the properties, which have been sold, but the roads, street lighting and other services have not been properly completed. Although the issue has gone on for years, there has been an ongoing tussle—similar to what the hon. Member for Thirsk and Malton (Kevin Hollinrake) mentioned—between council officers and developers. It has been deeply problematic for local authorities, which often have low levels of resource in their planning departments so are not well equipped to argue the case.
Mark Tami
I totally agree with my hon. Friend. Quite often, the moment the developers sell the last property, that is it: they are not interested any more. They are not interested in snagging or doing the roads; they are off to build somewhere else. The problem is that, as my hon. Friend was saying, local authorities do not have the money to chase these people. In my opinion, if they do not finish an estate—what they were allowed to do under the planning permission—they should not be granted permission again to build anything else.
Matt Rodda
My right hon. Friend makes an excellent point. There should be much stricter rules on this issue, because such sharp practice by developers helps no one. It does not help the building industry as whole, homeowners, local authorities or, indeed, other businesses that have to operate. In one estate near me, drivers can feel the difference as they drive on to the unadopted piece of road because their vehicle goes over a huge bump. That is not good for anyone, including many of the small businesses that have to deliver to that estate. It is surely in everybody’s interests, including those of the wider building industry, to get on with it and come up with a clear, simple and fair solution to the problem so that we can all move on and not spend vast amounts of unnecessary energy chasing after developers to sort out problems such as lamp posts that do not work or roads that have not been finished off.
I wish to address a specific issue that relates to a social housing enterprise in my constituency that operates across large parts of Berkshire. I have been deeply disappointed by Housing Solutions and ask for the Minister’s help. This organisation appears to have badly let down a number of residents in Woodley, the Reading suburb I mentioned earlier. It applied for planning permission to build properties next to a transport depot, where there are a lot of heavy goods vehicle movements, and on an industrial estate. The properties have been sold in a part-ownership scheme to local residents who were desperate to get on the housing ladder and were finding it quite difficult because they are on modest incomes. The local authority gave planning permission and carried out all the relevant checks—again, this is Wokingham Borough Council not Reading Borough Council. There was nothing in planning law to stop these flats from being built next to a haulage yard. The local authority looked into it and it was not able to reject the plans on that basis—on the basis that the flats were close to a noisy and polluting business. However, it did try to insist on conditions on the development. Sadly, though, it appears from lengthy inquiries from my office and also from one of the local councillors—Councillor Shirley Boyt—that these conditions have not been met. Residents, including a constituent of mine, Elise Maslen, who lives in the development, were not told of the additional changes that would need to be made to these properties—in particular, the need to adapt to air quality problems, such as mechanical ventilation and other forms of enhancements to the properties. They were also not told about the noise and pollution from the depot when they purchased the properties. That has resulted in around 20 families being trapped in flats that they do not want to be in, suffering from noise and air pollution.
The local authority has tried to find a way of bringing these properties up to spec. It has insisted on Housing Solutions doing that, but there has been a great deal of delay. This has gone on for five or six years. Sadly, some of the residents have moved away and are now having to pay for the cost of living in these properties while also living at a new address. They are deeply concerned about the health of their children and of themselves. This seems to be an egregious abuse of the situation. While it is not directly related to leaseholders, it has many of the same features, with powerful organisations, sadly, abusing their position of power and ordinary householders struggling and being provided with incorrect information. I wish to write to the Minister to ask for his help on this matter because it is of huge concern to me, to the local community and to the residents concerned. They have been treated appallingly by the housing association.
Matt Western (Warwick and Leamington) (Lab)
My hon. Friend is making some incredibly important points. I have parallels in my constituency, as I am sure do other Members across the House. In one example, we have a managing company, a massive social housing provider and a partnership scheme, as he describes it, and the builder. It is a big organisation, but there is no overall ownership of the issues. Residents get utterly frustrated—I am thinking about Ellie, Matt, Sarah and others. There are 200 of them in this one development and they cannot get answers from anybody because no one is really taking ownership of the problem.
Matt Rodda
I thank my hon. Friend for his intervention, because he shows that there is a wider issue with this type of behaviour. It is deeply worrying. These are ordinary families trying to get on with their daily lives. They want to be able to find a home of their own in a high-cost area and they are being treated in the most appalling way by an organisation that should be much more responsible. As I have said, I, my office and local councillors have been struggling to find a way of solving this problem, but we have not had much success so far and would appreciate the Minister’s help. We hope that, at some point, Housing Solutions will compensate these poor residents for the way that they have been treated and, indeed, buy them out of their properties if possible. It is absolutely appalling to live next to a haulage yard. People are constantly interrupted by noise from HGVs, driving past at all hours of the day and night. The air pollution from diesel particulates and nitrous oxide is deeply worrying. There is no way of protecting children and other vulnerable people in that situation. I am sure the whole House would agree that no one wants that for their constituents. There is also an issue with planning law that needs to be addressed, by which I mean looking at the risks from air pollution and from putting housing in close proximity to an industrial development. I would appreciate the Minister’s help with that.
Finally, let me reiterate the points made by other colleagues about the wider issue of leasehold, which is a completely out-of-date system and totally unfair to first-time buyers and other householders—whether they be young residents, people in leasehold properties for long periods of time, or, as the right hon. Member for New Forest West (Sir Desmond Swayne) said, older residents. This system should come to an end. It is a feudal system. Our country is unique in having such a system. Surely we need to end it once and for all and move on from it.
Theresa Villiers (Chipping Barnet) (Con)
I refer to my declaration in the Register of Members’ Financial Interests, which includes an investment property that is a flat held on leasehold.
I join other Members in strongly condemning the abusive practices that have prompted this legislation, including the sale of new leasehold houses where there is no justification, and spiralling ground rents that double every few years. All the rip-off practices about which we have heard in the Chamber this evening are simply not acceptable. I, like others, very much welcome the investigation initiated by the Competition and Markets Authority into some of the major developers in relation to unfair contract terms and what looks like mis-selling.
It is clearly right to legislate to stop sharp practices in the leasehold sector. It is also correct not to apply the ban on ground rents to existing leases, as that would retrospectively impact on long-standing investments, many of which are held by pension funds that support millions of people in their retirement. Instead, the Government will be helping existing leaseholders by making it easier to enfranchise or buy themselves out of ground rent obligations, and through their second-stage reforms.
As the Bill proceeds through Parliament, we need—as I said in my intervention earlier—to consider the retirement homes sector, where, as we have heard, ground rents are often being used to generate the capital to fund communal areas and shared facilities. Including retirement homes in the ban could affect future investment in this type of much-needed housing. As my right hon. Friend the Member for New Forest West (Sir Desmond Swayne) said, there is a case for considering a technical change to the Bill so that at least the retirement homes built but not sold prior to the commencement of the Act in 2023 are covered by the current rules, rather than the new ones.
A second potential alteration that should be looked at carefully is whether to allow the continued use of ground rents for some large, complex apartment blocks. This matter has been raised with me by a constituent who is worried that the exit of professional freeholders from the market, which is the expected consequence of abolishing ground rents, will leave leaseholders moving into such buildings with extensive financial and legal responsibilities. These complexities are intensified if there is mixed residential and business use.
The Housing, Communities and Local Government Committee acknowledged this issue in its 2019 report and advocated at least a temporary exemption for large, mixed-use buildings. If this carve-out were made, there would need to be a robust code of conduct to ensure that the remaining freeholders acted fairly. Violation of such a code should be subject to enforcement mechanisms. Having spoken to my constituent and his colleagues in the professional property sector, I think we need seriously to consider whether some leaseholders in some new blocks might want to have the option of leaving stewardship of their block to a professional freeholder.
Kevin Hollinrake
My right hon. Friend is making an important point. Would the code of conduct to which she refers—for those kinds of complex developments—include a cap on ground rents of, say, £100 or 0.1% of the value, whichever was lower, to ensure that the ground rent was always affordable?
Theresa Villiers
We would certainly need a cap, and the sort of levels that my hon. Friend mentions sound reasonable to me.
Let me turn to how this legislation will interact with new building safety laws. New building safety legislation will impose stringent responsibilities on freeholders, whether they are professionals or just flat owners who are banded together to manage their building. Frankly, not all leaseholders will want to take on such liabilities, yet this Bill will mean that for new flats, residents—whether they want this or not—will be jointly responsible for the safety, maintenance and upkeep of the apartment buildings in which they live, regardless of the size or complexity of those buildings. As my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) highlighted in his earlier intervention, worrying research in a 2019 report commissioned by the Royal Institution of Chartered Surveyors and Built Environment Forum Scotland indicates that the removal of professional freeholders in Scotland has contributed to buildings falling into disrepair. A key problem that has been identified is that difficulties in securing a majority agreement among leaseholders and getting all flat owners to fund the repair works needed can significantly slow down remedial work, and that pushes up costs.
Matt Rodda
I appreciate that the right hon. Lady wishes to make a point about the importance of shared ownership and the difficulties of managing the shared parts of a large block of flats. Has she looked into the way that this issue is managed in other countries, given that all western countries other than the UK do not have the leasehold system? Surely there are ways to manage communal areas other than by maintaining leasehold, which involves all the difficulties that we have heard about.
Theresa Villiers
The fact that English property law is unique does not necessarily mean that it is wrong, but I acknowledge that it is important to look at how other countries manage these issues. That is partly why it is instructive to look at what has happened north of the border. Of course, Scotland has a different legal system. Leasehold and commonhold have been a fundamental part of its system for a long time, and it seems that, in some instances, that is making it more difficult to keep buildings in a decent state of repair.
This is a very important Bill, but it needs careful scrutiny if we are to ensure that it protects leaseholders effectively from abusive and unscrupulous practices, operates fairly and avoids unintended negative consequences for the very people whom it was designed to protect.
Stephen Hammond (Wimbledon) (Con)
Let me say to my hon. Friend the Minister how much I think everyone across this House supports his aim—I certainly do—of getting rid of some of the egregious behaviour that we have seen in the market in the past five years. That behaviour undermines the work done by those professional freeholders who have done a good job for leaseholders for many years.
We are right to look at the whole process of leasehold. My right hon. Friend the Member for Newark (Robert Jenrick) described this Bill as the appetiser before the main course. A lot of us will welcome the main course, in which we can look at making it easier for leaseholders to extend their leases through simplification of the extension process, which I assume will come in that very complex Bill. The hon. Member for Ellesmere Port and Neston (Justin Madders) was right to say that although progress has been not as fast as many would have liked, it is coming. I warmly welcome that.
This Bill is fairly tightly drawn: it is very much about the ground rents on future leases. I make only four points, and I would like those on the Treasury Bench to respond to them. First, a practical point: while we all welcome and recognise the work done by the Competition and Markets Authority, it is missing half the problem. On the many people who may or may not have been instructed to use solicitors recommended by the developer or their agents, those solicitors had an obligation and a duty to the client purchasing the property, for whom they were working. I strongly advise Ministers to talk to the Solicitors Regulation Authority about whether this should be looked at as a corollary of the work being done by the Competition and Markets Authority.
Secondly, I heard what the Minister said about doing away with ground rent and moving to a peppercorn that will not have to be paid. What I am not clear about—perhaps if I am on the Committee, we can explore this a bit more—is why anyone would not just transfer all the increase in ground rent to other charges. He said that there are protections in progress, but some of those will be really difficult to establish. We have talked about “excessive” admin charges, repair charges and service charges; I think that will be quite difficult for the Minister to define, and I look forward to exploring that with him. If I am not on the Committee, I hope he will meet me to talk about how we might make sure that that is more tightly defined.
My third and fourth points have already largely been made by my right hon. Friend the Member for Chipping Barnet (Theresa Villiers). If ground rents are taken to a peppercorn, freeholders are unlikely to want to be involved, so we will move to a system of commonhold in reality, rather than by legislation. That raises two issues. The first is: who will manage the blocks of flats, and how will that come into place? The hon. Member for Reading East (Matt Rodda) mentioned that there are systems in other countries, but in complex buildings—those large buildings with mixed use underneath, or large-scale blocks of flats—a number of people will not want to actively participate in the management of that building; nor will it necessarily always be possible to bring them to resolution and agreement with the rest of the commonholders. For things to work, there may have to be an obligation on the commonholders to have a management company; otherwise, a number of repairs simply may not happen. My right hon. Friend the Member for Chipping Barnet talked about Scotland a moment ago.
My other major concern is this: if that provision is not there, and we no longer have professional managing agents or freeholders, who will ensure future building safety? I am interested to hear how the Minister intends to protect complex buildings. Commonhold can easily be seen to work in smaller buildings, but there is real concern about buildings over 18 metres and large buildings. If safety standards change in the future, who will force through building safety measures? I am keen to hear a response to that from my right hon. Friend the Member for Tamworth (Christopher Pincher).
Jane Hunt (Loughborough) (Con)
I am delighted to speak in support of this Bill. I have one or two points to raise, but in general this is an excellent Bill.
For too long, many of my constituents who have realised their dream of owning their own home have been trapped in a cycle of cumbersome bureaucracy and additional, unnecessary and, frankly, unfair expenses in the form of both ground rent and service charges. Since becoming an MP, I have supported a number of these constituents, some of whom have told me that they were not clearly informed about the additional costs they were signing up to when buying their house—costs that have caused significant stress and hardship. I had hoped to provide an example, but unfortunately, all the cases are currently undergoing legal action, which only reinforces my point that change is necessary. I therefore welcome the Bill, which seeks to end these unfair practices.
Matt Western
I share a lot of the hon. Lady’s concerns about what her constituents are experiencing. Many thousands of new homes are being built, and constituents are frustrated and surprised when they discover that they have just bought a leasehold house. We understand that a third of leasehold properties are typically houses. Does she agree that where houses have been built as leasehold, surely the simplest thing would be to make them all freehold, and to get agreement with all the developers to reduce the cost of transfer?
Jane Hunt
I wonder whether that is part of the main course that is coming up. I am not sure; we will see, I suppose.
I think I got the same memo as my right hon. Friends the Members for Chipping Barnet (Theresa Villiers), and for New Forest East (Dr Lewis), as I am going to talk about retirement homes for a moment. I draw the Minister’s attention to an issue I have previously raised with him. I have been contacted by a leading developer and manager of retirement communities, which has recently completed Mill Gardens and Farnham House retirement living in my constituency. McCarthy and Stone is concerned about the impact the Bill could have on the retirement sector, following the decision not to provide it with a concession from the ban on ground rents. While it is welcome that the Bill provides for a short transition period, it does not take into account developments that were in the pipeline before the position changed, and the impact that the provisions will have on schemes that will be part-sold when the legislation comes into force.
The proposals are likely to mean that retirement developments on which building started when ground rents were expressly permitted will find themselves split, with two lease structures operating in the same building. That is likely to cause legal complexity and on-site management issues, and to complicate future apartment transactions. It could throw into doubt the financial sustainability of some communities, on the basis that the collective ground rent income on which a development’s funding was predicated will be substantially reduced, even though the development has already been built.
Furthermore, financial contributions to the development costs of communal areas, which were previously shared transparently and equitably, will become complicated, and that risks a sense of unfairness and disunity arising between residents in the same block. I wonder, therefore, whether a modest technical change could be made to the Bill to allow for developments already part-sold to complete sales, so that all apartments operate on the same basis.
I heard the points made by my right hon. Friend the Member for Newark (Robert Jenrick), the previous Secretary of State, on retirement homes and wonder whether a longer transition period for retirement homes would be better than one ending in 2023. That said, it cannot be right for buyers of new properties to face further financial demands for ground rent. House buying must be made fairer and more transparent, and freeholders and landlords must not be able to continue to amass significant profits from ground rent and, indeed, administration charges to the detriment of homeowners. The Bill is therefore an incredibly important piece of legislation that I wholeheartedly support.
Kevin Hollinrake (Thirsk and Malton) (Con)
It is a pleasure to speak after my former colleague in the Cabinet Office, my hon. Friend the Member for Loughborough (Jane Hunt). She made some good points, not least on part-built developments. I support the Bill’s intent.
There is an expression that you should never take down a fence until you know why it was put there. As I set out in my intervention, I have one or two particular concerns. I draw the House’s attention to my entry in the Register of Members’ Financial Interests. I have been involved in the property sector for a long time. I am not directly involved in it today and I have no vested interest—that is for the people who make comments on Twitter in particular, because I will not agree entirely with many of the points made about completely scrapping leasehold, in effect. I am actually a leaseholder, rather than a freeholder, in this context.
On the leasehold system, for most of my life, when it comes to selling and renting property, leasehold has been a perfectly workable form of tenure for most people—for most leaseholders and indeed freeholders. In recent years, there is no doubt that the system has been tremendously badly abused. It is right of the Government to act on that in no uncertain terms. However, the fence to which I referred is between freeholders and leaseholders, and it was put there to try to ensure a proper mechanism for resolving disputes. That is why we ended up with a professional landlord who had an overall interest in an entire block, rather than in a specific unit in that block. The Bill will in effect remove any interest that a professional landlord would have in a future block. My hon. Friend the Member for Wimbledon (Stephen Hammond) is therefore right that the default will become commonhold.
On freehold, in my formative years of selling property in York, most flats were leasehold, and those flats were perfectly saleable and rentable. However, if ever we came across a development of freehold flats—a block where all the owners were freeholders, or commonholders, in modern-day parlance—we found that those properties were almost impossible to sell. In fact, mortgage lenders would not lend on them because of concerns about maintenance. If there was not a method to ensure that the building was maintained or that its insurance continued, the building might fall into disrepair and the lender’s security over the property would not be sufficient to cover the mortgage. That is the concern we potentially have here, as we move to this system of commonhold. I think commonhold can work for quite a number of flats—most blocks of flats, indeed—if it is simple and easy to operate.
However, commonhold is far and away not, in any shape or form, a panacea. We can see that from the current experience. There are some effective leasehold or commonhold ways of managing blocks, with residential management companies or right to manage agreements, where in effect the leaseholders manage the block and take on the responsibility of a freeholder. However, there are disputes within such blocks or organisations. The trouble with the commonhold rules—as I understand it, and the Minister may tell me differently—is that each commonholder has the right to raise their own dispute regarding the particular property, and I do not think there is any clear means of resolving such a dispute.
Previously, in a leasehold agreement, the freeholder would have been able to say, “This is what is actually going to happen. These are the terms of the lease, and these are the terms of the lease that you must adhere to.” A simple example of that is the payment of insurance. As I am sure most Members in this debate will know, in a leasehold agreement the freeholder will normally arrange the buildings insurance for the entire block, which obviously covers communal areas, as well as things such as the roof. That would be the responsibility of the freeholder, who would pass on the costs to each individual leaseholder in proportion. If one leaseholder decides not to pay the insurance, the freeholder can say, “Well, you must pay the insurance”, and they can actually carry out debt collection on that leaseholder. If it is an absentee leaseholder, they can go even further: ultimately, they could disenfranchise that leaseholder completely, and take the apartment back from the leaseholder.
I know that that has been used in some draconian ways in leasehold, but generally there is a mechanism that makes sure everybody in the block pays a fair amount for maintenance and things such as the insurance, but I am not sure how that happens in commonhold. If somebody stops paying for their particular element of responsibility for the charges, I do not think there is any such mechanism. The others could take that person to court, but again, the problem is that the fellow residents—fellow commonholders—in that block would have to take one of their own residents to court, instead of a freeholder doing so who does not have a cheek-by-jowl relationship with the resident.
This is why I think we have some of the maintenance issues in Scotland, and in Scotland there are some big maintenance issues, as my right hon. Friend the Member for Chipping Barnet (Theresa Villiers) mentioned. The hon. Member for Reading West asked about other jurisdictions. Australia has a very similar system, which I think is called the strata system. There are issues there about the recruitment of people to sit on the management boards, with 37% of companies expressing difficulties in recruiting residents to sit on these management boards.
Matt Rodda
I absolutely appreciate the difficulties that the hon. Gentleman is outlining, including indeed in relation to my constituency. I should say that my constituency is Reading East; Reading West is the COP26 President’s. In Reading and Woodley, which I represent, there are a number of private roads and other shared facilities where residents come together and share the ownership of assets. Certainly in my experience as the local MP and previously as a councillor, that can be done quite effectively. I do appreciate that there may be issues with very large blocks, and the point I was making to the right hon. Lady from Chipping Campden—[Interruption.] Sorry, I mean the right hon. Member for Chipping Barnet (Theresa Villiers); there are various interesting places around the country that we come from today. The point I was making is that we really should look at the wide range of jurisdictions overseas and try to work through some models of what is most appropriate in each given set of circumstances.
However, it is possible to bring residents together. Certainly, that is my experience locally, and in the example of shared private roads, that has been extremely successful. We have a number of areas where they are maintained to a very high standard, the residents all work together effectively and that is absolutely fine. So I do not think we should try unduly to put obstacles in the way of progress on this matter. At the end of the day, the real issue is moving on from this totally unequal system to one where individual householders are treated more equally, and work together in a collaborative and sensible way.
Kevin Hollinrake
The hon. Gentleman makes some good points and I am not saying that in certain circumstances commonhold cannot work. He pointed to the simple situation of a non-adopted road to which local residents have to contribute for the upkeep and it can certainly work in those situations, but I am just trying to point out that there are situations where it would prove difficult to make the system work.
Every jurisdiction—those in Australia or the US or Scotland—is different, and the UK is unique in various ways, one of which is in having a high proportion of absentee owners, such as in central London, where we all see blocks of flats that seem to be rarely occupied. Problems might arise in managing such blocks with for instance 100, 200 or 300 commonholders; there might be disputes and difficulties, such as in debt collection.
On the point about simple things to manage, the biggest issue is complex developments, as my right hon. Friend the Member for Chipping Barnet mentioned. Let us consider a block of 300 or 400 flats built above a tube station or adjoining a shopping mall; effectively there will be a common freehold in that development but would anybody here be keen to sit on a committee managing that entire block with, for example, joint M and E—mechanical and electrical—so joint electrical, heating, ventilation and broadband installations, managed not just between the 300 units but the other infrastructure in that development? There are concerns that that would be beyond the appetite of many commonholders who manage that kind of development.
Robert Jenrick
Yet it is done in every other country in the world—is that not the point? I share my hon. Friend’s reservations yet every other country in the world with equally complex cinemas and tube stations and infrastructure manages it in a way that is broadly commonhold.
Kevin Hollinrake
My right hon. Friend raises a good point and has an advantage over me as I do not know in depth how that would happen in, for instance, Manhattan, but I think we should understand that situation more before pushing ahead and ruling that commonhold will effectively become the default for every single development in the UK. The Government have done a great job in many things and one of them is in increasing the rate of development in the UK, and I have a concern that some developers might be inhibited in taking on a very complex project because of fears about selling the residential units or renting the commercial units. I just think we need to understand more before pushing ahead and rolling complex developments into the legislation, rather than exempting such developments from it as we on the Select Committee recommended and Lord Lytton recommended in his speech—he tabled an amendment.
I just think we should look at this area and make sure we get it right, because one law we constantly effect in this place is the law of unintended consequences and we must avoid that. So peppercorn leasehold and commonhold are fine, but we need to make sure we look at those complex situations. I personally think that if we do not find a simple solution and cannot demonstrate that it will work in the UK, because the UK clearly has some unique elements to the property market, then we should set a cap on the ground rent in exempted developments, for instance of £100 or 0.1% of value, whichever is the lowest, to make sure it is always affordable for leaseholders. I absolutely understand that this has been a problem, but we must make sure that developers do not avoid exploiting development opportunities—particularly brownfield development opportunities in city centres—because of complexities.
Aside from that, I am very happy to support what the Government are trying to do.
Mike Amesbury (Weaver Vale) (Lab)
This is a Bill not for the many but just for the new leaseholders. Ministers have now heard the speeches of all Members taking part in the debate and in one sense they all spoke with one voice: they welcome this Bill in its narrow scope as far as it goes. We agree that abolishing ground rents via peppercorn, and beginning to rebalance the system so that it works for those who live in homes rather than for investors who use them as income streams, looking only for returns, is a good thing. However, as Members have stated—I think we heard from around 11 speakers, including interventions—the Bill deals only with ground rents, and only with the future. The feudal system now unique to England and Wales is still alive and kicking; that is something that I and the former Secretary of State, the right hon. Member for Newark (Robert Jenrick), agree on.
That is the issue with the Bill. For people already trapped in leasehold properties with high and escalating ground rents, it does nothing. For those trapped in flammable flats, facing soaring costs and crippling remediation bills, it does nothing. For leaseholders facing extortionate service charges without any transparency on where the money is going, or suffering from other unfair terms and conditions or limitations on enfranchisement, it does nothing.
We heard from my good friend and neighbour, my hon. Friend the Member for Ellesmere Port and Neston (Justin Madders), who has constantly referred to this as the new payment protection insurance scandal. People across the House have referred to the obscure practices of recommended solicitors and so forth. The right hon. Member for Newark—I name check him again—referred to the Bill as an “appetiser” before the main course. I and Members across the House—certainly those of us on the Opposition Benches—would prefer an all-you-can-eat buffet of reform. My right hon. Friend the Member for Alyn and Deeside (Mark Tami), who is a good friend, referred to the scamming in north Wales and the north-west, with a plethora of dodgy clauses creating a cash cow for some interesting people in the market.
This Bill could do so much more, and given that it has taken this long to get any progress on leasehold reform from the Government, we expect it to do more. It is, in many ways, a missed opportunity for the Government to make good on a long-held promise. This is a story we are becoming familiar with—a Government on the side of vested interests. They are a Government on the side of some big developers who see housing as an income stream rather than as homes to be owned or lived in; developers who contribute £1 out of every £10 that the Conservatives receive in donations—developers who should instead be held to account for bad building and bad management.
We expect from Ministers at the very least a clear timetable for the more substantive second-part reforms of the leasehold landscape. We expect to hear that those will happen in the not-too-distant future. The Bill tackles only new homes yet to be built. As Members across the House have said, it will leave us with a two-tier system with nothing to help people, including those in my constituency, who are experiencing problems right now. Will the Government outline why, instead of using the Bill as an opportunity to help people currently exploited through leasehold, Ministers have left them waiting once again by failing to apply this legislation retrospectively, as the shadow Housing Minister, my hon. Friend the Member for Manchester Central (Lucy Powell), spoke about?
Do the Government have any numbers on how many more people will join those currently scammed into buying leasehold properties on bad terms while we wait for more legislation? It is those current leaseholders—people such as Katie Kendrick and Jo Darbyshire at the National Leasehold Campaign—who have been pushing for these changes over the years. Alongside the brilliant people at the Leasehold Knowledge Partnership, they have made the case time and again for doing better for those across the country who have been misled and taken advantage of. I also pay tribute to all members of the all-party parliamentary group on leasehold and commonhold reform.
Can the Minister answer why this legislation has arrived without banning houses being sold as leasehold properties? Just take a look at properties advertised on Rightmove for evidence. Local authorities will be keen to hear how Ministers will resource Trading Standards to conduct its new roles, as will I. I am also keen to hear what further action will be taken against those in the legal profession, as well as developers, who mislead. We also need to hear assurances from the Government on how they will tackle developers looking for new streams of income, for example so-called informal leasehold arrangements. Tackling ground rents only, this time around, means a risk of playing whack-a-mole. Banning freeholders from charging ground rents leaves them open—this was referred to by other Members—to finding new ways of replacing that income stream with other charges.
In conclusion, campaigners such as the National Leasehold Campaign, representing millions of leaseholders, are tired of consultations and bland statements uttered by Ministers about “When parliamentary time allows” giving the green light to foot dragging. This feudal system from a medieval era should be kicked into history, with commonhold as the default position. Our call to action and our amendments to the Bill intend to do just that.
The Minister for Housing (Christopher Pincher)
I thank the Front Benchers from the official Opposition for their support for the Bill. I am grateful to them, as is the whole House. It is a pleasure to see them still in their places. We know there is an Opposition reshuffle going on. It must feel to them that it is taking as long for the Leader of the Opposition to conduct his reshuffle as it is to reform leasehold. We trust that we can get on a little bit quicker than he can.
It has been a real pleasure to listen to the debate unfold. We have had a valuable and considered set of speeches. One of the ornamentations, one might say, of our Standing Orders is that they allow right hon. and hon. Members to range freely across the terrain in a Second Reading debate, and that is what has happened tonight. As the House will know, the Bill is narrowly focused on leasehold ground rent reform, but the debate has allowed the House to debate more freely the wider question of leasehold reform, retrospection and other matters. We will be addressing them in future, but let me say, before I make some further and more detailed points, that I am grateful to the hon. Member for Reading East (Matt Rodda) for his very thoughtful contribution. It sounds to me as though he is going to write me and the Under-Secretary of State for Levelling Up, Housing and Communities, my hon. Friend the Member for Walsall North (Eddie Hughes), a very long letter. We look forward to working with him to resolve the issues he raised.
I am grateful to my right hon. Friends the Members for Chipping Barnet (Theresa Villiers) and for New Forest West (Sir Desmond Swayne), and my hon. Friend the Member for Loughborough (Jane Hunt) for raising the issue of retirement sector ground rent reform. As the Under-Secretary of State for Levelling Up, Housing and Communities, my hon. Friend the Member for Walsall North, said, we have made it absolutely clear that the retirement sector has had an exemption of a further 12 months to get its business model in order. We believe that that is a right and proper amount of time, because there are a number of business models that the sector can use to effectively and appropriately levy reasonable charges that are transparent and fair on residents. It sounds as though my right hon. and hon. Friends may be interested in amendments. They know the process by which to pursue those, if they so wish. However, there will always be disparities between one set of buildings and another and between new buildings to which ground rents will not apply and older buildings to which ground rents will apply. I suspect that those differences will be factored into market calculations or will have little effect on the actual challenges that face residents.
Sir Desmond Swayne
The case for an amendment—I thank the Minister for his guidance in that respect—on the retirement sector is that it was clearly given an exemption and was assured throughout last year that that exemption would hold, but that exemption was suddenly withdrawn in January this year. Given the time that it takes to change the model and to sell such properties, this is crying out for amendment.
Christopher Pincher
I am grateful to my right hon. Friend; he is not so much an ornament as an energetic battery in this House. We look forward to seeing what further proposals he has in due course.
My hon. Friend the Member for Wimbledon (Stephen Hammond) put his finger on it when he described how complicated the matter of wider leasehold reform is. He asked whether the Solicitors Regulation Authority and conveyancers will be engaged; whether tighter definitions will be employed; what happens in more complex developments to repair charges; and what the interaction is with the Building Safety Bill. That is why the Bill is so narrowly defined, as the Law Society advised—so that we can get on and deal with the most egregious offences on ground rents and then move on to the more complicated matter of wider leasehold reform.
As my right hon. Friend the Member for Newark (Robert Jenrick) said in what I thought was a very eloquent and forceful speech, making it clear without saying a word how integral he has been to the advancement of these reforms, they are really quite challenging. We know that leasehold is woven into the tapestry of our law and our tort. We know that in parts of the country, particularly the north-west—I think you know it as well as anybody, Mr Deputy Speaker—businessfolk of yesteryear, factory owners, would buy land in order to build houses and tie workers to those factories. Unpicking those sorts of complicated arrangements needs to be thought through carefully. With an all-you-can-eat feast, as the hon. Member for Weaver Vale (Mike Amesbury) knows full well, if someone stuffs themselves rather too quickly and rather too much, there may be unfortunate consequences down the line. We want to avoid those sorts of challenges with this Bill.
A great deal of thought has gone into the definition of rent to avoid the sort of loopholes that the hon. Member for Manchester Central (Lucy Powell) mentioned. We want to ensure that we close loopholes that would allow freeholders or landlords to collect ground rent. We considered a closely defined meaning for “ground rent”, but at the end of the day, we came to the conclusion that that would be something of a fixed target, because experience teaches us that clever operators with clever lawyers often find loopholes in such circumstances. A flexible definition of rent will help us to ensure that the tribunal will have the flexibility to consider what actually represents a prohibited rent, even if it is not explicitly called “ground rent”—the sorts of prohibitive and prohibited charges to which she referred.
We have made it absolutely clear that we will introduce legislation to ban leasehold houses; we have made that manifesto commitment and will introduce legislation as soon as we are able. We will also ensure that the second part of our legislative reform addresses the challenges with respect to existing leaseholders and retrospection, because we are committed to addressing the historic imbalance in the system.
Meanwhile, I am grateful for the work that the CMA has done, which I hope the whole House will welcome. We want to make sure that the CMA moves as quickly as possible to tighten up on egregious practices; we look forward to its report and to the next steps that we will then undertake. I assure the House that we will move as rapidly as possible.
My hon. Friend the Member for Blyth Valley (Ian Levy) is not in his place, but he has certainly raised with me the issue of ground rent in future long leases. In January, we announced that we would legislate to change the way in which the cost of buying a freehold or extending a lease is calculated to make it cheaper and easier for leaseholders. I hope that that gives my hon. Friend some reassurance.
The Bill is the beginning of a process that we, the Conservative Government, have started and that others, for too long, have shirked. It will ensure fairness and transparency in our leasehold system. I look forward to working with right hon. and hon. Members across the House in the coming weeks to get this vital legislation on the statute book and working for leaseholders. I commend it to the House.
Question put and agreed to.
Bill accordingly read a Second time.
Leasehold Reform (Ground Rent) Bill [Lords] (Programme)
Motion made, and Question put forthwith (Standing Order No. 83A(7)),
That the following provisions shall apply to the Leasehold Reform (Ground Rent) Bill [Lords]:
Committal
(1) The Bill shall be committed to a Public Bill Committee.
Proceedings in Public Bill Committee
(2) Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Thursday 9 December 2021.
(3) The Public Bill Committee shall have leave to sit twice on the first day on which it meets.
Proceedings on Consideration and Third Reading
(4) Proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which those proceedings are commenced.
(5) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.
(6) Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration and Third Reading.
Other proceedings
(7) Any other proceedings on the Bill may be programmed.—(Craig Whittaker.)
Question agreed to.
Leasehold Reform (Ground Rent) Bill [Lords] (Money)
Queen’s recommendation signified.
Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),
That, for the purposes of any Act resulting from the Leasehold Reform (Ground Rent) Bill [Lords], it is expedient to authorise the payment out of money provided by Parliament of any increase attributable to the Act in the sums payable under any other Act out of money so provided.—(Craig Whittaker.)
Question agreed to.
Tim Farron (Westmorland and Lonsdale) (LD)
On a point of order, Mr Deputy Speaker. No Minister came to this House today to address the appalling situation for the 155,000 people across the United Kingdom who remain without electricity, following damage caused by Storm Arwen. Thousands of people in Cumbria—in Coniston, Haverthwaite, Torver, Hawkshead, Grayrigg, Shap, Alston, Troutbeck, Garsdale, parts of Windermere, parts of Kirkby Stephen and parts of the Cartmel peninsula—are now facing their fourth night without electricity.
We need support tonight to help the hard work and increase the numbers of the engineers who are working around the clock to fix the connections. That may well involve bringing in the Army. We also need support for the amazing community volunteers who are helping vulnerable people and families who are cold, hungry and suffering in other ways. After four nights without power, most people become vulnerable. Could you advise me, Mr Deputy Speaker, how we can make representations to Ministers so that we can see immediate action tonight?
Mr Deputy Speaker (Mr Nigel Evans)
I thank the hon. Member for giving notice of his point of order. He mentions a number of areas in and around his constituency; areas in my constituency and those of others have also been affected.
I have been given no indication that there is to be a statement today on the matter, but you are a seasoned Member of Parliament, Mr Farron, and you will know that there are other devices that you may be able to use to raise the issue, either directly with Ministers or in the House. Also, the Table Office is always there to assist Members in pursuing the interests that they have.
I thank the hon. Member for raising that vital issue.
Animals (Penalty Notices) Bill (Ways and Means)
Resolved,
That, for the purposes of any Act resulting from the Animals (Penalty Notices) Bill, it is expedient to authorise the payment of sums into the Consolidated Fund.—(Victoria Prentis.)
Approved Premises (Substance Testing) Bill (Money)
Queen’s recommendation signified.
Resolved,
That, for the purposes of any Act arising from the Approved Premises (Substance Testing) Bill, it is expedient to authorise the payment out of money provided by Parliament of any expenditure incurred under or by virtue of the Act by the Secretary of State.—(Kit Malthouse.)
Leasehold Reform (Ground Rent) Bill [ Lords ] (First sitting)
Tuesday 7th December 2021
(2 years, 4 months ago)
Public Bill CommitteesRead Full debate Leasehold Reform (Ground Rent) Act 2022 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 7 December 2021 - (7 Dec 2021)
The Committee divided: - Ayes: 7 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 7 / Noes: 9 - Question accordingly negatived.
The Chair
Before we begin, I have a few preliminary announcements that I am required to read out by Mr Speaker. I remind Members that they are expected to wear a face covering except when speaking or if they are exempt. That is in line with the recommendations of the House of Commons Commission. Please also give each other and members of staff space when seated and when entering and leaving the room. I remind Members that they are asked by the House to have a covid lateral flow test twice a week if coming on to the parliamentary estate. That can be done at the testing centre in the House or at home. Hansard colleagues would be grateful if Members emailed any speaking notes to hansardnotes@parliament.uk. Please switch electronic devices to silent. Tea and coffee are not allowed during sittings.
I first call the Minister to move the programme motion standing in his name, which was discussed yesterday by the Programming Sub-Committee for the Bill.
Ordered,
That—
(1) the Committee shall (in addition to its first meeting at 9.25 am on Tuesday 7 December) meet—
(a) at 2.00 pm on Tuesday 7 December;
(b) at 11.30 am and 2.00 pm on Thursday 9 December;
(2) the proceedings shall be taken in the following order: Clauses 1 to 13; Schedule; Clauses 14 to 27; new Clauses; new Schedules; remaining proceedings on the Bill;
(3) the proceedings shall (so far as not previously concluded) be brought to a conclusion at 5.00 pm on Thursday 9 December.—(Eddie Hughes.)
Resolved,
That, subject to the discretion of the Chair, any written evidence received by the Committee shall be reported to the House for publication.—(Eddie Hughes.)
The Chair
Copies of written evidence that the Committee receives will be made available in the room and will be circulated to Members by email.
We now begin line-by-line consideration of the Bill. The selection list for today’s sitting is available in the room and shows how the selected amendments have been grouped for debate. Grouped amendments are generally on the same or a similar issue. Please note that decisions on amendments take place not in the order in which they are debated, but in the order in which they appear on the amendment paper. The selection and grouping list shows the order of debates. Decisions on each amendment are taken when we come to the clause to which the amendment relates.
A Member who has put their name to the lead amendment in a group is called first. Other Members are then free to catch my eye to speak to all or any of the amendments in that group. A Member may speak more than once in a single debate. At the end of a debate on a group of amendments, I shall call the Member who moved the lead amendment again. Before they sit down, they will need to indicate whether they wish to withdraw the amendment or seek a decision. If any Member wishes to press any other amendment in a group to a vote, they need to let me know.
Clause 1
Regulated leases
The Parliamentary Under-Secretary of State for Levelling Up, Housing and Communities (Eddie Hughes)
I beg to move amendment 1, in clause 1, page 1, line 9, at end insert—
“(but see subsection (5)).”.
This amendment inserts a reference to the new subsection inserted by Amendment 2.
The Chair
With this it will be convenient to discuss the following:
Government amendment 2.
Clause stand part.
New clause 1—Ground rent for existing long leases—
“Within 30 days of the day on which this Act comes into force, the Secretary of State must publish draft legislation to restrict ground rents on all existing long residential leases to a peppercorn.”
This new clause aims to ensure that the Government introduces further legislation to remove ground rent for all leaseholders, whereas the Act currently only applies to newly established leases.
Eddie Hughes
It is a pleasure to serve under your chairmanship, Mr Hollobone, and to see the hon. Member for Weaver Vale still in his place following recent moves.
Government amendments 1 and 2, and Government amendments 3 to 5, which we will come to later, relate to the process known as a deemed surrender and regrant. For the benefit of those who are not experts in property law, me included, when the extent of the demise is changed—for example, where an extension is made to a property or to correct an error, or where there is an extension to the term of a lease—the lease is deemed to be surrendered and regranted to the leaseholder.
Government amendments 1 and 2 provide further protection for leaseholders in situations where that happens. Taken together, the two amendments disapply the requirement for a premium to be paid when a regulated lease or a lease granted before the Bill’s commencement day has been surrendered and regranted. In other words, a lease can have a peppercorn rent under this legislation after it has been regranted even if no new premium is paid.
Without these amendments, there is a significant risk that a previously regulated lease could cease to be regulated, leaving leaseholders to pay a potentially significant premium for a simple change, such as correcting an error within the lease, or leaving them to pay a ground rent. It might be helpful if I provided an example of such a situation. If a future leaseholder were to seek the correction of an error in their regulated lease and there was no premium charge for that correction, the Bill, as currently drafted, means that the lease would no longer be considered a regulated lease and therefore the peppercorn requirement would not be applicable to that newly corrected lease.
Amendments 1 and 2 will remove the requirement for a premium to have been paid for regulated and pre-commencement leases subject to a surrender and regrant, in order for the peppercorn rent to be applied. These amendments and the clarifications in amendments 3, 4 and 5 ensure that the Bill does not have unintended consequences when there is a deemed surrender and regrant and that there is fairness in the system for leaseholders and freeholders.
Mike Amesbury (Weaver Vale) (Lab)
It is a pleasure to serve under your chairmanship once again, Mr Hollobone, and to respond to the Minister. We have spent considerable time over the last few weeks, in Committee and at Second Reading, discussing vital issues of building safety and leasehold reform. These technical and tidying amendments make perfect sense. They address the potential of leasees paying a premium if this was not put in place, so the Opposition certainly welcome this.
I have one question on the potential for informal lease arrangements to sit outside the scope of the Bill. What reassurance can we give those still caught in the leasehold feudal system that there is provision to tackle this element of the industry?
Eddie Hughes
I thank the hon. Member for his support and for that question. My understanding is that the process through which leases will be regulated as part of the Bill would afford the opportunity for clarification of the informal leases to which he refers.
The Chair
So you did not give way to the Minister? Do you want to speak on new clause 1 in this group of amendments?
Mike Amesbury
No, I was allowing my good colleague the hon. Member for Garston and Halewood to speak.
Maria Eagle
I am grateful to you, Mr Hollobone. It is a pleasure to serve under your chairmanship. It is early in the morning, and therefore perfectly possible that I was wrong about my hon. Friend’s intention. Can the Minister clarify that the main intent of these provisions is to prevent those who perhaps used to be able to charge ground rent on new leases but who, following the enactment of the Bill, will only be able to charge a peppercorn if they wish to collect it, having a not very realistic, false way of getting around the Bill by deemed surrender and then reissue? Is that the main intent of these provisions? Obviously, if he had thought about this kind of trick being played when the Bill was originally drafted, he would have included something in that drafting, but it is always good to think again about the way in which people may seek to get around provisions. Have I got it right? Is that the main intent of these provisions?
Eddie Hughes
I can completely confirm that that is absolutely the main intent.
Amendment 1 agreed to.
Amendment made: 2, in clause 1, page 1, line 16, at end insert—
“(5) Where there is a deemed surrender and regrant by virtue of the variation of a lease which is—
(a) a regulated lease, or
(b) a lease granted before the relevant commencement day,
subsection (1) applies as if paragraph (b) were omitted.”.—(Eddie Hughes.)
This amendment provides that where there is a deemed surrender and regrant of a regulated lease or a pre-commencement lease, the new lease may be a regulated lease even if it is not granted for a premium.
Clause 1, as amended, agreed to.
Clause 2
Excepted leases
Question proposed, That the clause stand part of the Bill.
Eddie Hughes
Thank you. I was. I appreciate that it is not my job to be concerned on behalf of the Opposition, but I felt that there could have been some early morning settling into the rhythm of the Committee. The hon. Member for Weaver Vale may have missed the opportunity to speak to new clause 1—[Interruption.]
The Chair
Order. I actually asked the hon. Gentleman quite clearly whether he wished to speak to new clause 1, and he decided that he did not. We are now debating clause 2 stand part.
Mike Amesbury
Sorry. I made a mistake. I do apologise, Mr Hollobone. I thought you said clause 1.
The Chair
Because that particular opportunity was missed, we will ungroup—very kindly, on the Clerk’s advice—new clause 1 from that first group. When we come back to new clause 1 later in proceedings, the hon. Gentleman will have a chance to speak to it. His opportunity will come; it just has not come when we thought it would. We are now debating clause 2 stand part.
Eddie Hughes
You are very kind, Mr Hollobone. Clause 2 will be of significant interest as it sets out those leases not regulated by the Bill. We have taken care to tightly define these, as we are aware that any loopholes might lead to abuse of the system and a monetary ground rent being charged where we had not intended it. I will consider each of the exceptions in turn.
First, subsections (1) to (3) detail how business leases will be excepted. It is important that a commercial lease that contains a dwelling, such as for a shop or other business, can continue to operate as now, and that landlords of such buildings are not disadvantaged. Businesses are also likely to prefer to pay some form of rent rather than a premium for the use of the property. However, we also need to protect residential leaseholders from any argument by a landlord that a ground rent is payable because of the possibility of a business use. For that reason, subsection (1)(a) states that the lease must expressly permit the premises under the lease to be used for business purposes without further consent from the landlord.
In our response to the technical consultation on ground rent, published in June 2019, we committed that mixed-use leases would not be subject to a peppercorn rent. The example given was a flat above a shop, where these are both on the same lease. In such instances, it would be important that a commercial rent can continue to be paid, to reflect the business use of part of the building. However, we wish to ensure that the Bill does not result in a plethora of mixed-use leases that are to all intents dwellings but where the tenant pays a monetary ground rent. For this reason, subsection (1)(b) requires that, for such leases, the use of the premises as a dwelling must significantly contribute to the business purposes.
The Bill also includes provision to make sure that both parties intend and are aware of this business-use component of the lease. Subsection (1)(c) achieves this by requiring that the landlord and tenant exchange written notices at or before the lease is granted confirming the intention to use and continue to use the premises for the business purposes set out in the lease. The form of this notice will be prescribed in forthcoming regulations. Subsection (3) defines business as including a trade, profession or employment, but not a home business as under the Landlord and Tenant Act 1954.
Statutory lease extensions for flats are already required to be at a peppercorn rent, so we have excepted them from the requirements of the Bill in order to avoid duplication. We will come to so-called voluntary lease extensions for flats when we consider clause 6. Statutory lease extensions for houses are required by legislation to be for 50 years for payment of no premium, but for a modern ground rent, which is typically higher than a peppercorn. Were the Bill to require that rent to be only a peppercorn, we would deprive the landlord of income for the granting of the lease extension. For that reason, those extensions are exempted from the Bill. However, we intend to return to the wider question of enfranchisement in future legislation. Our changes to the enfranchisement valuation process, including abolishing marriage value and prescribing rates, will result in substantial savings for some leaseholders, particularly those with less than 80 years left on their lease. The length of a statutory lease extension will increase to 990 years, from 90 years for flats and 50 years for houses.
I will turn now to community housing leases and other specialist products that we do not want to compromise. Community housing schemes promote the supply of new housing to meet local need where residents contribute towards the cost of shared community services. The use of ground rent in those cases is very different from ground rent for long residential leases where no clear service is provided in return. As we have done throughout clause 2, we have taken care to tightly define community housing leases to ensure that that exception applies only where intended. It covers long leases where the landlord is a community land trust, or the lease is a dwelling in a building that is controlled or managed by a co-operative society. We expect that to cover all deserving dwellings. We have also made provision, should it be needed, to add further conditions to those definitions in order to close a loophole should one be identified in future.
The clause also exempts certain financial products in cases where a form of rent is needed for the product to operate as intended. Subsection (9) defines them as regulated home reversion plans and homes bought using a rent to buy arrangement. It is important that those specialist financial products can continue, maximising choice for homeowners over how they finance their property purchase.
Maria Eagle
I think that many people who get involved in rent to buy perhaps do not understand that they may be excluded from that provision. I notice that the Minister is securing for himself some capacity to make regulations in future in relation to those particular types of leases. Could he give the Committee an indication of what kinds of regulations he anticipates will be made under the power that the Bill will grant him in respect of those particular kinds of rent to buy leases?
Eddie Hughes
I am embarrassed to say that I cannot, and the reason is that we do not know what the loopholes might be. We have a clever bunch of people who seek to avoid legislation. It will be helpful for the Government to be able to make such changes as might be necessary depending on the inventiveness of the people we deal with in future.
Maria Eagle
I am grateful to the Minister; it is remarkably honest of him to say that he does not know. One does not always hear that from Ministers, but am I getting the sense that the intent is to ensure that there is not some kind of workaround to the regulations and to the law, and that the intention is to protect those who have taken out rent to buy plans from oppressive provisions by landlords to charge some kind of ground rent, which the Bill is seeking to get rid of generally?
Eddie Hughes
On the intent, there are some financial products that we have exempted because the structure of their operation is dependent on the continuation of rent payments, but the opportunity is to make regulation in the future should people, for example, pretend to be something they are not, or try to do so. If we have the opportunity to close that down, I think that will be the intention. I feel that the hon. Lady could be building a case for future interventions—we will see. I think she is gathering evidence.
Subsection (9)(a) is clear that in order to benefit from this exemption, home reversion plan products must be regulated by the Financial Conduct Authority. Subsection (10) defines a rent to buy arrangement, ensuring that arrangements such as Sharia mortgages are able to continue. It is important that the Bill enables legitimate activities that require payment of a rent to continue, which clause 2 does in a carefully considered way that has been informed by detailed consultation. The clause is drafted to enable such activities but with tight definitions, ensuring that the clause is not used by landlords to charge a ground rent by the back door.
Mike Amesbury
I thank the Minister for his explanation. I understand the exemptions and I am pleased that they are limited in scope. What reassurance can he give that there will be no unintended consequences in community housing, for example? He referred to ground rent as a means of recovering service charges. That has been a problem for the industry over a considerable number of years.
Eddie Hughes
It is important to point out that the Bill does not cover service charges. In the other areas that we are talking about, ground rent is paid for no discernible benefit in return, but in a community land trust there is the benefit of a shared endeavour to create high-quality community housing, so I do not think the hon. Gentleman’s concern applies.
Question put and agreed to.
Clause 2 accordingly ordered to stand part of the Bill.
Clause 3
Prohibited rent
Question proposed, That the clause stand part of the Bill.
Eddie Hughes
Clause 3 prohibits a landlord from requiring a leaseholder to make a payment of a prohibited rent. Subsection (2) defines that as making a request that the leaseholder make the payment, and/or having received a payment of prohibited rent, failing to return it within 28 days. To ensure that landlords are held accountable for their actions, we have made a conscious decision to include current and former landlords in the Bill. That will ensure that our enforcement measures, which are detailed later in the Bill, can be used in circumstances where a landlord has sold their interest in the property.
Having focused on landlords, I now turn to those we are seeking to protect. I am sure that the Committee will agree that the protective reach of the Bill should extend beyond current leaseholders who remain leaseholders when the wrongful payment is identified. A leaseholder who has sold the lease, for example, should none the less be able to seek redress if they subsequently realise that their former lease contained a prohibited rent. That is why subsection (3) ensures that the protections afforded to leaseholders also apply to previous leaseholders, a person acting on behalf of a leaseholder, and a leaseholder’s guarantor.
Clause 3 is the foundation for restricting unjustifiable rents for future regulated leases.
Maria Eagle
What limitations will there be on the provisions? Are we talking about the limitation in contract law? How long would a former landlord be under obligation to repay a prohibited payment that he had required, and how long would the former tenant be able to recover it? It is unusual to see a provision stating that
“references to a landlord include a person who has ceased to be a landlord”,
but there is usually some limitation to the liability. Does the Minister have an answer for that?
Eddie Hughes
I am worried that my candid responses to questions are going to get me in trouble, but the honest answer is that I do not know what the limitation is. I will write to the hon. Lady to let her know.
Eddie Hughes
I strongly suspect, however, that the very clever team behind me will provide the answer, and that I will be able to inform the hon. Lady during discussions on a subsequent clause.
The Chair
Please copy in the whole Committee to that correspondence if it is necessary.
Question put and agreed to.
Clause 3 accordingly ordered to stand part of the Bill.
Clause 4
Permitted rent: general rule
Question proposed, That the clause stand part of the Bill.
Eddie Hughes
Clause 4 introduces the general rule for regulated leases that the permitted rent is an annual rent of one peppercorn. The effect of that is that no monetary rent will be payable in respect of most leases regulated by the Bill.
Clause 4(1) provides that this general rule is subject to clauses 5 and 6, which set out special rules on permitted rent applicable to shared ownership properties and replacement leases respectively. Use of a peppercorn rent is common practice; for example, it is used in statutory lease extensions for flats. A peppercorn is simply a token or nominal rent that in practice is not collected. The purpose of clause 4 is to protect leaseholders from being charged inappropriate rents by landlords.
Jill Mortimer (Hartlepool) (Con)
Does my hon. Friend agree that the Bill will help my constituents who have suffered in recent years from rising and excessive ground rents, and will help to prevent people from falling into the leasehold tenancy trap that we have also seen in recent years?
Eddie Hughes
The Bill will help to ensure that new long leases granted subsequent to the Bill’s coming into force are set at a peppercorn rate—so, with no financial value associated with them.
Maria Eagle
Does the Minister accept that none the less the Bill, welcome as it is, does not help existing tenants who have already signed leases for which ground rent is payable?
Eddie Hughes
The hon. Lady is quite right. The intended purpose of the Bill, very tightly drafted as it is, is to ensure that we draw a line in the sand by ensuring that new leases in the future have a peppercorn rate. I commend the clause to the Committee.
Mike Amesbury
I thank the Minister for his brief explanation. As my hon. Friend the Member for Garston and Halewood quite elaborately argued, this Bill is not about the many; it is just about the new. There are 1.5 million people who will still be in this system, many of whom write to us asking for us to advocate for them in this place. It is a particular issue in the north and north-west, and Wales. This Bill will do nothing for those people. In addition there is a plethora of complexities associated with the Bill—service charges, interesting management fees and so on—which we have spoken about at considerable length. So, while the Bill is welcome, it is narrow in scope and certainly does not deal with the situation here and now.
Maria Eagle
I very much welcome the intent of the Bill, which is to replace the standard charging of ground rent of real monetary value to leaseholders with a peppercorn rent. I welcome that very much; it is an entirely good and proper reform. Anybody who has had to deal with land law over the years—whether as a lawyer, or just as an MP trying to advise constituents—knows just how complicated it is to change these ancient and difficult land law provisions, which go back to feudal times in many ways and which very much have case law behind them. As we can see from this simple Bill alone, significant provisions have to be added to do the simplest things. I have every sympathy with the Minister, who has a record of trying to grapple with the complexities of English land law since he was Back Bencher. It is by no means easy.
I welcome, generally, clause 4, which reduces to a mere peppercorn the ground rent that is chargeable for new leaseholders. That is entirely to be welcomed. However, I want to set out to the Minister the difficulties that many of my constituents have. Thousands of them have in the last few years bought leasehold houses. This is particularly an issue in the north-west. As my hon. Friend the Member for Weaver Vale rightly said, there has arisen a penchant for selling newly built, often detached houses as leasehold properties. That has, and can only have been to enable the freehold—the reversionary interest—to be turned into a financial product that, over years, often decades, provides a stream of income for whoever retains the reversionary interest, who is often not the original developer or builder of the properties. It is sold on in financial markets to those who are interested in long-term investments providing a stream of income.
Many of my constituents, trapped in such leases, had no idea when they bought the houses that that would be the case, and that they would owe obligations for decades to whoever held the reversionary interest. They had absolutely no idea that the person who held the reversionary interest could change, and that it would be traded on financial markets and bought by people who wanted to exploit to the maximum the provision for income generation over years. The Bill, unfortunately, does not help any of my constituents who are stuck in such provision.
I am entirely in favour of changing that provision by means of the Bill, which I welcome, but there is an argument to say that the Bill actually makes things startlingly worse for those already trapped in such leasehold provisions that have ground rent and sometimes accelerated ground rent. It makes starker the fact that it is anomalous. I have many constituents on a number of estates across my constituency of Garston and Halewood who are finding it difficult to sell their properties. They have suddenly realised that they do not own a house, as they thought they did, but that they are renting it.
I am extremely anxious that the Minister does not rest on his laurels, having got this complicated piece of simple legislation through the House and on to the statute book, but that he realises that there is so much more to do to assist those who are stuck—particularly in my constituency and in the north-west—in newly built houses that they now find they do not really own. They are being financially exploited by remote owners of a reversionary interest that will endure for perhaps 99 or 999 years.
Lilian Greenwood (Nottingham South) (Lab)
Does my hon. Friend agree that the Bill, by doing the right thing for new houses, will actually make the situation even worse for those who are in existing houses, because potential entrants into the housing market will choose to buy a new leasehold house that is covered by these provisions, rather than a house that her constituent may wish to sell that is under the existing provision?
Maria Eagle
That is the very concern that I have. It not only shines a light on the dilemma and the problems of current leaseholders, who will not be covered by these provisions, but sets theirs up as an anomalous set of arrangements. Until the Minister comes back with legislation to change more thoroughly what has happened in existing cases, which I know will be difficult, these people will be in a more difficult position than they currently are. Not only will they have the ongoing financial burden of the exploitative provisions that have grown up, particularly in the north-west of England, but they will find themselves left behind. The danger is that the Minister may have to move on to other legislation of concern in his Department, and may find that doing something for existing leaseholders is very difficult in land law terms. I know it is difficult to change existing leases by statute.
Mike Amesbury
On Second Reading, my right hon. Friend the Member for Alyn and Deeside (Mark Tami) highlighted the issue that could arise where, within a single development, on one side of the road would be properties built in its first phase, under the current arrangements, and on the other side of the road properties built in the next phase, under the new arrangements. It is simply inequitable. When people come to market, which property will they purchase? The Minister is familiar with these issues, and my hon. Friend the Member for Garston and Halewood is right that they need tackling, despite the difficulty.
Maria Eagle
I have every sympathy with that point because I know of examples in my constituency. In the past few years, as these egregious excesses were coming to light and before legislation could be drafted, the Government have tried to impress upon developers that they should not do this kind of thing, and there have been voluntary arrangements. House builders have made voluntary arrangements, sometimes midway through the completion of a phased development, such that some buyers of properties built in the early phases of a development have had to pay ground rent, or accelerating ground rent, service charges and some of the other things that have not been dealt with in this legislation, but in later phases that has not been the case; so there is a difference between properties—even those built to the same design in different phases of one development.
One could say that caveat emptor is the basis of land law in England. It is indeed: “Let the buyer beware.” However, I have a lot of sympathy with constituents of mine who were rushed into buying a property so that they could access Help to Buy, who were first-time buyers, who had not done a degree in English land law before they sought to become homeowners—which, let us face it, is most people—and who relied upon the advice they were given. I have many criticisms of the legal profession and the solicitors—even conveyancers—who advised some of my constituents, because it seems to me that there has been a potential failing, in some cases, there.
In any case, the Minister has come to this, wanting to do something about it—indeed he has drawn a line in the sand, as he said—but he must not forget those individuals that, in drawing the line, he has not helped, and who may in fact find their predicament more starkly highlighted, and may find it more difficult to move on and sell the property that they now have than they would have done without this legislation.
Margaret Greenwood (Wirral West) (Lab)
My hon. Friend is making excellent points. Does she agree that there is a real human cost to this? I know of people living in my constituency who have properties elsewhere in the country, predominantly in the south, who decided to move back to Wirral because that is where they are from, only to discover that they are struggling to sell their properties. Quite often such moves are to look after an elderly family member or for similar reasons, so time is of the essence. Does she agree that we have to remember the human cost?
Maria Eagle
I very much agree with my hon. Friend. I have come across many instances myself. Perhaps a young couple, just starting out in life and on the housing ladder, wanting to be able to trade up in time when they start their family, suddenly find that they cannot because their home—their leasehold home—is of pariah status and they find it difficult to persuade somebody else to buy it. I worry that this legislation, welcome though it is—it is a good step: I emphasise that to the Minister—shines a starker light on the predicament that these people are in. It is therefore incumbent upon the Minister and the Government, who have been talking about this issue for a number of years—I am trying to be kind, Mr Hollobone—to come back swiftly with effective and challenging legislation that will do something for the people who are already stuck in this mess.
What we cannot do is say, “Oh, it’s all too difficult.” It is difficult, but as lawmakers, we are here to solve these problems. I will give every support to the Minister if he can come back, ignoring the lawyers who tell him that it is all too terribly difficult and nothing can possibly be done that would not tear up our entire English land law system of trading land. Something can and must be done. He will have my support if he comes back with much fuller legislation to deal with the existing problems of those who are already caught in this situation. Peppercorns are great. Perhaps we can have retrospective peppercornery.
Nickie Aiken (Cities of London and Westminster) (Con)
It is a pleasure to have you as Chair of the Committee, Mr Hollobone. I welcome the Bill and the Government’s obvious determination to ensure that buyers of new developments will be protected from what I can only describe as dodgy practices.
Having looked into the issue before coming to Committee, and knowing bits and pieces from the media coverage of this story in recent years, I find it shocking that property developers and renowned house builders have thought it acceptable to expect families or individuals buying a property—we all know how expensive that can be; people save for years to have enough for a deposit—to be hit with a ground rent that they do not know is going to double and double over the years. I absolutely welcome the Minister’s determination to stop that practice.
I call on house builders across the nation to think about the consequences of such practices on their customers, and their future customers. I know that a number of house builders have taken steps to stop this practice. I believe that the Competition and Markets Authority is carrying out an investigation and that some, but not enough, house builders have stopped the practice voluntarily. That is why I am glad that the Bill will protect us in the future.
I was taken aback by the fact that the chief executive of Redrow, a renowned house builder, said in a letter to the then Select Committee on Housing, Communities and Local Government that ground rent of £400 per year would not always necessarily double over 10 years, but in fact could reach £12,800 a year. For the average family, the idea of trying to find that amount of money is eye-watering. Even people on good salaries would find that amount punitive. I absolutely welcome the Bill. We must regulate to safeguard hard-working families who want to invest in homes.
Mike Amesbury
I have no doubt that members across the Committee agree with much of what the hon. Lady says, but these measures are for the future, not for the here and now. The CMA investigation is very welcome, as is the work by the Select Committee and all the campaigners who have helped to force the issue, but many people are still applying these practices. Welcome though they are, these are baby steps.
Nickie Aiken
I thank the hon. Member for his intervention; I was coming to that point. In my constituency—the Cities of London and Westminster—many leaseholders live in properties with much older tenancies that involve ground rent. I believe the vast majority are on peppercorn. I have lived in the two Cities for 25 years, as a leaseholder and now, I am glad to say, as a freeholder. There is a massive benefit to being a freeholder, even though I own a flat.
The hon. Gentleman is right, and I am sure that this Government and this Minister will be looking at legislation that can protect all leaseholders, no matter what kind of tenancy they have. I understand that the renters reform Bill will be coming through, which will be a massive step towards creating a balance between tenants and landlords. This Bill and any further legislation that the Government consider on leasehold are about balance and fairness. I welcome the Minister’s taking forward this Bill and future legislation to protect leaseholders.
Eddie Hughes
The hon. Member for Garston and Halewood referred to my previous interest in this subject as a Back-Bench MP. It is an incredible privilege to have championed changes in this area and now to be the Minister responsible for it. I can assure her that my enthusiasm for greater reform is not diminished in any way by my having the opportunity to, at least, begin the legislative process now.
I have a huge degree of sympathy with the cases that have been raised by hon. Members on both sides of the room. It is incumbent upon us, as a Government, to ensure that we do not rest on our laurels, but continue to push and be bold with legislation in the future. Certainly, that has been the case with regard to things that have been said by our previous and current Secretaries of State. The current Secretary of State is determined to be bold and ambitious in all things for which he has responsibility, and I would like to think that we will have further discussions about this subject early in the new year.
Maria Eagle
I am glad to hear it. Does the Minister expect more legislation in this Session?
Eddie Hughes
It is above my pay grade to make those sorts of decisions, but I will be working very closely—
Eddie Hughes
Perhaps one day they will make me Secretary of State and I will be able to make those decisions myself, Mr Hollobone—don’t laugh. As I said, it is our intention to come forward with proposals, so we will be talking again in the new year and discussing this in detail.
Mike Amesbury
On a point of clarity, will the legislation apply to properties that are currently being built, whether they are in Birmingham, Westminster or Manchester? Will the narrow scope of the one peppercorn policy apply to properties that are being built, but are not yet completed?
Eddie Hughes
As I referred to in the discussions about previous clauses, I believe that the legislation will apply once it has been enacted following Royal Assent, so it will apply to new contracts that come into force once the Act is in force. It would not necessarily apply to a property that is being bought today. It will apply only once the law has been enacted. We will have Royal Assent, legislation will be provided and then it will be enacted.
Eddie Hughes
Sorry, Mr Hollobone. I thought you had already decided that you were going to call my hon. Friend the Member for Penrith and The Border (Dr Hudson) next.
The Chair
As the Chair, it is not for me to call people but for the person who has the floor to decide who they will give way to.
Eddie Hughes
I defer to you in all things, Mr Hollobone, and I feel better educated. I give way to my hon. Friend the Member for Penrith and The Border.
Dr Hudson
It is great privilege to serve under your chairmanship, Mr Hollobone. I welcome the Minister’s comments and the Bill, as well as the constructive comments from the Opposition. We are all on the same page and think that this constructive Bill is a small step towards correcting future injustices.
I take on board the complexities for people in the existing system, but in respect of the comments made by my hon. Friend the Member for Cities of London and Westminster, does the Minister agree that if we can get the Bill through, it will shine a spotlight on developers that have existing leaseholders and they may well reflect, so this Bill for new leaseholders might create some retrospective good will? It is a start, and I welcome the comment from the Minister that we can try to address things moving forward. I very much welcome the Bill, and I hope that it will start to address some of the retrospective issues indirectly.
Eddie Hughes
My hon. Friend makes an important point. The Government are signalling strong intent by virtue of introducing the Bill, which backs up the suggestions we have made previously about our intent. With regards to other pronouncements that the Government have made, I think people will rightly expect that legislation will follow in due course. My hon. Friend is completely right.
Lilian Greenwood
I wish to follow up on the question asked by my hon. Friend the Member for Garston and Halewood. Clearly, the Bill will apply only from the date that it receives Royal Assent. Is the Minister concerned that some developers that have acted in unscrupulous ways that the Bill is designed to prevent will see the deadline of Royal Assent as an opportunity to place more people in the position that has been outlined by my hon. Friends and Government Members? Developers might try to get in before the deadline of Royal Assent, rather than taking the message that these sorts of leaseholds should not be offered and are inappropriate. What discussions has the Minister had with developers, and what sense does he have of whether people will act opportunistically?
Eddie Hughes
I thank the hon. Lady for her contribution but, fortunately, the evidence does not back up the concern she has voiced. We saw a prevalence of this type of construction. That has peaked, and now its popularity is decreasing, so we already see that developers understand that, effectively, the game is up and the world has moved on. I would like to think that, thanks to the efforts of hon. Members in this room, we are publicising the Bill and our constituents will become better informed as a result of our contributions to the debate. Hopefully, that will serve to protect them.
Mike Amesbury
Some developers have responded to the change in landscape and enforcement action with strong encouragement, but others out there have not done so. My hon. Friend the Member for Nottingham South is correct to say that this is another opportunity to get developments erected as soon as possible. We need only look at the skylines across our cities to see that happening, and some developers will want to continue with that cash cow at the expense of leaseholders. It is a real fear, and I would certainly welcome a Government assessment of the impact in that transitional period.
Eddie Hughes
As I said in answer to the previous question, we can already see—not just now, but over the previous few years—that there has been a rapid decrease in the number of properties being constructed and subsequently sold in this way, so the hon. Gentleman should feel reassured that the Government’s intended legislation is already having an incredibly positive effect.
Nickie Aiken
Following the previous point, does the Minister agree that the conduct of house builders such as Countryside Properties, which has voluntarily agreed to remove the doubling of ground rents from its leasehold contracts, is a step forward? The Home Builders Federation or another trade body should be working with its members to take that forward, as Countryside Properties and others have done, but too many house builders are still not doing so. Perhaps the CMA review will help, but perhaps the Bill will send a clear message to house builders that, actually, they should be looking at their own practices before they are made to do so by the legislation.
Eddie Hughes
I can say nothing other than that I completely agree with my hon. Friend’s comments.
Maria Eagle
We have to have proper scrutiny. There has been a general hope expressed by the hon. Members for Penrith and The Border and for Cities of London and Westminster that this legislation, rather than highlighting the difficulties existing leaseholders have and putting them in a more difficult position, may promote better behaviour towards existing leaseholders from those who are in a position to exploit them. We hope that that will be the case. Do the Government collect any figures that they might publish to enable us to see whether there is the positive impact hoped for by Conservative Members? Does the Minister have any figures that show that is the case—or are we just crossing our fingers and hoping?
Eddie Hughes
The figures are already publicly available.
Question put and agreed to.
Clause 4 accordingly ordered to stand part of the Bill.
Clause 5
Permitted rent: shared ownership leases
Mike Amesbury
I beg to move amendment 11, in clause 5, page 4, line 7, at end insert “, unless subsection (2A) applies”.
This is a paving amendment for Amendment 13
The Chair
With this it will be convenient to discuss amendment 13, in clause 5, page 4, line 7, at end insert—
“(2A) Where a landlord charges a service charge more than £100 per month, the permitted rent in respect of the landlord’s share in the demised premises is a peppercorn.”
This amendment provides that a landlord of a shared ownership property may not charge ground rent in respect of the landlord’s share if service charges exceed £100 per month.
Mike Amesbury
The amendments were tabled to raise the issue of the often sky-high service charges in shared ownership property—often with little given back in return. I could list any number of examples and am confident that other Members in the room could as well. The Minister will have heard, as I did, the many stories about the extortionate costs faced by shared owners, other leaseholders and social housing residents. The errors are often only exposed when residents, facing costs they cannot afford, lobby hard for information and transparency.
We have heard it all: service charges for shared owners in Kent tripling in one year; leaseholders in Essex being charged £4,275, plus VAT, per year for ground maintenance, when a local landscaping company quoted £660 per year for the same work—something that I discussed with my hon. Friend the Member for Garston and Halewood only this morning; and leaseholders in south London being charged over 400% more for their cleaning costs than they were in 2013. I know that inflation is increasing at the moment but—my God—not by that level. To get in the Christmas spirit, a rather festive example stood out to me in the Financial Times, which published an article over the summer about residents in central London being charged £200,000 for Christmas lights, without being consulted in advance.
Those costs impact on leaseholders, and some social housing tenants as well. For shared owners, a particular concern is being charged 100% of the service costs while only owning a small portion of the property. We have seen that up and down the country through the building safety scandal and historical remediation costs. The Opposition welcome the narrow scope of the Bill on peppercorn ground rents, but the fear is that there will be other means or opportunities to rake in the money, and to continue treating leaseholders as a cash cow.
Eddie Hughes
Clause 5 is essential if the Bill is to avoid creating unintended consequences for future shared ownership leases. It will protect leaseholders by ensuring that they pay only a peppercorn rent on their share of the property, but it will also allow landlords to collect a monetary rent on their own share. Without the clause, landlords could not collect a monetary rent on the share of the property that is rented.
Clause 5 applies to qualifying shared ownership leases. Subsection (4) defines a qualifying shared ownership lease as one in which the tenant’s share of the premises is less than 100%. Subsection (7) clarifies that, in a situation in which a shared ownership lease does not distinguish between rent on the tenant’s share and rent on the landlord’s share, any rent payable under the lease is to be treated as payable in respect of the landlord’s share. Subsection (8) means that the clause no longer applies if clause 6 applies. For example, if the leaseholder undertakes a so-called voluntary lease extension in regard to a shared ownership lease, where the leaseholder chooses to enter into a new lease that replaces an existing lease outside the statutory lease extension process, the treatment of that is dealt with under clause 6. We will consider clause 6 shortly.
Clause 5 ensures that the shared ownership model can continue to operate for new leases.
The Chair
Order. The Minister is meant to be speaking about the amendment rather than the clause. Does he have any more comments about the amendment?
Eddie Hughes
About the amendments, Mr Hollobone. Amendments 11 and 13, tabled by the hon. Member for Weaver Vale, seek to reduce the payment of rent on a shared ownership property. Shared owners are leaseholders of a share of their property. Most shared ownership properties fall within the terms of the Government’s shared ownership scheme, and the providers will be registered with the Regulator of Social Housing. In the Government’s existing shared ownership scheme, owners have a full repairing lease and are financially responsible for all maintenance charges and outgoings in the same way that any other homeowner is.
On 1 April, the Government confirmed the new model for shared ownership, which introduces a 10-year period during which the landlord will support the cost of repairs and maintenance on new build homes. Under the shared ownership model, landlords can collect rent on their share of the property, and I reiterate that the Bill will allow them to continue to do so. The payment of rent reflects the fact that the shared owner has purchased a share of their home, and pays rent on the remaining share, which is owned by their landlord. The rent paid is not the same as the service charge paid for repairs and maintenance previously described.
The effect of amendments 11 and 13 would be to remove the ability of a landlord to receive the rent that they are rightly due on the share of the property that the leaseholder rents in cases in which the service charge is more than £100 per month. The law is clear that service charges must be reasonable and that, where costs relate to work or services, the work or services must be of a reasonable standard.
Nickie Aiken
I just wish to mention service charges in central London, as the hon. Member for Weaver Vale did. I am very aware of extortionate service charges in central London, particularly for private blocks. Service charges of £100,000 are not unknown, but the properties in those cases are worth around £35 million; I suggest that, if someone can afford to buy a £35 million flat, they may be able to afford a £100,000 service charge. However, the hon. Member for Weaver Vale makes an important point, and I would like the Minister to consider it. We must not put all service charges into the same pot. We have to ensure that homes within the community—rent to buy, social housing and community housing—are different from very expensive properties. We cannot put them all into the same position. We must give landlords the ability to charge a fair service charge that is in keeping with the value of the home. There has to be a balance. There is a big difference between a £35 million flat and a rent-to-buy property.
Eddie Hughes
I completely understand my hon. Friend’s point, and I appreciate the extenuating circumstances that might apply to some of the properties in her constituency. We certainly do not experience that in Walsall North.
The amendments proposed by the hon. Member for Weaver Vale would be unfair to shared ownership landlords and would therefore undermine confidence in the sector. I urge the hon. Member to withdraw his amendment.
Mike Amesbury
The evidence out there grows by the week. There is a genuine fear that landlords, freeholders and developers will look for other opportunities in response to the legislation. We already see those service charges up and down the country. I know it is a particular issue in London and the south-east, but every city across the country has seen some interesting non-transparent service charges—that includes estates and houses.
Maria Eagle
Does my hon. Friend agree that it is important that the Committee prevents the inclusion of loopholes in the Bill that could be widened by clever lawyers and then exploited by developers and those with a financial interest in keeping things as they are? His proposals are trying to prevent loopholes from being left in this admirable but small piece of legislation.
Mike Amesbury
I concur. That is exactly my point. I know that a similar amendment was tabled in the other place, as the Minister will be aware. We certainly need reassurance. There are lots of good intentions from the Minister and his Department with regard to this legislation, but we need to look at every opportunity to close those loopholes. I would like to have further discussions as the Bill continues its parliamentary journey—it is a conversation we need to continue. However, in that spirit, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Mike Amesbury
I beg to move amendment 12, in clause 5, page 4, line 7, at end insert “, unless subsection (2B) applies”.
This is a paving amendment for Amendment 14.
The Chair
With this it will be convenient to discuss amendment 14, in clause 5, page 4, line 7, at end insert—
“(2B) Where a landlord charges any remedial costs during the course of the lease, the permitted rent in respect of the landlord’s share in the demised premises is a peppercorn.”
This amendment provides that a landlord of a shared ownership property may not charge ground rent in respect of the landlord’s share if any remedial costs are charged.
Mike Amesbury
Taken together, the amendments revisit a question that I have posed to Ministers many a time in previous debates in Committee, on Second Reading and so forth: what about the costs of remediation for leaseholders? It is something we are all familiar with—here in Committee and well beyond—in particular for leaseholders caught in the scandal. We are of course waiting for the next stage of the Building Safety Bill—Report—in the Commons after spending many weeks in Committee. I see the Minister and some other familiar faces. While we wait, hundreds of thousands of leaseholders are receiving bills for astronomical amounts of money to remediate dangerously cladded housing. The cost is for more than cladding, as many people know—there are missing fire breaks, wooden balconies and so forth. Some of the bills top £100,000. I know my hon. Friend the Member for Salford and Eccles—a not too far distant neighbour—is very familiar with those kinds of bills in her constituency.
The cost of remediation on shared owners’ shoulders can equal the value of their share of the property. Again, shared ownership leaseholders are too often charged 100% of the remediation cost for properties that they own only a small proportion of. Meanwhile, the associated costs of the building safety crisis, such as waking watch and insurance premiums continue to go up—we have examples of 1,000% and 1,400% right across the country. Despite repeated promises from Ministers—at my last count we were at 19 if I include the new Secretary of State—the issue is very much ongoing.
The amendment will not solve the problem. The Opposition have repeatedly set out a plan to get the building safety crisis fixed and ensure that developers, not leaseholders, bear the brunt of the costs. I am interested in the recent language from the Secretary of State in that regard. He seems to say some of the right things—there are some warm words—but we are now desperate for action. The amendment would at least ensure that shared ownership leaseholders cannot be charged for ground rents while they are also being charged for remediation work, taking one of the many costs of the crisis off their shoulders. I look forward to the Minister’s response.
Lilian Greenwood
I certainly recognise the situation that my hon. Friend describes. I have a large number of constituents living in flats and being asked to pay astronomical costs for the remediation of their properties for which they bear no responsibility. Will he clarify whether the amendment would apply only where remediation costs are unfairly distributed between the freeholder and leaseholder, or would it apply in all situations where leaseholders are being asked to pay remediation costs?
Mike Amesbury
My hon. Friend makes a very good point. This is about historical remediation costs, but it is a good point to raise. I look forward to the Minister’s response.
Eddie Hughes
Amendments 12 and 14, proposed by the hon. Member for Weaver Vale, seek to reduce the payment of rent on a shared ownership property in different circumstances. As I have said, in the Government’s existing shared ownership scheme, owners have a full repairing lease and pay rent on the landlord’s share of the property. The role of ensuring that the fabric of the building is maintained and safe for residents is an essential part of the relationship between landlord, leaseholder and, in some cases, a managing agent. Reasonable service charges remain the proper and accountable way through which landlords should recover costs for maintaining a building and provision of services.
I reiterate that the Bill is focused entirely on the issue of ground rents, so remediation costs are outside its scope. The Building Safety Bill is the appropriate legislative mechanism for addressing remediation, as it contains the appropriately detailed legislation for a complex issue of this nature. I ask the hon. Member to withdraw the amendment.
Mike Amesbury
We will put this to a vote.
Question put, That the amendment be made.
Eddie Hughes
I beg to move amendment 3, in clause 6, page 4, line 30, after first ‘of’ insert ‘premises which consist of, or include,’.
This amendment clarifies that clause 6 can apply to a replacement lease which includes some premises not demised by the pre-commencement lease.
The Chair
With this it will be convenient to discuss the following:
Government amendment 4.
Government amendment 5.
Clause stand part.
Eddie Hughes
Earlier, we considered amendments 1 and 2, which relate to disapplying the premium requirement for a lease where there is deemed surrender and regrant. This set of amendments is also connected to the deemed surrender and regrant process, but more specifically, they clarify the matter raised by Lord Etherton with regard to a lease variation.
As currently drafted, it was not clear, where there was a pre-commencement lease where a demise was changed, whether such leases would be captured by clause 6. It was raised in the other place that, if not, any existing ground rent in those leases would be reduced to a peppercorn. We recognise that that might make some landlords reluctant to agree to such changes, thereby disadvantaging their leaseholders, which is not the Bill’s intention. The amendments make clear that the demise of a lease can be changed and the resulting surrender and regrant will not reduce the ground rent on the balance of the term of the pre-commencement lease to a peppercorn.
Any extension to the term of the pre-commencement lease will be required to be a peppercorn, in the same way as for voluntary lease extension. By clarifying that ground rent in pre-commencement leases can continue in this way, the amendment ensures that freeholders need not withhold consent for a lease variation unnecessarily. It also ensures that there is a consistent approach towards existing leaseholders throughout the Bill. As with amendments 1 and 2, the amendments are designed to avoid unintended consequences.
Maria Eagle
I just want a little clarity from the Minister about the circumstances in which this extensive clause would apply. Is the amendment seeking to exclude just the issue of a voluntary lease variation? One might argue, quite plausibly, that any kind of leasehold is entirely voluntary, because the parties to the lease voluntarily sign it—caveat emptor and all that. One can say that any signature of a lease is voluntary in that sense.
Eddie Hughes
I am incredibly concerned that the hon. Lady has me at a disadvantage with regard to her legal expertise. However, I think we understand and accept the distinction between voluntary and statutory when it comes to lease extensions. This principle is well understood within the legal profession. I understand the concern she raises, but I feel it is misplaced, or at least should be assuaged. The intention of the measures is to close a loophole so that people are not deterred in any way from granting a lease extension because they feel they will be disadvantaged as a result.
I beg your indulgence, Chair, to say that, on the hon. Lady’s previous concern about how far back people could go when making a claim if a leasehold has been sold, my understanding is that the statute of limitations will apply, which is generally within six years.
Mike Amesbury
To pick up on the point of my hon. Friend the Member for Garston and Halewood on “voluntary”, a freeholder might offer a seemingly reasonable deal to voluntarily and formally extend a lease, but there is a real risk that elements of that could have a premium applied and ground rent could continue. What reassurance is there that that cannot happen? We have seen lots of examples of that. The mis-selling of leasehold properties was mentioned, which the Competition and Markets Authority has investigated and seen evidence of, and which we are all familiar with from constituents. If there is any possibility of a loophole here to do that, unfortunately there are people in this field who will do it, so again it is about that reassurance that the measure closes down those potential loopholes.
Eddie Hughes
I think the hon. Member should be reassured. However, to ensure that that is the case, the Government will communicate regularly and frequently with professional legal bodies to ensure that they understand the case completely. No matter what legislation we introduce, it will not be possible to get away from the fact that, in seeking to enter into a legal contract, members of the public should engage good, independent legal advice. Unfortunately, some people will not and will be disadvantaged as a result.
Mike Amesbury
That goes back to the point that, at the end, people seemed to seek legal advice, which they thought was independent and objective, but clearly it was not. This is about that reassurance. On behalf of our constituents, many of whom are trapped in that situation and still somewhat nervous, I seek that reassurance.
Eddie Hughes
I feel that the clause strikes the right balance between, first, ensuring that the loophole is closed and, secondly, landlords feeling reassured that they will not be disadvantaged in any way by granting a lease extension. I think that both the points that the hon. Gentleman made are covered.
Amendment 3 agreed to.
Amendments made: 4, in clause 6, page 4, line 39, after “period” insert “(if any)”.
This amendment clarifies that clause 6 can apply to a replacement lease for a term that does not extend beyond the end of the term of the pre-commencement lease.
Amendment 5, in clause 6, page 5, line 7, after first “of” insert—
“premises which consist of, or include,”.—(Eddie Hughes.)
This amendment clarifies that clause 6(5) can apply to a new lease which includes some premises not demised by the lease to which subsection (2) applied.
Clause 6, as amended, ordered to stand part of the Bill.
Clause 7
Term reserving prohibited rent treated as reserving permitted rent
Question proposed, That the clause stand part of the Bill.
Eddie Hughes
Clause 7 will apply if a regulated lease includes a prohibited rent. Should a lease include such a rent, the effect of the clause is that the term in the lease is in effect replaced by the correct rent term under clauses 4, 5 or 6 of the Bill.
The clause means that, should a lease include a prohibited rent, there is no requirement on the leaseholder to pay that rent. Any requirement in the lease to pay a prohibited rent has effect as if it were a requirement to pay the relevant permitted rent as established under the Bill.
Later in the Bill, with clause 16—in a moment—we will come to the provision in the Bill that enables a leaseholder to seek a declaration from the first-tier tribunal as to the effect of clause 7 on their lease. Clause 7 is important because it has the effect of immediately rectifying, in law, any lease that includes a prohibited rent.
Clause 16 is an important measure to ensure that parties to a lease can seek clarity as to whether a term in the lease is a prohibited rent and, if so, what the permitted rent is. Clause 7, as the Committee will recall, sets out the rent that should apply in cases where a lease reserves a prohibited rent. We expect that in most cases the effect of the clause will be clear, and that the landlord will accept that a prohibited rent is not enforceable. However, where that is not the case, clause 16 means that a leaseholder, or landlord, can apply to the appropriate tribunal for a declaration. If the tribunal is satisfied that the lease includes a prohibited rent, it must make a declaration as to the effect of clause 7 on the lease. In other words, the tribunal must also clarify what rent is payable.
Under clause 16(3), where there are two or more leases with the same landlord, it will be possible for a single application to be made. That may be made either by the landlord or by one of the leaseholders with the consent of the others. That will mean that if there are several properties in the same block, or perhaps in different blocks but with the same landlord, it will not be necessary for a separate application to be made in respect of each lease.
Clause 16 also states that where the lease is registered in the leaseholder’s name with the Land Registry, the tribunal may direct the landlord to apply to the Chief Land Registrar—the Land Registry—for the declaration to be entered on the registered title. The landlord must also pay the appropriate fee of about £40 for that. This will ensure that there is a record of the declaration for any successor in title to the lease. It will also mean that if the leaseholder wishes to sell, the true position will be clear to their purchaser’s conveyancer.
In the case that the tribunal does not direct the landlord to apply to the Land Registry, the leaseholder may do so themselves. That will involve the payment of a modest fee of around £40. I hope that we can agree that it is important that a leaseholder does not encounter difficulties when selling and that future leaseholders clearly benefit from the actions taken to address the prohibited rent included in their lease. The clause achieves that by ensuring that the correct position in relation to ground rent under their lease can be made clear on the register of title.
Mike Amesbury
I thank the Minister for his explanation. If we look at the evidence provided by the National Leasehold Campaign and the Leasehold Knowledge Partnership, and take our mind back to the Select Committee call for evidence, I think in 2018, which I know he had a keen interest in at the time, there was a real concern about access to tribunals. Decisions seemed to be weighted against leaseholders. On the worry about access to, and supported provided to, tribunals, what reassurance can he give that the situation can improve as a result of the changing legal landscape?
Maria Eagle
I wish to ask the Minister a question. I apologise to him; obviously we have not yet reached the debate on the commencement provisions, but he might be able to enlighten us on the Government’s intention. Clearly, it is entirely welcome that clause 7 would simply replace the unfair term in the lease that asks for real money for ground rent rather than the peppercorn, which the legislation is intended to outlaw, but the commencement provisions are not totally clear about when that provision will be commenced.
My understanding is that there will be a regulation-making power for the Government to bring into force the Act on the day that they wish to do so. My concern about not being clearer about when clause 7 comes into force is that there may be a gap between when the Bill is passed and when the clause is commenced by the Government, because they will have to make a regulation to do so. Does that leave a space for unscrupulous landlords to continue to have unfair contract terms in their leases after Royal Assent but before the commencement of the legislation?
I wonder whether the Minister could assuage concerns by making it clear that it is the Government’s intention not to have a big gap between Royal Assent and commencement such that a loophole could be created in which clause 7 has not yet been commenced, preventing unscrupulous characters who may want to induce potential tenants into leases with contract terms that would be outlawed by the Bill from doing so. A simple commitment from him that there will be no such gap would satisfy me entirely.
Eddie Hughes
We are here to help. Lord Greenhalgh has already said in the other place that that gap would be no more than six months.
Eddie Hughes
Given the pace at which legislation moves, that feels to me quite quick. With regard to the concerns of the hon. Member for Weaver Vale about the tribunal, I guess time will tell. We will need to monitor the situation closely, to ensure that people have access to tribunals. We are expecting the number of cases covered by this legislation to be relatively small. Given that the Government have signalled their intent, we have already seen reactions in the market, but I would look forward to working closely with the hon. Member, should concerns arise in future, in order for us to address them collectively.
Question put and agreed to.
Clause 7 accordingly ordered to stand part of the Bill.
Clause 8
Duty to inform the tenant
Question proposed, That the clause stand part of the Bill.
The Chair
Is the Government Minister absolutely sure that he wants to vote aye to clause 8?
The Chair
I will suspend the Committee until this matter is resolved, which I hope will be done extremely quickly.
The Chair
I am going to start that debate again. We now come to the Question that clause 8 stand part of the Bill. I call the Minister.
Eddie Hughes
Mr Hollobone, I apologise sincerely for that small confusion on my part.
Clause 8 imposes on landlords a duty to inform whereby they are required to inform an existing leaseholder of the changes introduced by the Act, but only if those provisions in the Act have not yet come into force. This amendment was passed in the other place, and I support the principles behind the Lords amendment. It is vital that there is transparency in the leasehold system. However, there are doubts as to whether the amendment is the most effective means of achieving that objective. As drafted, it places a duty on all landlords. The amendment does not specify how—
Maria Eagle
Does the Minister mean the clause? I cannot see an amendment to clause 8.
The Chair
Order. What we are debating now is that clause 8 stand part of the Bill. No amendment has been moved to clause 8. We are debating whether clause 8, as inserted by the noble Lords, stays part of the Bill.
The Chair
Order. I am going to speak with the Clerk.
This is most unsatisfactory. The Minister can redeem himself by talking about “the clause”, not “the amendment”. If there is any more inappropriate language, I have a mind to suspend the sitting for the rest of the morning until the Government sort themselves out. The clause was tabled as an amendment in the Lords, but is now a clause in the Bill. If the Minister refers to it as “the clause”—we are debating clause stand part—I will allow him to continue.
Eddie Hughes
That is very kind, Mr Hollobone; thank you.
I support the principles behind the clause—it is vital that there is transparency in the leasehold system—but there are doubts as to whether the clause is effective in achieving that objective. It places a duty on all landlords but does not specify how each landlord must satisfy that duty. Furthermore, it relates only to the short period between Royal Assent and the peppercorn limit coming into effect. It would therefore place a significant burden on enforcement authorities for a limited period. Additionally, the changes that the clause requires for the penalty enforcement process to align with the rest of the Bill would delay the implementation of new peppercorn rents.
We are looking closely at how to best achieve the objectives that informed the clause. On Second Reading, the hon. Member for Weaver Vale and my hon. Friend the Member for Wimbledon (Stephen Hammond) raised very good points about the importance of transparent, objective legal advice during the purchase process.
I firmly believe that the Government’s provisions will lead to fairer, more transparent homeownership. I hope the Committee will agree that the clause should not stand part.
Mike Amesbury
I thank the Minister for his explanation. He referred to the fact that I and a considerable number of other Members spoke about this matter on Second Reading and have done so throughout the campaign to reform the feudal leasehold system. I cannot quite understand the objection to the clause, given that the lack of transparency has been a major factor in the leasehold landscape—we have referred to the CMA investigation and mis-selling by solicitors. The clause would help to improve the landscape and improve the situation for leaseholders. It makes perfect sense to include provisions on transparency of information in the Bill that the Government are arguing for and which we are scrutinising and challenging. We support clause stand part.
Maria Eagle
I have some concerns about the Minister’s suggestion that we should not keep clause 8 in the legislation, partly because of the exchange that we just had on clause 7. I expressed a little sedentary shock that six months may pass between Royal Assent and the commencement of clause 7. A lot of leases can be signed in six months, which I consider an extended period, and clauses that will become prohibited may not be at the time.
Leases are difficult enough to read as a layperson without having to be aware that the law has been changed to prohibit a particular clause and that a rent set out in a lease should be replaced with a peppercorn rent. One would have to follow Hansard reports of Bill Committees carefully, as well as the commencement of legislation, to have an understanding that there was a prohibited clause in a lease that one had just signed. Even then, one must understand the legal language in leases, which is not the easiest thing for lay people, perhaps first-time buyers. It is extremely useful to have a provision such as clause 8 in the legislation to make it clear that there is an obligation on landlords to inform tenants of this interim period of time.
If the Minister had said in our debate on clause 7 that the delay was going to be a week or two weeks, then perhaps I would not have risen to support this clause, but we are talking about six months. Many leases have clauses that are to become prohibited later on, but the tenant who signed them may not understand that. We wish that were not the case but there are some landlords out there who wish to induce people to sign leases with charges attached that are shortly to become unlawful. Perhaps then there will be some money paid over, and it is more difficult to get that back than not to pay it in the first place.
Given that there is likely to be a period of up to six months between Royal Assent and commencement of the legislation, clause 8 is a valuable provision to keep in the Bill. I cannot understand why the Minister wants it removed. I would be happy if he were to tell me that commencement of the legislation would take place within a week or two of Royal Assent. I would not then be so concerned about this gap. I am concerned that we are creating or allowing too many loopholes that enable our constituents who are signing new leases to fall into traps that those who wish them to sign leases want to induce them into. The fewer loopholes, the better. Clause 8 is an important provision to leave in the Bill and I would vote for it to stand part of the Bill.
Eddie Hughes
Clearly, six months is the limit that we have set. I am sure that people will be working assiduously to try to ensure that that period is minimised. The suggestion that the hon. Member for Garston and Halewood made—that she would be reassured to hear that it would be a week—is nigh on impossible. We will continue to work hard to limit that period. During that time, we will communicate regularly with professional bodies to ensure that all solicitors are informed of and understand the changes that are coming.
Eddie Hughes
We are placing a duty on the landlord, and the unintended consequences might be that there are a number of cases that are highlighted and then brought to a tribunal in a very condensed period of time, placing an unnecessary burden. I think it would make for a slightly chaotic approach to the system. We are aiming for a smooth transition. Given the effort that we have put into communicating with legal bodies and the work that hon. Members are doing to highlight the changes the Government have made, it feels like an unnecessary process. However, we will continue to work with the hon. Member during the passage of the Bill to see if there is anything else we can do to meet the objective of the clause.
Question put, That the clause stand part of the Bill.
Eddie Hughes
We must ensure that the breaches of prohibited rent that I set out in clause 3 are acted on. Clause 9 will place a duty on local weights and measures authorities in England and Wales, that is to say trading standards authorities, to act where a breach of clause 3 occurs in their area. It also gives them the power to act where a breach occurs elsewhere in England and Wales.
In addition, through subsection (2), English district councils that are not trading standards authorities will be given the power to enforce clause 3 but, unlike trading standard authorities, will not be required to do so. That will maximise our ability to act against perpetrators. Both local weights and measures authorities and district councils will be able to retain the financial proceeds from the penalties they impose to cover the costs incurred in carrying out their enforcement functions in relation to residential leasehold property.
Subsection (3) clarifies the area in which a breach occurs and, to be thorough, captures areas where a premises is located on a local authority boundary, although we think that those will be few and far between. I am sure we all agree that although it is important for enforcement authorities to have the necessary duties and powers to act on breaches, it is also important that we provide protection against the duplication of penalties, which is what subsection (4) does.
Equally, I am sure we all agree that it is right to expect landlords to understand the requirement of the new legislation and abide by it. It is our hope, therefore, that enforcement action will not be needed in most cases, but by conferring duties and powers on enforcement authorities, the clause will be instrumental in ensuring that any breach of the restrictions on ground rents can be robustly enforced. That is vital as a deterrent and to protect leaseholders from unfair practices.
Mike Amesbury
My only concern is the obvious one about resources. I refer to my declaration in the Register of Members’ Financial Interests, as I am a vice-president of the Local Government Association. Over the last 11 years, resources have been somewhat depleted as a result of austerity and Government cuts. Although there is the control and skill capacity locally to be the foot soldier for enforcement, it is a matter of having the people and resources to carry that out and implement it.
I notice that on the Bill’s journey in the other place, a reference was made to future local government settlements. The last 11 years have not been good if we use them as an example of potential resources. I would be interested in the Minister’s reply on that important and vital matter.
Maria Eagle
It is good to see that there is some provision about enforcement because there is often a gap in legislation, so the law is made and practical enforcement is not set out. I find it quite an interesting approach to enforcement to say that local trading standards or weights and measures authorities in England and Wales “must enforce” in their own area the standard statutory obligation of such an authority but
“may enforce…elsewhere in England and Wales.”
I may be wrong, but that seems a fairly novel approach to enforcement. I am not saying it is bad, but I would like the Minister to set out in a little more detail why the clause is worded in this manner and whether there are any precedents in respect of other enforcement arrangements that have been drawn on to set out the provision.
Subsection (2) says:
“A district council that is not a local weights and measures authority may enforce section 3 in England (both inside and outside the council’s district).”
We have the prospect of roving entrepreneurial weights and measures departments perhaps thinking that they can go and levy fines of up to £30,000 for a breach somewhere else entirely. I think I have read somewhere that they get to keep the proceeds, so this is quite an interesting tax farming idea—perhaps going back to old England, whereby the collector is given a percentage of the takings. Like my hon. Friend the Member for Weaver Vale, I was going to ask what provision the Government will make to enable a local authority’s trading standards department to search out such breaches. Perhaps they intend to enable trading standards from elsewhere in the country to come galloping in.
Ian Byrne (Liverpool, West Derby) (Lab)
It is a pleasure to serve under your chairmanship, Mr Hollobone. On the point raised by my hon. Friends the Members for Garston and Halewood and for Weaver Vale, Liverpool has lost £465 million of funding since 2010, and another £34 million of savage cuts are mooted for the upcoming budget. How does the Minister expect a council such as Liverpool City Council to finance a trading standards team that can actually carry out what the Bill proposes under what we are experiencing through austerity?
Maria Eagle
I agree with my hon. Friend about the savage reduction in available resource that the Government have visited on Liverpool. I am interested to hear from the Minister about the intention of this formulation and whether he anticipates that trading standards from out of area will be galloping around the country doing enforcement work in the manner that the clause lays out, because it is not something that I have seen before in legislation. I may be wrong, but it is not something that I can recall seeing.
Mike Amesbury
Perhaps there will be a VIP fast lane for the new hit squad that goes across the country.
Maria Eagle
I will be interested to see whether there is any kind of entrepreneurialism undertaken by trading standards around the country, but I would like to hear what the Minister has to say.
Nickie Aiken
I thank the Government for including effective enforcement in the Bill. There is no way that the Bill will work, and landlords will not be held to account, unless there is proper enforcement. Having been the cabinet member for public protection at Westminster City Council, which trading standards came under, I know at first hand the brilliant work that trading standards officers do day in, day out in Westminster and across the country. I would really appreciate it if the Minister could give assurances that trading standards teams across the country will have the funding to carry out the extra workload. I certainly think it is important that we ensure they can do so, because we do not want to be giving leaseholders any false hope, and I certainly welcome the ability for local authorities to keep the proceeds of any fines that they may be able to extract from a landlord.
The Chair
Order. I must ask the hon. Lady to resume her seat. It is nothing against the hon. Lady at all—I am enjoying her speech immensely—but it is now time to adjourn.
Leasehold Reform (Ground Rent) Bill [Lords] (Second sitting)
Tuesday 7th December 2021
(2 years, 4 months ago)
Public Bill CommitteesRead Full debate Leasehold Reform (Ground Rent) Act 2022 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 7 December 2021 - (7 Dec 2021)
Nickie Aiken (Cities of London and Westminster) (Con)
It is a pleasure to serve under your chairmanship, Ms Elliott. As I was saying earlier, having been the cabinet member for public protection at Westminster City Council, I know that enforcement is the cornerstone by which we put words into action and ensure that what we pass in legislation has the intended effect in real life.
It is a welcome provision that the income from financial penalties will be kept by local authorities, but we need sustainable funding sources for enforcement ahead of the game. Local authorities may eventually keep the income from penalties, but work will need to be undertaken before that by the trading standards teams to bring enforcement cases to fruition. That funding is particularly important given the increase in the range of new enforcement duties being placed on trading standards departments across the country.
It is also important to recognise that no two councils are the same. They come in all shapes and sizes—rural, urban, global cities such as my own—which all have different numbers of leaseholders who will be affected by the Bill. I would welcome the Minister giving consideration to the kinds of measures that councils will need in order to be appropriately supported, in proportion to the number of leaseholders they may have within their local authority area and the duties being placed upon them.
Of course, as I have said, I welcome the Bill—it does so much to ensure fair enforcement—but we need assurances that there will be guidance for trading standards teams, particularly on the new provisions we will be introducing on leasehold and freehold law, to ensure that trading standards officers are adequately trained to deal with what may become difficult enforcement situations. Trading standards officers may not be trained in landlord and tenancy law; they may require some more training. Ultimately, we need the provisions in the Bill that place additional duties on trading standards teams to be under- pinned by proportionate support and adequate guidance.
The Parliamentary Under-Secretary of State for Levelling Up, Housing and Communities (Eddie Hughes)
It is a pleasure to serve under your chairmanship, Ms Elliott. I thank my hon. Friend the Member for Cities of London and Westminster for her contribution, and also the Opposition spokespeople for their contributions.
I was asked why we are allowing authorities to range outside of their geographical area of responsibility, and whether there is precedent. There is precedent in the Tenant Fees Act 2019. A similar approach has been applied. There might be a landlord in one local authority area that owns some properties in another, and then it is most appropriate for a single local authority to pursue that claim. That is why that ranging is allowed. I much preferred the evocative imagery from the hon. Member for Garston and Halewood of people gallivanting across the country and trying to claim money in other areas, but the explanation is unfortunately much more mundane.
On associated costs for councils from the duty, because the move has been well telegraphed and we expect people to be compliant, we expect the number of claims to be small, but we will continue to review them and will work with the Local Government Association and others to ensure that local authorities are properly remunerated in preparation and that they are properly resourced.
Question put and agreed to.
Clause 9 accordingly ordered to stand part of the Bill.
Clause 10
Financial penalties
Question proposed, That the clause stand part of the Bill.
Eddie Hughes
The Bill will allow enforcement authorities to act on unfair practices against leaseholders. Clause 10 enables an enforcement authority to impose a financial penalty on a landlord who has required a leaseholder to pay a prohibited rent. There is a separate power under clause 11 to make a recovery order to repay the prohibited rent.
It is important to note at this point that a conscious decision has been made for former landlords to be subject to penalties for breaches of the ground rent restrictions and to remain accountable for their actions at the commencement of the legislation. I am sure that the Committee will agree that we would not wish to see the development of the poor practice of landlords selling their leases in order to avoid financial penalties.
Clause 10 sets clear parameters for enforcement authorities to work within, but we must of course ensure adequate checks and balances so that those in breach are not unfairly treated. Before imposing a financial penalty, enforcement authorities must be “satisfied beyond reasonable doubt” that a breach has occurred. Where an enforcement authority is satisfied, subsection (2) clearly defines the parameters of the financial penalty that may be imposed. The Government’s decision to increase the maximum penalty from £5,000 to £30,000 shows that we have listened to parliamentary stakeholders, who felt that a stronger deterrent was needed.
Subsection (3) permits only one financial penalty to be issued where multiple breaches have occurred on a single lease. However, where enforcement action has been taken against a landlord, and that landlord is found to have breached clause 3(1) again, they may be subject to a further financial penalty after their initial fine. I am sure that the Committee will agree that that is the right thing to do.
In a case in which a landlord has committed breaches in relation to multiple leases, an enforcement authority may impose a single financial penalty to cover all breaches. In that scenario, the minimum or maximum amount of the financial penalty is the sum of the minimum and maximum penalties that could have been imposed if each breach had been dealt with separately. If a landlord has breached clause 3 on two of their leases, for example, the enforcement authority could not decide to issue a single penalty of £600 as that total would mean that the landlord had paid a penalty below the minimum amount of £500 per breach. The enforcement authority will be required to consider issuing a penalty of at least £1,000.
Importantly, clause 10 ensures that landlords are protected from being charged twice for the same breach by two separate enforcement authorities. Should the minimum and maximum penalty thresholds need updating, the Secretary of State has the power to change them through regulations for England, and Welsh Ministers can do so for premises in Wales. Subsection (10) makes it clear that this may be done only to reflect changes in the value of money. Financial penalties are an important deterrent, but they must be managed appropriately. The clause sets out a clear framework for enforcement authorities to work within and provides a balanced and fair approach towards those in breach.
Clause 11 forms an important part of the Bill’s deterrent measures to discourage landlords from including an inappropriate monetary ground rent in a regulated lease. Subsection (1) enables an enforcement authority to order the repayment of a prohibited rent where they are satisfied, on the balance of probabilities, that the leaseholder has made such a payment and the landlord has not already refunded it.
Subsection (2) sets out who the enforcement authority may order to repay the prohibited rent, including the landlord at the time when the payment was made, and the current landlord. That means, for example, that if it is not possible to trace a previous landlord, a leaseholder will still be able to recover the ground rent that they were wrongly charged. That is fair; a new landlord must take responsibility for the leases that he has taken over. Subsection (2)(c) makes it clear that an agent acting on behalf of the landlord may also be ordered to repay any prohibited rent that the leaseholder paid to them. That is important, as we know that there may be cases where the landlord is absent or unresponsive. A responsible managing agent would wish to ensure that leases, and their own practices, comply with the law.
There are protections in the clause to prevent duplication of recovery orders. Where the tenant has applied to the appropriate tribunal for a recovery order, the enforcement authority may not make such an order. If an enforcement authority has already made an order in respect of that payment, no further order may be made in respect of it.
Subsection (4) enables some administrative ease to assist enforcement authorities. It enables an enforcement authority to make a single order in respect of a number of prohibited rent payments, provided that they all relate to the same lease. The clause is vital to ensuring that an enforcement authority can act where a prohibited rent has been charged and order the landlord to repay it so that the leaseholder is not out of pocket.
On clause 12, it is only fair that where a prohibited rent has been wrongly paid, it should be possible for the leaseholder to recover interest on the amount that they are out of pocket. The clause makes provision for that. Interest is payable from the date of a payment of a prohibited rent until the date that it is repaid. The interest rate, as is standard practice for such matters, is the rate specified in section 17 of the Judgments Act 1838.
To ensure that the amount of interest to be paid is not disproportionate, subsection (5) places a cap on that amount. It must not exceed the original amount of prohibited rent that the landlord is required to repay. It is only fair that a leaseholder should not only be recompensed for the amount that they are out of pocket, but recover the interest on that amount.
Mike Amesbury (Weaver Vale) (Lab)
It is a pleasure to welcome you to your place, Ms Elliott. I welcome the Minister’s and the Government’s response to some of the debates on the Bill in the other place about the maximum level of fine. Given that a number of landlords and freeholders have deep pockets, it will act as a more effective deterrent.
On multiple breaches, I am making an assumption that an element of sense will be applied, so that someone with multiple breaches would be looking at the maximum fine. I know that that will be a judgment call for the enforcement authorities and trading standards, which will be well resourced—we have had the assurance from the Minister today.
The clause picks up on several earlier points made on both sides of the Committee. It is essential that people are informed from the outset of the duties that will be not only implied but overt as a result of the Bill. Residents and leaseholders will be particularly keen to ensure that where they have been wrongly charged and levied—essentially, ground rent should never have happened in the first place—they will be able to retrieve that quickly. I welcome the clauses but there are still a number of questions for the Minister.
Maria Eagle (Garston and Halewood) (Lab)
It is a pleasure to serve under your chairmanship, Ms Elliott. I have a couple of points for the Minister. There are extensive provisions on the recovery of prohibited rent, which I generally welcome. I notice that on page 14 of the explanatory notes, under the heading “Financial implications of the Bill”, it says:
“An Impact Assessment has been prepared for the Bill and covers the implications on private sector bodies and home purchasers… The Impact Assessment illustrates a de minimis impact of less than £5m.”
It then says that there is an assumption
“that the number of enforcement cases will be very small.”
One would hope that that would be the case, because one would hope that landlords will not seek to charge and benefit from ground rent in the interim between the Bill coming in and peppercorn becoming payable, when it becomes commenced, by putting provisions into new leases that charge ground rent. One hopes that that is a correct interpretation. The explanatory notes then say:
“Over and above the use of the proceeds arising from the enforcement action, a further amount of expenditure will be required to provide additional capacity within the National Trading Standards function to support local weights and measures authorities. Leasehold law is a complex area, and it is felt that a central support function will aid the effective introduction of the provisions of this Bill. The cost estimate of this support function is £29,000 per annum”,
which is very precise. It is sort of a round figure, but it is quite a small sum. I wonder whether the Minister could explain the assumptions underlying the explanatory notes.
Eddie Hughes
I have two points. The hon. Member for Weaver Vale and I will be aligned in hoping that people decide to fine those who commit multiple breaches at the higher rather than the lower end of the spectrum. That would be our hope. We will have to see. It is not for he and I to decide those things; we need to leave that to others, and hopefully they will base that on their experience.
On the figure of £29,000 and the impact assessment, my understanding is that, given that we expect there to be a small number of cases, we would not necessarily expect all local authorities to need to stand up some sort of specialism. In the natural development of things, one local authority may develop some expertise and be able to act on behalf of others, and it will therefore be contained and concentrated in one place. This is obviously a developing theme. Until the law is enacted, we do not know exactly how it will work and how landlords might behave. It is something that we will need to return to and be mindful of. We must ensure that we keep an eye on it to see where the burden falls and then resource appropriately.
Question put and agreed to.
Clause 10 accordingly ordered to stand part of the Bill.
Clauses 11 and 12 ordered to stand part of the Bill.
Clause 13
Enforcement authorities: supplementary
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to consider the following:
Government amendment 9.
That schedule 1 be the First schedule to the Bill.
Eddie Hughes
Clause 13 makes various supplementary provisions in relation to enforcement authorities. Importantly, it requires them to have regard to any guidance that may be issued by the Secretary of State and Welsh Ministers, depending on the location of the property. We have made it clear that the Government intend to issue guidance on various matters to ensure that enforcement authorities act with consistency. Subsection (3) amends schedule 5 to the Consumer Rights Act 2015 to ensure that enforcement authorities have the investigatory powers that they need to enforce the ground rent restrictions in the Bill.
The final subsection of clause 13 introduces the schedule, which sets out how an enforcement authority may impose a financial penalty or make a recovery order. This includes the relevant time limits, rights of appeal, the recovery of a financial penalty or an amount ordered to be paid if the landlord does not comply and retention of sums received. We will consider these details when we come to consideration of the schedule. The clause contains important supplementary provision to ensure that enforcement authorities receive the guidance necessary to perform their role properly and consistently. It gives them the powers they need to be effective and sets out procedures that are appropriate and fair.
I turn to Government amendment 9. Members will know that the Bill applies to both England and Wales. They will also know that in the other place the Government made a series of changes to give certain powers to Welsh Ministers. I would like to take this opportunity to once again thank colleagues in the Welsh Government for working constructively with us on these issues. Amendment 9 in my name is one more change in a similar spirit.
Clause 13 and paragraph 11 in the schedule allow enforcement authorities to keep the proceeds of any action to cover the cost of that action. With penalties of up to £30,000 per lease, that is vital so that local authorities or local trading standards are not left out of pocket for implementing the provisions in the legislation. To act as an effective deterrent, freeholders, landlords and managing agents need to understand that action will be taken if they charge a prohibited rent.
However, enforcement penalties have not been designed as a new income stream for the authorities. As such, any excess proceeds from a penalty beyond what is needed to cover the enforcement action in relation to the Bill and other residential leasehold enforcement cannot be kept, ensuring penalties remain proportionate to the breach and enforcement costs are still covered. In these circumstances, the Bill would see all such excess proceeds being paid to the Secretary of State. Amendment 9 would make sure that, if the penalty is imposed in relation to leases of premises in Wales, the excess proceeds would go instead to Welsh Ministers. This is a small but sensible change, and I hope it will be supported by the Committee.
The schedule sets out the procedure that an enforcement authority must follow when they wish to impose a financial penalty or make an order requiring the repayment of a prohibited rent under the legislation. This will help to ensure consistency and fairness in enforcement. Enforcement authorities must give the relevant person notice of their intention to impose a financial penalty within six years of the breach occurring and within six months of the authority having evidence that they consider justifies serving the notice. The relevant person will usually be the landlord, but where the notice relates to a recovery order it may be a former landlord or agent. The notice must contain relevant information about the reasons for imposing the penalty or making the recovery order, the amount of the penalty or the terms of the order, and the right to make representations. The landlord then has 28 days to respond.
If, after considering any representations, the enforcement authority decides to impose a penalty or make a recovery order, it must give a final notice. This must set out the amount of penalty and/or terms of the recovery order and the reasons for the penalty or order. It must address how these will be paid, the landlord’s rights of appeal and the consequences of failing to comply. An enforcement authority may at any time withdraw or amend a notice of intent or final notice by providing written notice to the relevant person. The landlord, or person acting on their behalf, has a right of appeal to the appropriate tribunal against the decision to impose the penalty or make the order, the amount of the penalty, or the terms of the order.
Any appeal must be brought within 28 days of the final notice and is to be a re-hearing of the enforcement authority’s decision. However, the appropriate tribunal may admit new evidence that was not previously before the enforcement authority. In those cases, the existing final notice is suspended until the appeal is determined or withdrawn. The appropriate tribunal may confirm, vary or quash the final notice. It may increase or decrease the penalty imposed, but it is bound by the same minimum and maximum limits as the enforcement authority.
If the landlord fails to pay all or part of the financial penalty, or to repay a prohibitive rent, the enforcement authority can seek repayment on the order of the county court as if the penalty or payment were payable under an order of the county court.
I am aware that concerns have been raised about the resources of local authorities to enforce the legislation. I trust the fact that the schedule enables an enforcement authority to retain the proceeds of any financial penalty for future residential and leasehold enforcement is very welcome. My officials have discussed with national trading standards and the Local Government Association what further options can be considered to support the Bill’s implementation. Furthermore, we are producing guidance to which enforcement authorities must have regard and which will support those authorities in fulfilling their enforcement responsibilities under the legislation, as called for by my hon. Friend the Member for Cities of London and Westminster.
Mike Amesbury
With regard to the excess that could be generated, and terms of the clause and the amendments, there could be a transfer to the Welsh Secretary. Does the Minister envisage that happening in reality, given the situation that many local authority trading standards have faced over the past 11 years? That point has been echoed across the Committee today. Could the Minister elaborate on the discussions that he has had with the Welsh Government, because there are elements of a tidying up exercise here? The Minister said that he had further discussions of other mechanisms that would help trading standards effectively conduct and resource their enforcement role. What are those mechanisms and sources of other potential income?
Maria Eagle
I have a couple of probing questions. There is no doubt that it is good to see some enforcement provisions. Given the range of penalties from £500 to £30,000 and given that trading standards have to effectively obtain their costs from the proceeds when undertaking the enforcement activity, is the Minister concerned that that might offer an incentive to trading standards—the enforcement authority—to pitch their fine or notice at a higher level than perhaps might otherwise be the case? Does he agree that going through this administrative fining arrangements, with all the appeals that we see in the schedule, would probably not be worth it for an enforcement authority if it were only going to get £500 at the end of the day, given the difficulty of understanding all the nuance of landlord and tenant law and leases? Is it therefore much more likely that there will not be much enforcement activity?
One of the other concerns for such an officer and an enforcement authority, might be that if there is an appeal to the administrative tribunal by the landlord against the amount being levied by way of penalty, that might be reduced from what the authority originally set out to cover its costs, say, to a much lower figure, closer to £500, which would perhaps most certainly not cover its costs. Is there an incentive in part for the enforcement authority to pitch the fine high, but any tribunal that considers an appeal may cut the fine to such a level that the enforcement authority might not be able to obtain its costs back from the proceeds? Perhaps, therefore, the overall impact will be that the enforcement authority thinks better of engaging in enforcement if it does not have resources it can guarantee will be used to do that. I would be interested to know what the Minister and his Department have considered in respect of the incentives built into the system in the Bill.
Eddie Hughes
In answer to both those points, there could be some confusion as to the motivation behind the level at which the fine is imposed. Our intention is to impose fines at a level that is a deterrent, and that is why the maximum limit has been lifted; however, as I said, the fines are not intended to be an income stream for the relevant authorities. The hon. Member for Garston and Halewood suggests that there might be a perverse incentive for authorities to impose fines at a higher level in order to increase their income. However, as the hon. Member for Weaver Vale said, how often would I expect money to be returned to the Secretary of State? The intention is to pitch the fine at the appropriate level, which is commensurate with the level of crime—let us put it that way—rather than associating it with the income that needs to be covered.
Eddie Hughes
I think it would be helpful if I conclude my contribution, and then the hon. Lady can come back in. [Interruption.] Well, it might be helpful if the hon. Lady let me respond to the points she made first. As I said, if the fine is set at a level that is appropriate to the crime, that might be in excess of what is necessary in order to cover the costs incurred by the authority. In that case, as it is not meant to generate revenue, the money would go back to the Secretary of State or the Welsh Minister, as appropriate.
The natural equilibrium of things will be reached by ensuring that the money generated covers the costs of administering the programme. If it does not, the Government will need to be mindful of that. As I have said, we are in conversation with the Local Government Association and we will see how that progresses. The hon. Lady is wise to raise that point. We do not want to see anything that disincentivises authorities from prosecutions because they do not think their costs will be covered. That is a really important point, and we will need to be mindful of it.
Question put and agreed to.
Clause 13 accordingly ordered to stand part of the Bill.
Amendment made: 9, in schedule 1, page 19, line 16, leave out from “paid” to end of line 17 and insert—
“(a) where the penalty was imposed in relation to a lease of premises in England, to the Secretary of State, and
(b) where the penalty was imposed in relation to a lease of premises in Wales, to the Welsh Ministers.”—(Eddie Hughes.)
This amendment provides that penalty proceeds not used by the enforcement authority to meet enforcement costs must be paid to the Secretary of State, if the penalty was imposed in relation to premises in England, and the Welsh Ministers, if the penalty was imposed in relation to premises in Wales.
Schedule 1, as amended, agreed to.
Clause 14
Recovery of prohibited rent by tenant
Question proposed, That the clause stand part of the Bill.
Eddie Hughes
Clause 14 provides leaseholders with an alternative route for redress should they wish to take action directly, instead of by approaching an enforcement authority. It enables the leaseholder to apply directly to the appropriate tribunal for a recovery order that requires the landlord to repay the prohibited rent.
The clause mirrors the provisions in clause 11 in relation to enforcement authorities, enabling a leaseholder—or someone acting on their behalf—to apply to the tribunal for a recovery order if they have paid a prohibited rent and it has not been refunded. As in clause 11, the recovery order may apply to the landlord at the time the prohibited rent was paid, or to the current landlord. It may also apply to a person acting on the landlord’s behalf, where that person received the money. As I said, the provisions are fair, and are included in the Bill to ensure that the prohibited rent can be recovered effectively and repaid to the leaseholder. The person ordered to repay the rent has up to 28 days following the date of the recovery order to make the repayment. That ensures that the repayment is made promptly. Later in our discussion we will come to provisions in the Bill for the landlord to appeal if they consider it appropriate.
The clause also includes, as clause 11 did, provision that a single order may be made in respect of multiple wrongful payments. It prevents duplication by clarifying that the tribunal may not make an order if one has already been made successfully by an enforcement authority in respect of the same payment. The clause gives choice to leaseholders, which I am sure we are all in favour of, to seek their own resolution to any prohibited rents that have been paid. They can choose to apply to the appropriate tribunal without involving their local enforcement authority. I hope that we can all agree that that is a helpful provision to ensure that leaseholders can take their own action if desired.
Clause 15 makes equivalent provision to that in clause 12 in relation to interest that may be ordered on top of an order to repay prohibited rent. Clause 15 applies where the recovery order is made by the appropriate tribunal rather than an enforcement authority. As in clause 12, the clause provides that interest is payable from the date of a payment until the date it is repaid. The interest rate is the normal rate that applies to court judgments: a simple interest rate of 8% per annum. To ensure that the amount of interest to be paid is not disproportionate, there is a cap on the amount of interest that a person may be required to pay. It must not exceed the amount of the wrongly paid rent that the tribunal orders to be repaid. As I said in relation to clause 11, which clause 15 mirrors, it is only fair that a leaseholder should not only be recompensed for the amount that they are out of pocket but recover interest on it.
Mike Amesbury
With regard to the tribunal, I referenced the evidence from the National Leasehold Campaign and the Leasehold Knowledge Partnership, and that David versus Goliath arena. I do not think it is a matter of choice; I wonder why anyone would opt for this route versus the other provisions in the Bill. Clause 15 is very straightforward, applying the same principle.
Eddie Hughes
I thank the hon. Gentleman for his contribution. Just because we cannot imagine the circumstances in which it would be necessary does not mean that they do not exist. Whether a person should choose to pursue it themselves depends on how well informed and able they are. Perhaps they might find it easier or quicker. I am not sure, but the option should at least be available to them.
Mike Amesbury
That demonstrates why clause 8 and the duty to inform were so important. That would, again, help with this potential.
Eddie Hughes
I can say only what I said earlier: I do not think that clause 8 and the duty to inform are required. I am not sure that it would necessarily make it easier. The hon. Gentleman questioned why somebody would want to pursue it themselves. As I said, they would no doubt be a well informed and able person. I am not sure that the duty to inform would have applied.
Lilian Greenwood (Nottingham South) (Lab)
Will the Minister expand on clause 15(5), on the amount of interest payable not exceeding
“the amount ordered to be paid under section 14”,
and the equity of that? It strikes me that if someone is required to make a payment and a long period has expired, which is why interest is being added to the amount, for what reason would that be deemed not payable? How would that be fair on someone who has been disadvantaged in that way?
Eddie Hughes
I think it simply represents the fact that, in reality, we will ensure that we pursue these things more quickly. We should not be in a position where the two are of equal level. I understand the hon. Lady’s point and will consider this further as the Bill progresses.
Maria Eagle
The difference between these clauses and the previous clauses we discussed is that the organisation that will in the first instance decide the size of the fine is the tribunal, rather than the enforcement authority—I think I am right about that—because the tenant will make an application to the tribunal for a fine to be levied and to get back the money they have wrongly paid. Do the Government intend to give some guidance to the tribunal as to how to set that fine? There is quite a wide range; it is between £500 and £30,000. Does the Minister expect that the tribunal, in making such a determination, will follow the same kind of guidance as the enforcement authority would follow were it initially setting the level of fine? Has he given any thought to consistency between the two ways of getting to a fine in this instance—whether through the tribunal or the enforcement authority?
Eddie Hughes
It would absolutely be our intention, through guidance or otherwise, to ensure consistency across both approaches.
Question put and agreed to.
Clause 14 accordingly ordered to stand part of the Bill.
Clauses 15 and 16 ordered to stand part of the Bill.
Clause 17
Assistance
Question proposed, That the clause stand part of the Bill.
Eddie Hughes
Clause 17 enables enforcement authorities to assist leaseholders, where they request it, with various applications to the appropriate tribunal for redress. We have discussed that a leaseholder may apply to the tribunal for a recovery order to recover any permitted rent, along with any interest that would have been payable. We have also discussed the provision to apply to the tribunal for a declaration that will establish for the record whether a term in a lease is a prohibited rent, and if so, what the permitted rent is.
We want to ensure that the system of redress for leaseholders is easy to navigate. That is why we have taken a belt-and-braces approach whereby enforcement may take place via the enforcement authorities or a leaseholder may seek redress directly by application to the appropriate tribunal. Should a leaseholder wish to do this, the clause makes it clear that an enforcement authority may offer assistance to the leaseholder with that process. I hope hon. Members agree that it is important to give enforcement authorities the power to offer appropriate assistance to leaseholders who wish to seek redress directly from the tribunal. The clause achieves that.
Mike Amesbury
The clause seems fairly proactive, essentially hand-holding through the process, which in one dimension is most welcome. However, I still question the incentives for people to go down the enforcement authority route—trading standards—rather than the tribunal route for cost recovery. I am curious.
Maria Eagle
I have a similar concern to my hon. Friend’s. The clause states that, “An enforcement authority may,” not “must”, which means that it may not. It may decide that it does not wish to. If it were to take enforcement action itself, it can retain the proceeds of any enforcement that occurs, but there is no indication that the costs of assisting a tenant, which may be just as an extensive as if it were to carry out the enforcement action itself, are recoverable in any way. Does that not suggest that the relevant enforcement authority may choose not to?
Eddie Hughes
I feel as though the hon. Lady has almost answered her own question. If somebody comes to the authority seeking advice, and it decides that, given its expertise in the field, it would be better if it pursued the claim itself, perhaps it might be minded to do that. In that case, it would be “may” rather than “must”. That leaves the leaseholder with a choice as to the route that they take. It is appropriate that both options are available to them.
Question put and agreed to.
Clause 17 accordingly ordered to stand part of the Bill.
Clause 18
Interpretation of enforcement provisions
Question proposed, That the clause stand part of the Bill.
Eddie Hughes
Clause 18 defines which is the appropriate tribunal for a lease of premises that is in England or in Wales. The clause also glosses the meaning of “tenant” in clauses 11 and 14, which relate to recovery orders, and in clause 17, which relates to assistance by an enforcement authority.
I should note that, in discussing the Bill, I have generally referred to “leaseholders”, rather than tenants, as that is the term that most people are familiar with in the context of a long lease. However, Members will have observed that the Bill uses the term “tenant”. The clause defines “tenant” for the enforcement clauses in the Bill, so to avoid confusion I shall refer to “tenant” in my comments on this clause.
Clause 18 has the effect that in those clauses, references to tenants include former tenants and people acting on behalf of a tenant, but not former tenants or people who have guaranteed the payment of a rent for a tenant in relation to making an application as to the effect of clause 7 on the terms of a regulated lease. That wide definition will ensure that any party that has been affected by a breach of the terms of the Bill will be able to seek redress.
The clause excludes former tenants and guarantors from the definition of tenant in clause 17(1)(b), because that provision relates to an enforcement authority helping a tenant to seek a declaration of the application of the Bill to a lease, something that will not be needed by a former tenant and cannot be actioned by a guarantor. For example, a former tenant who has sold on their interest in a property will have no need to seek a declaration as to whether a rent term in that sold-on lease should be a peppercorn. I commend the clause to the Committee.
Question put and agreed to.
Clause 18 accordingly ordered to stand part of the Bill.
Clause 19
Administration charges for peppercorn rents
Question proposed, That the clause stand part of the Bill.
Eddie Hughes
Clause 19 is included to prevent a potential loophole whereby a landlord might charge an administration fee in relation to a peppercorn rent. This measure is achieved by amending the Commonhold and Leasehold Reform Act 2002, thereby requiring that no administration charge is payable in relation to the collection of any ground rent that is restricted to a peppercorn by this Bill. Subsection (5) provides a leaseholder with recourse to redress, if needed. It enables a leaseholder to apply to the first-tier tribunal in England or to a leasehold valuation tribunal in Wales for an order varying the lease on the ground that such an administration charge is not payable.
A further measure, should it be needed, is included in subsection (6), which amends the Landlord and Tenant Act 1987. This enables a leaseholder to apply to the relevant tribunal to request that it makes an order appointing a manager where prohibited administration charges have been made. A tribunal-appointed manager does not act on behalf of the landlord; they are appointed by the tribunal to take over the landlord’s right to manage the building. This is a strong measure, intended to provide a deterrent to help ensure that a landlord does not continue to seek administration charges in relation to a peppercorn rent under the Bill. Clause 19 is necessary to ensure we guard against any potential loopholes in this legislation.
Mike Amesbury
I welcome clause 19. The interest in charges that are applied under various titles is well documented. I think the clause does close a loophole. Of course, the Opposition have stated our desire and concern to see these provisions extended to some 4.5 million leaseholds. There are 1.5 million households that are in leaseholds, with some 270,000 in the north-west and a similar figure in Wales. This measure obviously applies to those going forward. I welcome the clause within the narrow scope of the Bill.
Eddie Hughes
I commend the clause to the Committee.
Question put and agreed to.
Clause 19 accordingly ordered to stand part of the Bill.
Clause 20
Amendments to the Housing Act 1985
Question proposed, That the clause stand part of the Bill.
Eddie Hughes
Clause 20 makes two amendments to the Housing Act 1985. Specifically, they amend part V of the Act on the right to buy. The purpose of the amendments is the same: they update the 1985 Act to ensure that requirements in it relating to ground rent are aligned with the provisions in the Bill.
Clause 21 gives the Secretary of State the power to make provision that is consequential on the Bill through regulations, including provisions amending an Act of Parliament. We do not take such a power lightly, and in drafting this legislation we have sought to identify and make all necessary consequential amendments on the face of the Bill. The changes to the Housing Act 1985 in clause 20 are a good example of this.
However, long residential leasehold is a complex and interdependent area of law. Therefore, we consider it prudent to take the power in clause 21 to ensure that, should any further interdependencies be identified at a later date, these can be addressed appropriately. There are various precedents for such provisions, including section 92 of the Immigration Act 2016, section 213 of the Housing and Planning Act 2016 and section 42 of the Neighbourhood Planning Act 2017.
The Delegated Powers and Regulatory Reform Committee considered the powers in the Bill, including this one, and noted that there was nothing in the Bill that it would wish to draw to the attention of the House.
Maria Eagle
Clause 21(2) states that
“the provision that may be made by regulations under subsection (1) includes provision amending an Act (including an Act passed in the same session as this).”
Can the Minister tell the Committee why that is? What Act being passed in this Session could possibly need to be amended as a consequence? Is there another Bill that has provisions about such things? Why is that part in parentheses included?
Eddie Hughes
My understanding is that consideration has been given and we do not think there is anything, but we need to be prepared should the circumstance arise. That is my understanding of the requirement.
Mike Amesbury
What would those circumstances be? Can the Minister give us examples?
Eddie Hughes
As I said in my speech, the law is complex and there are interdependencies between various Acts. The provision makes sure that there is nothing that we have missed in terms of another piece of legislation that would be relevant and would have an impact; it gives us the opportunity to make an amendment appropriately. That is my understanding.
Maria Eagle
I am sorry to press the Minister on this, but clause 21 says,
“including an Act passed in the same session as this”.
What other Bill or Act in this Session could possibly have a provision that may need amending as a consequence of the Department overlooking something? This is complex housing law. What other Bill that is being passed through Parliament in this Session has complex housing law in it?
Eddie Hughes
I can only say again that we do not know the answer to that, otherwise we would obviously have made the necessary amendment at this point.
Eddie Hughes
I appreciate that the hon. Lady is not happy with the answer, but unfortunately that is the circumstance.
Clause 22 makes provision relating to regulations under the Bill. Subsection (1) is a standard provision that enables consequential, supplementary, incidental, transitional, saving or differential provision to be made, if necessary, in connection with the exercise of powers under the Bill. As is usual, subsection (2) provides that regulations under the Bill must be made as a statutory instrument. Subsections (3) to (4) relate to the procedure for making regulations under the Bill. Regulations under the Bill will follow the negative procedure, unless they make provision under clause 20 amending an Act. As we have discussed, for provisions under clause 20, the affirmative procedure will be followed, requiring active approval from both this House and the other place.
Dr Neil Hudson (Penrith and The Border) (Con)
It is a great pleasure to serve under your chairship, Ms Elliott. I am grateful to the Minister. I very much welcome the Bill. It is a tightly scripted, focused Bill, which will accelerate its passage. I welcome these clauses, which allow the Secretary of State and the Government to bring in subsequent and consequent amendments, if need be.
One of the key themes of the Bill is that it gives homeowners and leaseholders more of a sense that they have rights over the building they own and that is their home. Currently, in many cases, the leaseholder has to apply to the freeholder for permission to do things to the property that they consider to be their home. That can include whether they can keep a pet in the building. Is that something that the Government will look at as we move forward? When someone owns their home, they should have the right, as a responsible pet owner, to keep a pet. I declare a strong interest in that, both personally and professionally—I am a veterinary surgeon and am fully aware of the physical and mental health benefits to people and animals of the companionship of responsible pet ownership. Will the Government look at those rights moving forward?
Mike Amesbury
The hon. Gentleman spoke about people owning their home. This is the whole issue with leasehold; people do not own their home. I wish him well with the pets, and his practice.
Dr Hudson
I take on board that comment, but a key theme for leaseholders is having more of a sense of belonging, ownership and ability to make decisions such as whether to keep a pet. I realise that this is a tightly worded Bill, but can the Minister say whether we will consider that issue in future?
Maria Eagle
I have every sympathy with the hon. Gentleman’s plea that homeowners—leaseholders think they are homeowners, but they do not own everything—should have the right to do things such as own pets. The Minister will tell me if I am wrong, but I think that the regulations and consequential amendments that we are discussing relate only to the power to deal with landlords seeking to continue ground rent, other than peppercorn rent, in the interim period between Royal Assent to the Bill and when the regulations are brought in to commence it properly, which we understand might be in six months’ time.
Talking about these provisions is a bit like dancing on the head of a pin. I know I have been contributing significantly to that, but they apply in a very narrow range of circumstances that relate to landlords who seek to continue to charge ground rent, or put clauses into leases that come into existence after Royal Assent but before the commencement of the provision seeking to get ground rent payments from their leaseholders-to-be. We are dealing here with a very narrow range of circumstances in what one hopes would be a very short period. The Minister has suggested a period of six months until commencement. I suppose that if a landlord were then to continue to try to have leases with provision for ground rent that was other than peppercorn, these provisions could apply in those circumstances. We are talking about badly behaved landlords after the commencement of the legislation that keeps ground rent as peppercorn. Can the Minister confirm that the regulations that we are talking about do not relate to anything other than that?
Eddie Hughes
That is my understanding. My hon. Friend the Member for Penrith and The Border rightly said again that this is a tightly crafted Bill. The point that he made would fall outside the scope of the Bill, but given the importance that many people place on ownership and his expert experience as a vet, I look forward to discussing this topic with him as we look at future legislation next year.
Question put and agreed to.
Clause 20 accordingly ordered to stand part of the Bill.
Clauses 21 and 22 ordered to stand part of the Bill.
Clause 23
Interpretation
Eddie Hughes
I beg to move amendment 7, in page 14, line 13, leave out “consideration in money or money’s worth” and insert “pecuniary consideration”
This amends the definition of a premium so that only pecuniary consideration, rather than any consideration in money or money’s worth, is included.
Government amendment 7 makes a minor technical change to clarify the definition of “premium” used in the Bill. Members who are closely watching proceedings in the other place will know that the Government amended the Bill there to make it clear that it applied only to leases where a premium was paid. That was done to ensure that the legitimate practice of longer leases on a rack or market rent could continue. This amendment is a further clarification, again in response to concerns raised in the other place by the Earl of Lytton, about the impact that the newly added definition of a premium would have on properties with a “repairing covenant”. We are talking about a relatively small number of properties where a leaseholder agrees to take on the cost of repair works in a property. That could be, for example, for the renovation or upkeep of a home. As currently drafted, the definition risks inadvertently reducing the rack rent on such properties to a peppercorn. That is not, and never has been, the intention of this legislation. We are therefore removing the words “money or money’s worth” and substituting for them the words “pecuniary consideration”. “Pecuniary consideration” is of course a much more preferable phrase, as it is broadly any consideration sounding like or expressed in terms of money. This amendment will ensure that the Bill operates as intended.
Amendment 7 agreed to.
Question proposed, That the clause, as amended, stand part of the Bill.
Eddie Hughes
Clause 23 defines key terms for the purposes of the Bill. For example, it defines “long lease” and “rent”. Only long leases are regulated by the Bill. A long lease is generally a lease granted for more than 21 years, although some other types of lease are also captured. These are leases for a term fixed by law under a grant with a covenant or obligation for perpetual renewal—that excludes a situation where the lease is a sublease from a lease that is not a long lease—and leases terminable after a death, marriage or civil partnership. In the Bill, “rent” includes
“anything in the nature of rent, whatever it is called.”
Clause 23 also signposts where other terms, such as “peppercorn rent” and “regulated lease”, are defined elsewhere in the legislation.
We have arrived at these definitions after careful consideration. They have been drafted with the intention of avoiding the creation of loopholes that could be exploited to get around the intention of the legislation. The fact that ground rent has not been specifically defined is a very conscious decision, and has been arrived at following a great deal of deliberation. Rent has been defined broadly, and in the way it has been, to ensure that it captures the nature of ground rent without being too specific and risking landlords reintroducing it by another name.
Changing these definitions risks undermining the intention of the legislation. We have, however, provided some further clarification to the definition of rent in response to issues raised in the other place. Specifically, clause 23(3) makes it clear that other legitimate charges—such as service charges, insurance and so on—that might be reserved as rent in a lease will not be reduced to a peppercorn under the legislation merely because they are reserved as rent in the lease.
Mike Amesbury
Again, I welcome the intention of the clause and its various provisions and the amendment, but in relation to service charges, which relate to an earlier narrative under other clauses, there is still the potential that, as we deal with the issue of ground rents, the issue will become service charges. They are not at all transparent. We can look at managing agents, for example. They seem to be accountable to nobody other than themselves. You, Ms Elliott, or I, or anybody in this room, could set up as a management agent and tuck away some interesting so-called service charges. As I said, they are not transparent. We are absolutely clueless as to what some of them are for. An example is car-parking payments. Additional charges for that are sometimes astronomical. I think we could see those consequences that I referred to before. I gave the example of charges going up by 500% or 400% across the country as a result of this measure. We need assurances about that. I know that the Government and the Minister have tried to tighten things up, to prevent those loopholes, but assurance is needed, particularly for leaseholders out there who may be listening to our proceedings.
Eddie Hughes
I completely understand the hon. Gentleman’s point. It is incumbent on the Government to ensure that when the legislation is in force, we are in contact with professional organisations, tenants groups and so on to ensure that, if we see a pattern of egregious behaviour of the type that he has described—people effectively trying to reclaim costs through some other route—we find a means to address it. I understand his concern, and I look forward to working with him, once the legislation has taken effect, to ensure that we track any unfortunate consequences.
Question put and agreed to.
Clause 23, as amended, accordingly ordered to stand part of the Bill.
Clause 24
Crown application
Question proposed, That the clause stand part of the Bill.
Eddie Hughes
Clause 24 deals with the issue of Crown land and makes it clear that the Bill will apply to Crown land, including that belonging to the Crown Estate, the Duchy of Lancaster, the Duchy of Cornwall or a Government Department. Prior to the introduction of the Bill, both the Queen and the Prince of Wales granted consent in writing.
Clause 25 states the territorial extent of the Bill, which extends to England and Wales. We have worked closely with the Welsh Government throughout the passage of the Bill to ensure that the legislation meets the needs of leaseholders in England and Wales. As a result, the Bill specifically transfers executive competence to Welsh Ministers in a number of areas, including on the definition of community housing leases in clause 2(6)(b); the penalty amounts to account for the value of money, in clause 10(9); and the provision of guidance in clause 13(1)(b). That will ensure that the legislation works for leaseholders in both England and Wales.
Question put and agreed to.
Clause 24 accordingly ordered to stand part of the Bill.
Clause 25 ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Scott Mann.)
Leasehold Reform (Ground Rent) Bill [ Lords ] (Third sitting)
Thursday 9th December 2021
(2 years, 4 months ago)
Public Bill CommitteesRead Full debate Leasehold Reform (Ground Rent) Act 2022 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 9 December 2021 - (9 Dec 2021)
The Committee divided: - Ayes: 6 / Noes: 9 - Question accordingly negatived.
Mike Amesbury (Weaver Vale) (Lab)
I beg to move amendment 10, in clause 26, page 15, leave out subsection (4).
This amendment aims to ensure that the provisions apply to retirement properties from the time at which they come into force for other types of property, whereas at present the Bill will prevent those provisions coming into force for retirement properties before April 2023.
It is a pleasure to serve under your chairmanship once again, Ms Elliott. With my final amendment—not including new clauses—I want to raise something that was raised repeatedly in the other place: the question of retirement properties. I understand that, after a review, the Government have dropped their plans to exclude retirement homes and they will be included after a period of transition. I am glad to see that the Government and Ministers have moved forward on this. However, like Members of the Lords, I see no reason why those living in retirement properties should not be given the same rights as those in other types of leasehold property, at the same time. In the spirit in which we have tabled other amendments, this amendment’s aim is to ensure that all leaseholders are treated equally and that the 50,000 or so leasehold owners of retirement properties are not subject to unjust costs while other leaseholders are free from them. That is something that Members from across the Committee have raised.
Should the Minister not want to accept the amendment, I would be grateful if he outlined why exactly retirement property has been given this longer transition period. Given that this is a growing market and we should certainly be encouraging our senior citizens who want to rightsize—freeing up family homes for those who need the space, while living somewhere that suits their needs—what assessment has the Minister made of the number of leaseholders who will fail to benefit from the new system should they purchase somewhere before 1 April 2023? What will he say to them? The stories about retirement housing and fees are some of the worst in the housing market. They have been very well documented, and I know that the Minister is familiar with them. Can the Minister outline what he intends to do about that in the transition period right up until April 2023?
The Parliamentary Under-Secretary of State for Levelling Up, Housing and Communities (Eddie Hughes)
It is a pleasure to see you back in the Chair, Ms Elliott.
As hon. Members will know, it is our intention to protect leaseholders from unfair practices through the Bill by ensuring that future regulated leases are restricted to a peppercorn rent, unless excepted. The Government believe that those who purchase retirement homes should benefit from the same reform as other future leaseholders. Although we would like the provisions of the Bill to come into effect as soon as possible, we have decided to give the retirement sector additional time to prepare for these changes. The hon. Member for Weaver Vale has tabled amendment 10 to remove this provision and do away with the transition period entirely. I am grateful for his consideration of this point and would like to explain the reasoning for including a transition period for retirement properties, and why I believe that that is the right thing to do.
The plan for peppercorn ground rent was announced in 2019, following the Government consultation entitled “Implementing reforms to the leasehold system”. At the time, we also announced that we would proceed with the proposal to exempt retirement properties from the peppercorn ground rents policy. That decision was made on the basis that developers of retirement properties incur additional costs as a result of the communal spaces that are characteristic of these kinds of development. However, having reviewed this in further detail, we concluded that the argument in favour of an exemption did not outweigh the benefits of ensuring that those purchasing retirement homes can take advantage of reform in the same way as any other leaseholder could.
The Government believe that it is a matter of fairness that those buying retirement properties should be able to realise the benefits of this legislation. It was therefore announced in January 2021 that the exemption for retirement property would no longer apply, and we have offered the transition in recognition of that change of policy. As such, the Bill will come into force no earlier than 1 April 2023 for retirement homes. This transition period will allow developers of retirement properties time to adapt to the forthcoming changes. We believe the transition period in the Bill has been fairly granted in balancing the needs of developers and fairness to leaseholders.
Nickie Aiken (Cities of London and Westminster) (Con)
I have some sympathy with the amendment, but I absolutely hear what the Minister says about what he is trying to achieve. Many house builders we have heard from over the last few weeks have decided not to continue charging ground rent, because it is not a good idea. If I may be so bold, perhaps the retirement development industry might like to stop charging such exorbitant fees for ground rent, without the need for legislation.
Eddie Hughes
I thank my hon. Friend for her intervention. I will no doubt refer later to meetings I have had, including as recently as yesterday, with representatives from the sector. It is not necessarily for us to prescribe how they might change their business models, but different developers in the sector certainly take different approaches. Given that we signalled one intention and subsequently changed to another, I think we are striking the right balance in allowing a transition period.
In the other place, arguments were raised on both sides; there were those who wished to extend the transition period and those who wished to remove it. As I said, conversations are ongoing, including as recently as yesterday, and hon. Members including my right hon. Friends the Members for Chipping Barnet (Theresa Villiers) and for New Forest West (Sir Desmond Swayne) have been in favour of amending the transition period for the sector.
We acknowledge that the retirement sector has had less time to prepare than the rest of the development industry. However, we have given the matter careful consideration, and we believe the transition period in the Bill strikes the right balance between protecting retirement property consumers and providing a fair period of adjustment for developers. In my conversation with representatives yesterday, it was clear that prospective purchasers are already aware of the planned legislation—they seem to be a well-informed group—and I guess they will be mindful of that when deciding when to complete their purchase.
With regard to hon. Members’ concerns about the impact, I think it will be minimal for two reasons. First, the people who buy this type of property seem to take longer to make the purchase than would perhaps otherwise be the case; in fact, the sell-out rate for such properties is considerably slower than for normal residential properties. Buyers have a greater period over which to consider the purchase, and they frequently visit several times—first by themselves, and subsequently with members of their family—so this is a very considered purchase. Secondly, they seem to be well-informed about the changes to legislation. For those reasons, I feel they will be protected.
Margaret Greenwood (Wirral West) (Lab)
Subsection (4) states:
“The day appointed for the coming into force of this Act in relation to leases of retirement homes must be no earlier than 1 April 2023.”
However, it does not say when the Act will come into force. Could the Minister clarify that point?
Eddie Hughes
It is based on when we expect the Bill to come into force in its standard form, and then allowing a subsequent transition period. Assuming that the Bill comes into force quickly after Royal Assent—we have committed to that happening within six months—with the transition period following on from that, we anticipate the provisions coming into force in April 2023. On that point, I ask the hon. Member for Weaver Vale to withdraw the amendment.
Mike Amesbury
I thank the Minister for his response, and I thank other Members for their contributions. This measure would be a step forward. Martin Boyd of Leasehold Knowledge Partnership has consistently expressed concerns about the matter in the past. I know that Members and stakeholders have lobbied for these properties to be exempted completely, which would have been the wrong course of action. I concur with the hon. Member for Cities of London and Westminster in hoping that the market responds positively to the changes. In the interests of minimalist legislation and in the spirit of co-operation as we march towards Christmas, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
Eddie Hughes
The clause makes provision for the commencement of the Bill. The substantive provisions of the Bill will come into force on a day appointed by the Secretary of State in regulations, but Members can rest assured that we intend there to be no unnecessary delay in implementation. I thank the hon. Member for Garston and Halewood, who is not in her place, for her question on Tuesday regarding the commencement of the Bill following Royal Assent. We understand her concerns about the commencement date, but setting a hard date right now would mean no flexibility should other issues arise making it difficult to achieve.
I assure the Committee that we will press ahead at full steam to bring the legislation into force, but we must also be practical and allow for contingencies, should they arise. That is why we think it is right to have a contingency period for us to implement the provisions within six months of Royal Assent. For completeness, I reiterate what I said in relation to amendment 10: the clause also provides that the Bill cannot be brought into force any earlier than 1 April 2023 with regard to retirement property. We are keen that leaseholders of retirement properties get the same benefits from the legislation as other leaseholders, but we also want to ensure that the sector has time to prepare for the change.
Question put and agreed to.
Clause 26 accordingly ordered to stand part of the Bill.
Clause 27
Short title
Amendment made: 8, in clause 27, page 15, line 25, leave out subsection (2).—(Eddie Hughes.)
This amendment removes the privilege amendment inserted in the Lords.
Clause 27, as amended, ordered to stand part of the Bill.
New Clause 1
Ground rent for existing long leases
“Within 30 days of the day on which this Act comes into force, the Secretary of State must publish draft legislation to restrict ground rents on all existing long residential leases to a peppercorn.”—(Mike Amesbury.)
This new clause aims to ensure that the Government introduces further legislation to remove ground rent for all leaseholders, whereas the Act currently only applies to newly established leases.
Brought up, and read the First time.
Mike Amesbury
I beg to move, That the clause be read a Second time.
Today is the last day of the Committee—I know people will be disappointed about that—and my last day sitting opposite the Minister. Indeed, it is my last day shadowing the housing brief, a role I have thoroughly enjoyed. I hope that I have made some difference with challenge and scrutiny in the building safety crisis and on leasehold reform. I wish the Minister and his departmental team well, and I urge them to be bolder in their response to the crisis. Ultimately, of course, Opposition Members and I want to secure a Labour Government in the not-too-distant future, although I know that not everyone in Committee shares that objective.
Eddie Hughes
The hon. Gentleman said that I would respond by saying there will be more reforms in due course, and I think this should be something to be welcomed. What is sad, following what he said, is that he will not necessarily be part of the discussions, because I have found it incredibly helpful to work with somebody who is pragmatic, challenging and reasonable—it has been a real privilege.
New clause 1, which was tabled by the hon. Gentleman, would require the Government to produce draft legislation within 30 days of the Bill coming into force to restrict ground rents on all existing residential leases to a peppercorn. He will know that that is beyond the scope of the Bill. The Government share his concerns about the substantial difficulties that some existing leaseholders face, including burdensome lease terms and high premiums to extend their lease and buy the freehold.
The scandal of high and escalating ground rents is a serious concern, too. Indeed, that is a big part of why we are here today to debate the Bill. Some existing leaseholders are faced with high charges, which is why we asked the Competition and Markets Authority to carry out an investigation. As hon. Members will know, the investigation of potential unfair terms and mis-selling is ongoing, and my Department follows it closely. Indeed, I met the CMA last month to receive a progress update. It might benefit the Committee if I expand on the investigation and the progress we have seen so far.
In early 2020, the CMA’s report identified a number of serious concerns, including high and increasing ground rents. Following that report, it opened enforcement action involving four leading housing developers. I know that hon. Members will join me in welcoming the progress that the CMA has made since then. The CMA’s work is not to be underestimated. It has secured settlements with two leading housing developers and an investor in the leasehold sector, which have committed those parties to changes that will benefit thousands of existing leaseholders. The developers have agreed to refund homeowners who saw their ground rents double, and to allow leaseholders to buy the freehold of their property at a discount. Those landmark commitments will ensure greater transparency for the affected leaseholders, helping future buyers to make informed decisions without feeling pressured by time constraints. The CMA has made excellent progress, and that is just the start. We support the ongoing investigation and believe it will send a clear signal to others in the sector to follow this lead.
I referred earlier to the problem that some leaseholders face: a very high premium to buy their freehold—a process known as enfranchisement—or simply to extend their lease. The hon. Member for Weaver Vale will be aware that, earlier this year, we announced a package of reforms of the valuation process that is used to calculate those premiums. Our changes to the enfranchisement valuation process, including abolishing marriage value and prescribing calculation rates, will result in substantial savings for some leaseholders, particularly those with less than 80 years left on their lease. In fact, existing leaseholders can already buy out their ground rent when they extend their lease.
Importantly, we have announced that we will cap the treatment of ground rent in the premium calculation. This means that, in effect, the cost of buying out the ground rent will be reduced for many leaseholders, particularly those with onerous ground rents. We have also committed ourselves to enabling all leaseholders to buy out the ground rent without needing to extend their lease. That will be the case for houses and for flats.
I appreciate the urgency in wanting to address issues faced by existing leaseholders—indeed, I campaigned on that as a Back Bencher—and I reassure hon. Members that the Government are working at pace to bring forward wider leasehold reforms. However, I must once again state that I do not think that the arbitrary deadline in new clause 1 would be useful in that context. As members of the Committee will know, and indeed as, the hon. Member for Garston and Halewood, who is not in her place, said this earlier this week, leasehold law is extremely complex.
Dr Neil Hudson (Penrith and The Border) (Con)
I echo the Minister’s comments and thank the hon. Member for Weaver Vale for his service in his Front-Bench role. I also thank Opposition Members for the constructive approach they have taken to looking at the Bill; we have moved together positively. I also echo the Minister’s comments in saying that this tightly worded Bill is an attempt to address future wrongs, but I am encouraged to hear that the Government will take comments on board and look at existing wrongs as they move forward with leasehold reform.
Eddie Hughes
I thank my hon. Friend for his endorsement and will turn to him for advice and support as we formulate that policy. However, we do need to take time to get the reforms right. Hon. Members can rest assured, though, that reforming the leasehold system is a high priority for the Government. I therefore ask the hon. Member for Weaver Vale to withdraw the motion.
Mike Amesbury
In this case, I am going to agree to disagree. The measures in the new clause are a fundamental aspect of legislation. We have spoken about how all leaseholders should be equal, and indeed collectively we want to ensure that the feudal leasehold system is left in the history books once and for all.
On Second Reading, the former Secretary of State, the right hon. Member for Newark (Robert Jenrick), said that the Bill was
“the appetiser for the main course”
while I referred to the desire of Opposition Members and, importantly, the desire of the constituents we represent, for an
“all-you-can-eat buffet of reform.”—[Official Report, 29 November 2021; Vol. 704, c. 714-33.]
We have waited long enough. Indeed, we have had this nonsensical, unjust system for hundreds of years in England and Wales, and I know that none of us is proud of it, so I will not withdraw the motion. The Minister has examples on his patch where existing leaseholders will be trapped in the current system, but over the road or in another phase of a development, properties will be ground rent free. That is wholly unjust and has real consequences. I encourage all members of the Committee to support the new clause.
Question put, That the clause be read a Second time.
Mike Amesbury
I beg to move, That the clause be read a Second time.
Our system of leasehold is unfair, unfit for purpose and a hangover from a time that should be consigned to history, as I have stated throughout the Committee and throughout the journey of the Bill. The best answer to fixing the issues with leasehold is to move to a system that most of the world moved to a long time ago. That system is commonhold.
Current levels of commonhold are very low, so the new clauses asks the Government to understand the impact the Bill will have on levels of commonhold. In the other place, the Minister claimed the Bill would level the playing field, and it would be useful to have that information once the Bill comes into force. This Minister will be aware, I hope, that the Mayor of London has committed to furthering commonhold and pledged in his manifesto to start further trials in our capital. Will the Minister tell us how much longer the rest of the country has to wait to learn what is the Government’s policy on increasing commonhold uptake beyond the claim made in the narrative about the Bill?
Will the Minister update the Committee on how the Commonhold Council is coming along, what progress is being made and when we can begin to expect concrete change to take place? Commonhold should be the default tenure; that is something hon. Members across the House have spoken about for a number of years, and this is a real opportunity to turbo-charge that change. I look forward to the Minister’s reply.
Eddie Hughes
The hon. Gentleman’s new clause 2 would require the Government to produce an assessment of the legislation’s impact on the level of commonhold ownership. The impact assessment would have to be published within 60 days of the Act’s passage. However, as he said himself, the problem with commonhold in this country is that, despite its name, it is not a common tenure at all. Fewer than 20 developments have been created since the Commonhold and Leasehold Reform Act 2002 Act came into force.
We want that to change. We want to see the benefits of freehold ownership extended to more homeowners. The change brought about through this legislation will help to create the conditions for more commonholds. It will level the playing field, as it will remove an incentive for developers to build leasehold rather than commonhold homes. However, we also need further to lay the groundwork for greater use of commonhold, which is why we have established the Commonhold Council—a partnership of industry, leaseholders and Government—to prepare consumers and the market for the widespread take-up of commonhold. It is also why we asked the Law Commission to recommend reforms to reinvigorate commonhold as a workable alternative to leasehold, for existing and for new homes. We are reviewing those proposals and will respond in due course.
The new clause looks at the interaction between the Bill and commonhold. We have of course considered that interplay, and believe that the Bill and our work to increase uptake of commonhold are consistent with our aim of more fairness and transparency for homeowners. The Bill and our commonhold reform programme are complementary and we do not believe it necessary to conduct a specific impact assessment as the new clause demands. As hon. Members will know, such exercises also take up considerable resources. I think we are all agreed that we should avoid delaying further leasehold reform, and I am afraid that would be the effect of the new clause.
The hon. Member for Weaver Vale asks about progress on the Commonhold Council. All I can say is that work is ongoing. I am sure the chair of the council, Lord Greenhalgh, will continue to push forward, and we will be publishing more information on its work early in the new year.
I am sorry that the hon. Gentleman felt it necessary to table the new clause, but I hope he will consider withdrawing it.
Mike Amesbury
I thank the Minister for his detailed response. It would be useful to have an update from the chair of the Commonhold Council for shadow Ministers, and to all members of the Committee. That would be appreciated. In the spirit of co-operation, it was important to table the new clause as part of the narrative and to get the detail on the record. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 3
Service charges
“Within 2 years of the passage of this Act, the Secretary of State must publish an assessment of the impact of the Act on the level of service charges and other costs charged to holders of long residential leases.”—(Mike Amesbury.)
This new clause aims to ensure that the Government publishes a report on the impact of reducing new ground rents on other costs incurred by leaseholders.
Brought up, and read the First time.
Mike Amesbury
I beg to move, That the clause be read a Second time.
This final new clause addresses a point made to me by a number of stakeholders and members of the Committee over the past few weeks. It would ensure that the Secretary of State published an assessment of the impact of the Act on the level of service charges and other costs charged to leaseholders.
Ground rents have been a convenient way of pushing up the costs of leasehold, and an easy way of making more money off leaseholders, but they are not the only way. As we have said, new ground rents are tapering off in number, but other charges have begun to crop up and are starting to take their place—ground rents for parking spaces, rather than residential units, is one example. We are already beginning to see a number of these charges emerge. The Leasehold Knowledge Partnership gives several examples on its website. I encourage Members to look at them.
In an earlier debate, I raised the point that service charges are increasing as freeholders exploit other income streams. Those freeholders do not seem to care about the financial pressure they are putting on leaseholders, or that these are people’s homes, where they deserve to live without being exploited by whatever organisation has bought the freehold or chosen to manage their property.
The clause would require details of charges to be published within two years of Royal Assent. That, frankly, is because we face greater reform, and so I expect that we might see these trends emerging before the Government introduce more legislation. Developers looking to explore other avenues of income will bide their time until they feel the coast is clear.
I tabled the new clause in the hope of raising with the Minister again that we risk playing Whac-a-Mole with leaseholder costs; we could ban one stream of income only to find that freeholders have discovered another. I ask the Minister to outline exactly how he expects to prevent that.
Eddie Hughes
As we draw towards the end of the Bill Committee, I thank Members on both sides of the room for their considered input. We work best when we work collaboratively. As I have said a few times, this is an issue I started to champion as a Back Bencher, so it is an incredible privilege to be the Minister leading the discussions. I thank everyone for their time.
New clause 3 brings us back to the issue of service charges, and to concerns about freeholders using such charges to charge ground rent by another name. The Government believe that all fees and charges should be justifiable, transparent and communicated effectively. Service charges that have been artificially inflated to make up for lost ground rent income would not meet those requirements. If any landlord seeks to recoup what they consider to be lost ground rent or other funds through service charges or any other charge, the wide definition of the term “rent” in the Bill will allow a tribunal to take the charge into account when deciding if it is actually prohibited rent. That is why the Bill has been drafted as it has, and why we have adopted a flexible definition of rent. As I explained in a previous sitting on Tuesday, the definition relies on its naturally understood meaning and includes anything in the nature of rent, whatever it is called. Where a freeholder has attempted to get around these provisions, the definition allows the tribunal to consider, in each case, whether such a charge actually represents a prohibited rent, even if it is not explicitly called a ground rent.
As was discussed earlier in the week, the penalties for landlords who charge a prohibited rent are significant —a maximum of £30,000 per lease. If a landlord had a block of 10 flats, then the penalty they would be risking would reach a significant amount.
We have provided a robust system with not only a serious deterrent, but a route for challenging freeholders who act this way. That is all relevant to the new clause, which asks for an impact assessment. I understand the concerns that motivated the new clause, but hopefully the hon. Member for Weaver Vale can appreciate that the drafting of the Bill is intended to specifically guard against service charges being used in the way that he mentions.
Ian Byrne (Liverpool, West Derby) (Lab)
It is an honour to serve under your chairship, Ms Elliott. Surely the new clause would make the Minister’s job easier, because after two years we would have an assessment of how successful the legislation has been. I am at a loss for a reason why the new clause should not be accepted; it would make it easier for the Minister, his Department and the Government to tighten legislation, if that was required. It asks for an assessment of the issue that we are speaking about. Could the Minister respond to that?
Eddie Hughes
I thank the hon. Gentleman for his intervention. It seems perceptive, given that the paragraph that I was about to move on to says: hon. Members will know that further leasehold reform will follow later in the Parliament, so the efficacy of an impact assessment of this kind, during a period of wider reform, would be questionable. It is difficult to carry out an impact assessment when many moving parts are changing simultaneously; this is not a laboratory experiment in which we can control just one element. As the hon. Gentleman is a member of the Select Committee on Levelling Up, Housing and Communities, I can say that I look forward to working with him in the future. Should any concerns arise, my door is always open.
Lilian Greenwood (Nottingham South) (Lab)
I listened carefully to what the Minister said about the definition of rent in the legislation, and the way that it could be used to cover other ways in which some freeholders may act. How confident is he that leaseholders will be aware of that provision? If freeholders seek to increase other costs and charges, will leaseholders be sufficiently aware that they can exercise the rights set out in this Bill?
Eddie Hughes
I thank the hon. Lady for that intervention. There are two sides to that story. The fact that this legislation is being enacted, and the attention that will be drawn to that, will hopefully inform a good number of leaseholders. Also, the possible financial penalty—up to £30,000—should act as a significant deterrent for the freeholders, who are much more likely to be well informed and will hopefully be severely deterred by that. As the description of rent is so wide-ranging—it includes anything in the nature of rent—they will well understand that, should they be challenged at tribunal, they would likely be found out.
Given the two sides of that equation, there is good reason for us to be confident that nobody will try to introduce rents through the back door. On that note, I once again ask the hon. Member for Weaver Vale to withdraw the new clause.
Mike Amesbury
I thank the Minister for his detailed response, and all those Members who made powerful and informative interventions. Undoubtedly this is a live issue. I said, in relation to an earlier clause of the Bill, that any one of us could set up as a management agent and apply some interesting service charges. We have seen evidence of that weekly—daily. I urge the Minister, and certainly the Department—he spoke about keeping a serious watching brief—to respond to the problem. This Bill is the appetiser, we are told, but they should certainly respond to it in the main course. Opposition Members and, indeed, Government Back Benchers will rightly hold their feet to the fire.
In the spirit of co-operation, and given that this will be my last input today, we will withdraw the new clause. I genuinely thank everybody for giving their valuable time to consideration of the Bill so far. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
Bill, as amended, to be reported.
Leasehold Reform (Ground Rent) Bill [Lords]
Monday 24th January 2022
(2 years, 2 months ago)
Commons ChamberRead Full debate Leasehold Reform (Ground Rent) Act 2022 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 24 January 2022 - large print - (24 Jan 2022)
20:37 - The House divided: - Ayes: 162 / Noes: 306 - Question accordingly negatived.
Mike Amesbury (Weaver Vale) (Lab)
I beg to move, That the clause be read a Second time.
Madam Deputy Speaker (Dame Eleanor Laing)
With this it will be convenient to discuss the following:
Amendment 1, in clause 2, page 3, line 16, at end insert—
“Retirement developments where some leasehold residential flats have already been sold prior to commencement but others remain unsold
(12) A lease is an excepted lease if it is a lease of a retirement home in a development, where—
(a) other residential flats within the development have sold and completed on a long leasehold before the relevant commencement day under section 26(4) but it is a flat within the development which remains unsold, and
(b) the development commenced prior to 6th July 2021.”
This amendment seeks to avoid retirement developments where properties are on the market, but not fully sold by the time the Act comes into force for retirement properties, needing to have two lease types within one building, some paying ground rents and others funding the development of communal areas by another method.
Mike Amesbury
Let me begin by thanking all colleagues who have helped this short but important Bill through its stages so far, including our friends in the other place. In particular, I thank those who joined the Minister and me in scrutinising the Bill in Committee. Let me also begin with an apology to the Minister. I told him on the occasion of our final meeting in the Committee that that would be my last outing in respect of housing, having handed over the portfolio to my capable hon. Friend the Member for Greenwich and Woolwich (Matthew Pennycook), who is sitting behind me. I was wrong to say that, and I am very pleased that I was wrong. I stand here today ready to continue to raise an issue which matters hugely to me, to many of my constituents, and to leaseholders across the country—and, indeed, to the Minister himself.
Although the Bill is short, many important issues in it have already been covered extensively, first by our colleagues in the other place and then by Members here, in Committee. I do not wish to repeat too much of what has already been said, but the two new clauses tabled for Report are an opportunity for Members on both sides of the House to raise again two important aspects of the Bill.
New clause 1 would require the Government to produce draft legislation within 30 days to reduce ground rents to a peppercorn in existing long residential leases. The antiquated feudal system of leasehold is unjust for the many and not just the new. People in England and Wales have been trapped in that relic from the past for far too long. I urge the Minister to set them free, level up their life chances and support the new clause.
New clause 1 proposes that the narrow scope of the Bill be simply widened to improve the lives of leaseholders—the 4.5 million people trapped in this feudal system. Some 1.4 million of them are in houses, many in the north, the north-west and Wales, and may be experiencing high ground rents on top of other exploitative terms built into their leasehold contracts.
Theresa Villiers (Chipping Barnet) (Con)
We are all united in wanting to stamp out abusive practices with ground rents, but is the defect of the hon. Gentleman’s amendment not that it amounts effectively to a confiscation of existing property rights? That in itself has fairness issues, but it also deters future investment in our building stock. That future investment is needed, for example, if we are going to insulate against climate change and turn our buildings into more carbon neutral ones for the future.
Mike Amesbury
A feudal system of kings and barons needs to be kicked into touch. It is unjust and it is unfair. I am sure the right hon. Member will make an informed decision when it comes to the Division Lobby, but I know whose side I am on.
Mr Clive Betts (Sheffield South East) (Lab)
The Levelling Up, Housing and Communities Committee looked at the leasehold issues in some detail and produced a report that led to the Competition and Markets Authority conducting its investigation. We looked at the issue of property rights and took advice and evidence from leading property lawyers, who said that where there is a general public interest, it is perfectly reasonable under the European convention on human rights to go down the road being suggested, and that even for existing properties, the ground rent system and other leasehold issues could be changed to reflect the fact that currently they are simply unfair.
Mike Amesbury
I thank my hon. Friend for that intervention and all the work he and the Select Committee have done to move the matter forward. Together with the Select Committee and many others, I certainly want to see this system kicked into history.
I reaffirm that campaigners have waited long enough for change, and we should not keep them waiting any longer. A former Secretary of State, the right hon. Member for Newark (Robert Jenrick), referred to the Bill as the “appetiser” before “the main course”. Again, I affirm that what we need is an all-you-can-eat buffet of reform here and now.
Amendment 1, tabled by the right hon. Member for New Forest West (Sir Desmond Swayne), would prevent some retirement properties from being bound by the legislation. Unfortunately, we are not able to support the amendment. In fact, in Committee I tabled an amendment that would have done quite the opposite. Those who buy retirement properties should have been able to benefit from this new legislation and be put on par with everybody else. Justice is justice. The right hon. Member has certainly been consistent, but consistently wrong on this matter.
Sir Desmond Swayne (New Forest West) (Con)
Has it occurred to the hon. Gentleman that for many purchasers it will be in their interests to pay a lower purchase price and pay a ground rent, rather than to have to pay a very much higher price at the outset?
Mike Amesbury
I will agree to disagree. The Government have proposed a compromise, giving a longer transition phase for retirement properties, and we will support that approach, as was stated in Committee.
I find that the concerns of retirement community developers do not outweigh the need for those buying retirement properties to be treated fairly as consumers. Given the notice that the retirement community has had about the change, the transition period is generous enough. Many in the industry have done the right thing and already moved away from this income stream model, and I ask that their colleagues do the same.
In conclusion, the Bill marks another milestone in the slow journey to put the feudal system of leasehold into the history books. I thank all those campaigners who have educated legislators and the Government to secure change. The investigation and intervention from the Competition and Markets Authority have shone an authoritative light on the leasehold scandal. Developers have been exposed and are now responding by ditching the practice of doubling ground rents every 10 years. I urge Ministers to strengthen the Bill for all leaseholders and back new clause 1.
Sir Desmond Swayne
I draw your attention, Madam Deputy Speaker, and the attention of the House to my entry in the Register of Members’ Financial Interests.
I am deeply embarrassed about the way that the retirement living industry has been treated over the past few years in the progress to this Bill. In recognition of the significantly greater capital costs of building developments that have communal areas, which have traditionally been funded through an income stream of ground rent, the industry was granted an exemption, or an assurance that it would be exempt from the provisions of the Bill, back in June 2019. That exemption was then withdrawn in January 2021. I understand that the decision to withdraw the exemption was made almost a year earlier, in February 2020, and that discussions about revoking the assurance of exemption had actually begun in August 2019. Throughout all that period, the industry continued to be reassured that the exemption was good and would hold, and it was not.
Throughout that period, the industry continued to raise capital on the basis of the model with which they had been told they could continue. The amendment goes one tiny little bit towards trying to remedy the damage that has been done. It accepts that the practice will have to end, but it asks for one tiny concession, namely that, when the provisions of the Bill bite in March 2023, properties that are part-sold can continue to sell the residual remaining flats or properties on the basis of a continued ground rent. Without that, what we will have is some properties within a development being worth significantly more in terms of the purchase price than others, and some properties paying a ground rent and others not. It will be hugely complicated and divisive. Therefore, the amendment merely asks for that to be addressed. At the most, if the provision were to pass, we anticipate that this would account for about 2,000 properties. I ask the Minister to reflect on this, and, even at this late hour, accept the amendment.
Justin Madders (Ellesmere Port and Neston) (Lab)
I rise to speak in support of new clause 1, tabled by my hon. Friend the Member for Weaver Vale (Mike Amesbury).
To respond to the previous speaker, the right hon. Member for New Forest West (Sir Desmond Swayne), on the issue of ground rents, it is clear that service charges are for communal areas. Indeed, McCarthy Stone’s website says very clearly—
Sir Desmond Swayne
It is unlawful to charge ground rent for the maintenance of a communal area. They are clean different things.
Justin Madders
Indeed: ground rents are payments for which nothing is received in return, which is why they should be abolished. For the record, I am a co-chair of the all-party parliamentary group on leasehold and commonhold reform and have campaigned for the abolition of ground rents for a number of years, having seen the impact on individuals of their use and abuse.
I thank my hon. Friend the Member for Weaver Vale for tabling the new clause and for being a consistently strong advocate for leaseholders during his time as an Opposition spokesperson. He apologised at the start of his speech; I would ask him to resign based on that apology had he not already been moved to another position. [Laughter.] He has done a sterling job in this brief, and the new clause is typical of the way he has used every opportunity available to him to push forward the cause for leaseholders.
As we know, new clause 1 would not abolish ground rents altogether but, if it is agreed to, will set a timescale by which concrete proposals on their abolition must be put forward. That is important because for too long my constituents and thousands of others have suffered because of the leasehold scandal.
I know that the overturning of a system that has been in place for 1,000 years is not necessarily straightforward, and arguments will always be made as to why things cannot happen, but, as has been said so many times—I have already said it once in this debate myself, but it is worth saying it again and again because it is such a powerful point that can never be made enough—ground rent is a payment made for which absolutely nothing is received in return. Why, then, can we not get on and reduce that payment to effectively nothing so that the legal position reflects the reality of the situation? That would send out an important signal—not just a departmental press release but a signal that will make a tangible difference to people’s lives: that the days of leasehold are numbered and that this place does not accept that ground rent is a legitimate payment.
We see ground rent for what it is: a feudal device used to suck money away from people who get no benefit and no advantage from the payment but risk losing their home if they do not make it. Such arrangements have no place in the 21st century or, indeed, any century.
Some say that we should not ban ground rents on existing leases because that would introduce an element of retrospective impact on long-standing investments, including pension funds, but that is not an argument I have any sympathy with. The toxicity of leasehold has now been known for at least five years, which is plenty long enough for any investor to have taken a closer look at what they were involved in, looked for alternative sources of income and realised that nobody with an ounce of humanity should be using people’s homes as an investment vehicle—and especially not ones that included leases that were so onerous they made the homes unsellable.
Yes, there is a concern that we should not readily change the law so that it works retrospectively and changes the legal nature of a contract after it has already been entered into, but let us not forget that this place voted to introduce the loan charge, which retrospectively changed the law, arguably to the considerable detriment of many who say they were misled about what they signed up to at the time. There are parallels, because let us not forget that the victims of leasehold did not sign up to leases in the full knowledge of what they entailed. The developers, lenders and lawyers all have some degree of culpability, but the innocent victims—the leaseholders—do not.
The Competition and Markets Authority has been clear on several occasions that leaseholders have been wronged, and I welcome its decisions, but of course those decisions do not cover everyone, which is why we in this place need to step in. We often talk in the House about the plight of the Women Against State Pension Inequality—did the WASPI women not sign up for something very different from what they ended up with?
I know there are legal opinions about freeholders’ human rights, but what about my constituents’ human rights? In fact, I would love the owner of a set of freeholds to get on the witness stand and try to convince a judge that they are the wronged party in all this. I would love to ask them whether they think people should have the right to live in their own homes without them being used as an income stream for someone else.
The irony of what we are debating is that many of those who have done the most to bring the leasehold scandal to the public’s attention—I think in particular of the National Leasehold Campaign—stand to benefit the least from this Bill because there is nothing in it to help existing leaseholders. That is why new clause 1 is so important. Four years ago, when he was Communities Secretary, the right hon. Member for Bromsgrove (Sajid Javid) promised an outright ban on leasehold houses, and we all hoped that by now a law would be in place for everyone so that these wrongs could be righted. Those people deserve an end to this. They deserve hope that something will finally be done to make their lives a little better. If the Government cannot support the new clause, then, at the very least, I would like to hear from the Dispatch Box a commitment in the form of a final date by which the scourge of leasehold will finally be consigned to the history books. The wronged leaseholders deserve that, and it is about time it happened.
Andy Carter (Warrington South) (Con)
It is a pleasure to follow the hon. Member for Ellesmere Port and Neston (Justin Madders). I share his concerns and those of the hon. Member for Weaver Vale (Mike Amesbury), because a significant number of new homes built in the north-west of England, particularly in my constituency and in theirs too, have been on leasehold contracts. Although I recognise the aim of the new clause, I am not completely sure that it will resolve all the issues for my constituents, and I want to talk through some of the issues that they have told me about over the past couple of months.
I welcome many of the proposals set out in the Bill and recognise the important role that they will have in protecting leaseholders moving forward. I am, though, concerned that, as the hon. Member for Ellesmere Port and Neston said, they will offer little comfort for the thousands of homeowners who have become trapped in historical leases, which I am afraid many were even unaware they were purchasing when they signed for their new home. That includes an number of constituents in Warrington South who have spent the past 12 years trying to resolve a situation that they were inadvertently drawn into when they were mis-sold their properties on the Steinbeck Grange estate in Chapelford village by David Wilson Homes.
My constituents believed they were purchasing their properties freehold, and many were not disabused of this position until several months after they moved in, when they received an invoice. One might rightly ask why their lawyers did not make them aware when they were signing the contract. It has become clear that most of them used a legal firm recommended by the developer—by the house builder’s sales team—and those lawyers failed to point out the tenure under which the properties were being sold, and failed to make Steinbeck residents aware of the important clause in their contract documents. By using their first names in dealings with clients, they made sure they could not be traced by dissatisfied customers once they became aware of the situation. The law firm went into administration within days of the estate being completed.
I note with interest that the Law Society’s response to the Bill states that it is not the solicitor’s place to dissuade a client from entering into a particular transaction; their role is to ensure that the transaction is legally sound and efficiently completed. I agree with that, but I believe that every lawyer has a responsibility to their clients, and in this case the client was not the developer but the homeowner, or prospective homeowner. They should have made clear all the elements of the contract and their clients should have been advised accordingly. I am aware of one Warrington solicitor who, when looking at the contract that was brought to him, advised the purchaser not to proceed because of the leasehold situation, and has come forward to give me all those details.
As hon. Members have mentioned, the Competition and Markets Authority is currently investigating several issues surrounding the potential mis-selling of leasehold properties. I thank the CMA for its endeavours in addressing this poor practice. It has been to Warrington and engaged with my constituents, and I am incredibly grateful for the work that it is doing there. These investigations have looked at four developers—Persimmon, Countrywide, Taylor Wimpey and Barratt Homes, which is the parent company of David Wilson Homes. To date, the CMA has reached agreements with the first three. I therefore encourage the management of Barratts to recognise the harm that has been caused by its past sales polices and agree a way forward with the CMA as soon as possible to put things right.
Many hon. and right hon. Members have raised these issues in this House, but progress is also down to the tenacity of the men and women trapped in unfair leasehold contracts across the country who have continued to fight for their rights. I particularly praise my constituent Mr Mike Carroll, who has refused to take no for an answer and is continuing to work tirelessly with me and his neighbours to achieve the right and just outcome for them.
Ministers also need to look again at how consumer bodies around the country, particularly trading standards, should be working in the interests of homeowners, to help them resolve some of these issues. In the case of homeowners in Warrington, trading standards appear not to have been interested and have done little to involve themselves in any investigations. That is not the case in other parts of the country, where resolutions have been reached. I note in particular that Cardiff trading standards got involved and looked very closely at some of these practices.
Sir Mike Penning (Hemel Hempstead) (Con)
I congratulate my hon. Friend on his tenacity in looking after his constituents. All of us across the House try to do that, and he has done a brilliant job. On other areas that need to be addressed, the solicitors that have gone into administration were insured. The big companies have liability insurance sitting in pots, so leaseholders could simply say to the insurers, “You’ve had the premium, and now we want to see some help from you.”
Andy Carter
My right hon. Friend is absolutely right. The greatest challenge that my constituents face is that they cannot find the people who did the work—the lawyers no longer exist as a company body. My constituents are working to try to find some recompense, and I hope that the situation will be resolved by the CMA.
Will the Minister consider what actions his Department can take to tackle the problem faced by residents on Steinbeck Grange in Warrington and elsewhere who are locked into leaseholds and did not expect to be in this situation? I hope he will look very carefully at what the CMA says. I know that he has been working with the CMA to try to find solutions, and I hope that he will continue to do that, so that a satisfactory outcome can be found. Having met residents and constituents on Friday evening, I know that the impact that this has had on their lives cannot be overestimated. They have been living through a genuine nightmare, having bought what they thought was their dream home. I urge the Minister to think about the impact that this has had on those individuals.
It is time not only for us to protect those who will be looking to buy a new home in the future, but to secure justice for those who have been mis-sold properties in the past and are still paying a heavy price through unreasonable management fees and escalating ground rents. I am pleased to support the Government’s efforts, but I urge them to go further.
Mr Betts
It is a pleasure to speak in this debate. I welcome the steps that the Government have already taken but encourage them to go that little bit further.
Thinking back to the Select Committee inquiry in, I think, 2018, I remember that we invited not just formal witnesses—I have mentioned certain very distinguished lawyers who advised us—but many leaseholders from up and down the country. Up to 100 people came to events. There were a number of roundtables at which they met individual members of the Committee and told us about their experiences.
All the issues that the hon. Member for Warrington South (Andy Carter) has just raised were in our report, including mis-selling and how lawyers told people, “It’s just the same as freehold, really. It isn’t any different: you own your own house and, by the way, there’s an incentive to go with us on this leasehold arrangement. Here are the presents we’ll give you, the garden we’ll do up for you and the new carpets we’ll provide.” What solicitors were doing was scandalous, and we identified that in our report.
The simple message we had from everyone present was, “Everyone’s talking about changing the system for the future, but we’ve got problems here and now.” I understand why the Bill goes only so far on future ground rents and future arrangements, because it is more challenging and complicated to unwind existing legal arrangements than it is to describe what should happen in new arrangements, but I say to the Minister that the people in these leasehold homes who are experiencing all the problems that have already been explained, including in our report, think that that is unfair. They think that people in the future will be protected but that they will not and that Ministers, having raised the issue, should take it one step further and bring in the same rules for them. It is almost as simple as that. They cannot understand why, as they see it, they are being left behind and, so far, ignored on not just ground rents but a range of issues including the mis-selling of the service charge and all the other scandals that the Select Committee unearthed in its inquiry.
Sir Mike Penning
I refer the House to my entry in the Register of Members’ Financial Interests. On new clause 1, I do not think there is any argument that we need to look at historical leaseholds. However, my constituency has lots of new build and regeneration going on, and a lot of leasehold properties being built, and I am not convinced that that investment would come forward if the developers did not see where that income stream would come from, including pensions and so on. A lot of evidence is going back and forth, but I disagree just on that point.
I completely agree on the historical leasehold issue. The real problem is in the myriad different leases that are out there and have been for many years. I read the Select Committee report referred to by its Chair, the hon. Member for Sheffield South East (Mr Betts), a moment ago, and I found some of the things that lawyers were doing astonishing. It fascinates me how they ever got insured and how they have not been struck off—I know that other investigations are going on. This is about not just ground rent but service charges and buildings insurance, which is an issue we must address, whether in this Bill or another measure.
I own a freehold property with a mortgage, and I have contents and buildings insurance. In my buildings insurance, I have legal protection of the sort that we would expect our constituents to benefit from when they pay for buildings insurance. However, those in leasehold properties must pay buildings insurance to the freeholder or their management company and have no choice whatsoever about the company, what the premium is or what the coverage is. I use an example from my own constituency of what happens when a claim is made. We had a large sinkhole in a housing development where there were leaseholders: I sat in a meeting with the insurance representative, the freeholder and my leaseholder constituents, and the insurance company said straight to me, absolutely deadpan, “Your constituents may well have paid the premium, but the policy is not theirs. They have no cover whatsoever—the cover is for the freeholder.”
There has to be something morally wrong about that. Insurance has developed over the years; it used to cover very few things, but these days nearly all buildings insurance worth its salt has legal protection. That is what it says on the tin. The Bill does not cover that in the way I think it should. Sometimes it is wrapped into the service charges and everything else, and the ground rent is part of that package, but at the same time we have houses with historical freeholds, some of them from the old military estates where people have bought properties on what used to be Ministry of Defence property, and they are paying leasehold rents on what everybody assumed was a freehold property. Something is structurally wrong.
There was an allusion earlier to looking forward rather than back. I say to the Minister that looking forward is fantastic—we need some dates and some targets that our constituents can look forward to—but we should not rule out looking back just because it is difficult. As I said on the Building Safety Bill in this House only last week, looking back because it is difficult is what this House is supposed to do. It will be more difficult to look back and bring in those leaseholders, our constituents, who feel left out of this legislation and still very vulnerable, as my hon. Friend the Member for Warrington South (Andy Carter) said, but it can be done.
This is not a case of, “It’s impossible”, because we are doing it retrospectively in the Building Safety Bill. We are going back 30-odd years retrospectively on that Bill. Can the Minister explain, when he sums up on new clause 1, why the Government feel that that is so difficult, when we are doing it on a separate piece of legislation that is going through the House today?
Matt Rodda (Reading East) (Lab)
It is a pleasure to speak in this important debate. I express my support for new clause 1; I am grateful to the right hon. Member for Hemel Hempstead (Sir Mike Penning), and to others across the House, for their words tonight and for pointing out the enormous imbalance between powerful developers on the one hand and people buying a property for themselves, who possibly do not have all the information before them that ideally they should, on the other.
I refer to an issue in my own constituency, an attractive modern development on the edge of the town of Woodley, which is part of my Reading East constituency. The Loddon Park development is relatively recent, but there is a clear need for action to be taken. This development is in the south-east of England, a different part of the country from many of the developments mentioned tonight, and while there are some similarities there are also some differences.
Loddon Park is an attractive new estate, built in the past few years in parkland on the edge of Woodley. There are several hundred properties, a mixture of owner-occupied and some social housing. There are many attractive ponds and features, including meadowland, in the development. Unfortunately, when the whole development was given planning permission, the local authority—mistakenly, I believe—allowed the site developer to charge upkeep for those common areas in perpetuity. There is no limit, as I understand it, to the charge that can be made. It is deeply unfair for normal householders—many of them have young families, are commuters who work locally and are facing, like many people across the country, significant rises in the cost of living—to face in addition ongoing costs for maintaining the landscape around their homes. Frankly, that is wrong.
I hope the Minister will consider new clause 1. We have heard arguments from many MPs across the House and from different places around the country, whether in the south or the north of England; we have heard from the Chair of the Select Committee, my hon. Friend the Member for Sheffield South East (Mr Betts), who set out some powerful legal arguments for why this action should be considered. I hope the Minister will look at it again, even at this stage, and will consider further action by the Government and our new clause.
Jim Shannon (Strangford) (DUP)
It is always a pleasure to make a contribution in such debates, and it is nice to be here. When we look at amendment 1 and the reasons why the right hon. Member for New Forest West (Sir Desmond Swayne) tabled it, as he expressed in his contribution, it is hard to say that we should not support it.
We must make sure that there is financial fairness for leaseholders, especially long leaseholders who plan to hold a lease for more than 21 years. The issue of ground rent payment has been brought to my attention by my constituents, and the hon. Member for Warrington South (Andy Carter) rightly gave an example of his constituents. An elderly couple in my constituency, who paid their mortgage off more than 15 years ago, are still paying ground rent of more than £50 a year. Although that is not much, I am pleased that the need to abolish this has been recognised. We already changed the legislation in Northern Ireland, so I understand why this Minister and Government are looking forward to making these changes tonight. Many Members have stated that many people have long leases with higher ground rents at the start of their lease, with shorter ground rent review periods. As a result, leaseholders face unsustainable ground rents, so there is a real need to change this, as hon. Members have said.
Leaseholders with high or escalating ground rents will often struggle to remortgage or sell their houses, leaving them in greater financial distress. The Bill aims to restrict ground rents on newly created long residential leases, with some exceptions, to a token of one peppercorn a year. That effectively restricts ground rents to zero financial value. The intention is to make leasehold ownership fair and more affordable for leaseholders. We should support that purpose.
In Northern Ireland, individuals can apply to the Land Registry to buy out their ground rent. In some cases, the individuals cannot afford to pay the substantial sum outright, so I am pleased that the Bill has assurances for long leaseholders and that Government have protected householders. If ground rent is demanded in contravention of the Bill and any payment received is not returned in 28 days, the landlord will face a fine ranging from £500 to £30,000 per qualifying lease. The fines are clear and hopefully prohibitive.
However, there is one substantial problem with the Bill, as others have said: it will apply only to new leases and will not assist existing leaseholders faced with high and escalating ground rents. I feel that they should not be left behind and I would be grateful if the Minister clarified this matter, looked at it again and considered the impact that the situation has not only on finance, but the possibility of remortgaging or selling property.
The Bill’s commencement date has also raised concerns across the House, so I would be grateful if more clarity was given about that. A Bill on broader leasehold reform is expected in the third Session of this Parliament and I would encourage discussion and a closer look at how the situation can be improved to make circumstances easier for leaseholders. Others have said that we just need a wee bit more movement, and perhaps that can be done in the next Session.
The Parliamentary Under-Secretary of State for Levelling Up, Housing and Communities (Eddie Hughes)
This is a bit like the Rolling Stones tour in that I said goodbye to the hon. Member for Weaver Vale (Mike Amesbury) and he has come back for an encore, for another concert. However, like the Rolling Stones, it is good to see him back again. I thank all right hon. and hon. Members for their contribution to this debate and for the constructive way in which they have engaged with the Bill throughout its passage. I particularly thank the Opposition Front Bench team for their helpful contributions.
I will address each amendment, starting with amendment 1 in the name of the hon. Gentleman. The difficulties faced by existing leaseholders have rightly been raised by Members across the House, both in Committee and in correspondence. I understand Members’ points about the fact that the Bill relates only to new leases. I point out, however, as I did in Committee, that the Bill is just the first of two-part legislation to reform the leasehold system and that further legislation will follow in this Parliament, so I encourage others, including my right hon. Friend the Member for Hemel Hempstead (Sir Mike Penning), to engage with me in discussions on the second part of the legislation as it begins to form.
The Government understand the urgency of the need for changes for leaseholders paying out unacceptable charges day to day. However, I do not think that the arbitrary deadline in new clause 1 is useful in this context, and similar is true of the alternative deadlines suggested by the hon. Member for Sheffield South East (Mr Betts). Although I appreciate that this is not completely relevant, Madam Deputy Speaker, on what he said about new burdens, the point of legislation such as this is to encourage people to behave appropriately so that they treat leaseholders fairly and there are no cases. However, as the Bill is implemented and we see how it develops, I look forward to discussing with him and the Levelling Up, Housing and Communities Committee the impact that that will have on councils.
Justin Madders
The new clause is obviously not going to find favour with the Minister tonight, but could he at least give us the date—maybe even just the year—by which leasehold will finally be in the history books?
Eddie Hughes
I would love to be tempted by something like that, but given that we have just gone through two years of a rather unexpected global pandemic, it is best not to pin these things down too firmly.
Unfair practices have no place in the housing market, and the Government are committed to ending them. That is why, in addition to our proposed reforms, we asked the CMA to carry out an investigation into the potential mis-selling of homes and unfair terms in the leasehold sector. We are clear that we want to see existing homeowners who have been affected obtain the justice and redress they deserve. During 2021, through determined negotiations, the CMA secured commitments from Aviva, Persimmon, Countryside Properties and Taylor Wimpey to amend their practices, which included righting the wrongs of doubling ground rents and houses being sold as leasehold. These settlements will help to free thousands more existing leaseholders from unreasonable ground rent increases. I am sure the whole House will join me in welcoming the progress the CMA has made.
Indeed, the investigation continues, and we are closely monitoring those developers and landlords that have failed to sufficiently change their practices, such as those described by my hon. Friend the Member for Warrington South (Andy Carter). The action against major industry players serves as a warning to other developers with similar arrangements in place. Let me be absolutely clear in reiterating the Government’s position: we want to see other developers come to the table.
Again, I reassure hon. Members that we take the plight of existing leaseholders extremely seriously, and we are making moves across a number of areas of Government policy to reflect that commitment. It is on that basis that I ask the hon. Member for Weaver Vale to withdraw the new clause, and to work with me on the development of further reforms to support existing leaseholders, as I have described—or, alternatively, the hon. Member for Greenwich and Woolwich (Matthew Pennycook) and the hon. Member for Ellesmere Port and Neston (Justin Madders), with his experience through the work of his APPG.
On amendment 1, which is in the names of my right hon. Friend the Member for New Forest West (Sir Desmond Swayne) and my hon. Friend the Member for Waveney (Peter Aldous), as hon. Members will know, it is our intention to protect leaseholders from unfair practice through this Bill by ensuring that in future regulated leases are restricted to a peppercorn rent unless excepted. The Government believe that those who purchase retirement homes should benefit from the same reform as other future leaseholders. While we would like the provision of the Bill to come into effect as soon as possible, we have decided to give the retirement sector additional time to prepare for these changes. The transition period for retirement properties is being granted in recognition of the fact that the sector had previously been informed that it would be exempt. We have provided this additional time—first announced over a year ago, on 7 January 2021 —for the sector to prepare for these changes. As such, the ground rent Bill will come into force no earlier than 1 April 2023 for retirement homes. We have carefully considered this to ensure we are striking the right balance—giving the retirement sector time to transition and ensuring that protection for leaseholders comes as quickly as possible.
Amendment 1 seeks to exempt retirement properties from the peppercorn rent provisions where part of the development remains unsold at the commencement of the Bill and where the development itself was commenced prior to 6 July 2021. There is a simple reason why I am rejecting this, which is that we want to protect more leaseholders. The amendment would mean that many new leases enter the market charging a monetary ground rent, with more consumers of retirement properties being left outside the Bill’s protections.
Sir Desmond Swayne
What was the rationale for granting the exemption in the first place? Surely the Minister recognises that, for many people in the retirement sector, it will be in their financial interest to pay a lower purchase price and have a continual ground rent, rather than to pay a significantly greater capital sum upfront. Individual circumstances will of course differ.
Eddie Hughes
I was delighted when I was appointed as a Minister for the Department on 16 January 2021. The negotiations to which my right hon. Friend refers pre-date my time at the Department, so I will have to take his word for what happened. It is important that as many people as possible benefit from the provisions of the Bill. We have offered a generous transition period and many people have already adopted their operating models, so he can be reassured: the sector will cope.
The amendment could serve only to incentivise any retirement developer to sell simply one unit on a development before commencement of these provisions in order to continue to charge ground rents on all the properties in that development. The amendment would risk providing a loophole. Throughout consideration of the Bill, arguments concerning the transition period have been made on both sides: there have been those who wished to extend the period, including by application to part-sold properties, and those who wished to remove the period entirely.
On Second Reading, we heard arguments by my right hon. Friends the Members for Chipping Barnet (Theresa Villiers) and for New Forest West in favour of amending the transition period for the sector. Subsequently, I had helpful conversations with representatives of the retirement development sector, whom I met on 8 December. I am grateful to them for taking the time to explain their position to me.
We appreciate that there are likely to be some developments that will continue to include a mixture of properties with monetary and peppercorn ground rents. That will not be limited to retirement properties, and we do not consider that that is a compelling case for retirement sector leaseholders to be exempted or treated differently. I put it to you, Madam Deputy Speaker, that there is a simple way to avoid this: reduce all ground rents to a peppercorn.
The Bill provides a clear-cut date for consumers. If a regulated lease is sold after the date, there can be no monetary ground rent. That is transparent and easy for consumers to understand. Indeed, many consumers may already be planning their purchase based on that date, secure in the knowledge that they will be protected from pointless monetary ground rents from that point forward. To bolster the clarity and transparency provided by the Bill, we will of course ensure that all relevant leaseholders are aware of the legislation and the impact that it will have on them, before the Bill comes into force. I therefore ask Members not to press the amendment.
Question put, That the clause be read a Second time.
Eddie Hughes
I beg to move, That the Bill be now read the Third time.
I start by thanking colleagues across the House for their support for this important piece of legislation. I am pleased to say that there has been recognition from both Houses of the importance of getting the Bill enacted promptly for the benefit of generations of future leaseholders, and I thank the Opposition, particularly the hon. Members for Weaver Vale (Mike Amesbury) and for Sheffield South East (Mr Betts), for their engagement and valuable input. I also wish to put on record my thanks to those who served on the Committee; the Chairs, my hon. Friend the Member for Kettering (Mr Hollobone) and the hon. Member for Sunderland Central (Julie Elliott); the Clerks; and particularly my hon. Friend the Member for Redcar (Jacob Young) for ably assisting me throughout.
The Bill delivers an important improvement to the leasehold system for future generations of home owners. It is a vital step towards addressing the historic imbalance in the leasehold system and it is integral to the Government’s broader reform to create a housing market that works for everyone. It has benefited from a number of amendments both here and in the other place, and I thank all those who have participated in debates and given their time. The changes have included raising the maximum penalty from £5,000 to £30,000, giving certain powers to Welsh Ministers when a property is in Wales and a range of important clarifications that ensure that the Bill will not have unintended consequences. Taken together, the amendments have significantly strengthened the legislation.
The Bill is narrowly focused on the ground rent of future residential leases, but it is understandable—
Dr Ben Spencer (Runnymede and Weybridge) (Con)
I strongly support the Government’s commitment to ending the practice of charging unfair and excessive ground rents. As my hon. Friend will know, residents in park homes such as those in Penton Park in my constituency are still facing excessive pitch fee rises each year. Does he agree that legislation should be introduced to link the pitch fee review inflation index to the consumer price index rather than the retail price index as soon as possible?
Eddie Hughes
As I have said, the Bill is narrowly drafted, so the pitch fees do not apply. However, the Government are committed to making the changes for which my hon. Friend has been campaigning, and we will make those changes when legislative time allows.
Although the Bill is narrowly focused, it is understandable that Members—including, just now, my hon. Friend the Member for Runnymede and Weybridge (Dr Spencer) —have raised broader issues relating to the leasehold system. We understand that many leaseholders feel trapped in a system that is not working for them, and we are determined to provide greater protection and support for all leaseholders. The Government are committed to undertaking an ambitious and far-reaching programme of reform of the leasehold system, and I can assure the House that we are working apace to bring about those reforms.
Sir Mike Penning (Hemel Hempstead) (Con)
I thank the Minister for giving way to me, because it saves me a speech.
The most important aspect of the legislation to which the Minister has just alluded is that “far-reaching” should not mean “far away”. It is really important for leaseholders that it should be introduced as soon as time is available, and any help that the Minister may need in cajoling other parts of Government to introduce legislation as soon as possible to protect leaseholders in a way that this Bill does not will no doubt be extremely welcome.
Eddie Hughes
I strongly suspect that my right hon. Friend will be catching up with the Secretary of State next time they walk through the Lobby together, and will be making exactly that point to him.
Barry Gardiner (Brent North) (Lab)
May I take up the point made by the right hon. Member for Hemel Hempstead (Sir Mike Penning)? When the Minister conducts that far-reaching review, will it return to the case of Custins v. Hearts of Oak Benefit Society back in 1969? Will it consider the abolition of leasehold, and the full ability of leaseholders to take on the franchise and ultimately the freehold of their buildings?
Eddie Hughes
I think it is too early for me to be able to predict exactly what will be in the Bill, and what its reach and remit might be, but I am sure I will be open to conversations with the hon. Member to discuss his thoughts on what could go into it.
It would be remiss of me to not mention that in fact only two weeks ago we launched a public consultation to seek views on proposals to allow more leaseholders in mixed-use buildings to take control and ownership of their building. That consultation will play an important role in shaping the next stage of our reforms to create a fairer leasehold system in England and Wales.
I thank the Competition and Markets Authority for the vital role it is playing in improving the sector for existing leaseholders. The CMA has already helped thousands of leaseholders to gain access to justice since opening its investigation, and I welcome its dedication in the ongoing fight against abuse in the sector. Let me repeat that the CMA’s action against industry players serves as a warning to others, and we expect those who continue to permit such poor practices to heed the example set by the investigation.
Sir Peter Bottomley (Worthing West) (Con)
To save the Minister time, may I, on his behalf and that of the whole House, thank the Leasehold Knowledge Partnership, the campaigning charity, especially Sebastian O’Kelly and Martin Boyd, together with their compatriots in the campaigning groups without whom we would still be saying that there was a major problem that had not yet been recognised?
Eddie Hughes
I thank the Father of the House for saving me the trouble of having to offer those thanks.
I thank Welsh Ministers and their officials for their engagement on the relevant amendments, both here and in the other place. My thanks also go to the Local Government Association, National Trading Standards and the relevant tribunals, all of which have provided support with the progress of this legislation. I again thank all Members for their contributions. This legislation will make a real difference to thousands of future leaseholders across England and Wales, and I commend the Bill to the House.
Mike Amesbury
I thank the Minister and everyone in the House who has been involved with the Bill: the Clerks, the Library specialists and the Bill team. I also thank hon. Members who have participated in each part of our proceedings, giving their time, effort and wisdom. I thank the many Members who contributed on Report: the right hon. Member for New Forest West (Sir Desmond Swayne), who is not in his place but we agreed to disagree; my hon. Friend the Member for Ellesmere Port and Neston (Justin Madders), the co-chair of the all-party parliamentary group on leasehold and commonhold reform; my hon. Friend the Member for Sheffield South East (Mr Betts), the Chair of the Levelling Up, Housing and Communities Committee; the hon. Member for Warrington South (Andy Carter); my hon. Friend the Member for Reading East (Matt Rodda); and the hon. Member for Strangford (Jim Shannon). They all made very powerful contributions.
I would like to reiterate and re-affirm the comments made by the Father of the House, the hon. Member for Worthing West (Sir Peter Bottomley) and put on record my thanks, and that of the Opposition, to the incredible campaigners at the National Leasehold Campaign, Catherine Williams, Katie Kendrick and Jo Darbyshire, and at the Leasehold Knowledge Partnership, Martin Boyd, Sebastian O’Kelly and, of course, the late Louie Burns. I want to pay my respects to the Father of the House, who has consistently campaigned on this issue and educated others, including me. I know he will continue to do so. I thank him.
They and many others have done the hard graft in fighting for leasehold reform and, with this Bill, they are only now beginning to see their efforts bear fruit. It is unfortunate that their wait will continue. The Bill represents the picking of a single apple in the orchard. It really is narrow in scope, a point acknowledged by the Minister. It does not attack the many issues raised by Members across the House that plague existing leaseholders. It will not deal with existing ground rent costs, untransparent service charges or management agent fees. It is crazy that anyone of us here or beyond could set themselves up as a management agent and charge astronomical and unfathomable service charges. Those issues must be dealt with sooner rather than later.
The Bill will not force accountability on freeholders or managers for their actions. It will not cover, as has rightly been pointed out, historical building safety costs, which are still being debated at considerable length in this Chamber. It will not deal with the cost or difficulty in obtaining enfranchisement, unfair contract terms or the many other issues still faced by homeowners locked in leaseholds, such as insurance, which is a major unfairness. The unfairness and injustice must be gone for good. The Government need to take further action. Leasehold is a system hundreds of years old. A 28-page Bill is not enough to finish it off—and we need to finish it off. The Bill is a good attempt at preventing future wrongs, but with so many real existing wrongs in front of us it is easy to see why leaseholders sitting in properties today will feel short-changed when new neighbours literally across the road will be freed from the problems that are still impacting them—a real injustice.
I am partially pleased—partially—that in advance of today’s debate the Government published a consultation on wider leasehold reform, but let us not pretend that that is a considerable step forward. We have been here before. We have had numerous consultations. A consultation paper published in 2017 on tackling unfair practices in the leasehold market was closely followed up in 2018 by consultation on implementing reforms in the leasehold market. We have had announcement after announcement from Government press officers. What we have not had so far is real and fundamental change. After hundreds of years of leasehold, patience is wearing thin. England and Wales are lagging far behind the rest of the world and our neighbours closer to home—I referred to Scotland.
In conclusion, the Government will have to do more, and do it quicker than “in due course”, to convince leaseholders that they are serious about taking on those vested interests to which Members from across the Chamber have referred. Members tonight have echoed the view that we need a clear timetable. Be the history-maker, Minister, set people free and usher in an age of commonhold.
Sir Peter Bottomley (Worthing West) (Con)
I thank the hon. Member for Weaver Vale (Mike Amesbury) for his kind words. It has been right and proper and a pleasure to work in collaboration with him and the hon. Member for Ellesmere Port and Neston (Justin Madders), as it was to work with Jim Fitzpatrick when he was co-chair of the all-party group on leasehold and commonhold reform.
It is 20 years since the House of Commons and the Government thought that we had brought some sense to the leasehold system. We failed and successive Governments did not pay attention to what had gone wrong, partly because the responsibility for the leasehold and commonhold sectors were split between Departments. The Ministry of Justice, as it was at some stages, did not have any resources and it did not collaborate with the Ministry of Housing, so effective action has been delayed.
The Minister has referred to the narrowness of the Bill. We have to accept that. I am glad that my hon. Friend the Member for Runnymede and Weybridge (Dr Spencer) raised the issue of park home residents, who have been treated even worse than some leaseholders. I hope that the Government will give some serious attention not just to the inflation rate that they are charged, but to some of the criminal and near-criminal and exploitative actions of many of the people who run those sites. It is completely appalling, and I direct investigative journalists to look at that matter.
On the question of leasehold itself, I welcome the progress made by the Bill. I am sorry that I got back in time to vote on new clause 1—I probably voted in the wrong way and I apologise for that. The sooner that we can deal with existing leaseholders and the cost to them of ground rents and of extending their leases the better. We must get to the stage where owning somebody else’s leasehold becomes a diminishing asset. The faster the freeholders sell the freehold to the leaseholders together and create, in effect, a commonhold the better. We are making progress. I am glad to have contributed in part, and I am glad that the Minister and his colleagues are taking the action that I wish had been taken many, many years ago.
Justin Madders
It is a pleasure, as always, to follow the Father of the House. As we have already mentioned this evening, we are now four years on from the promises that were made about reforming leasehold, and the Bill, as we have all accepted, is a step in the right direction. However, as we have all acknowledged as well, it is little comfort to those who are still trapped in homes that they cannot sell because of the onerous leases with which they have been left, and we must do something about that. I tried to get the Minister to give us a year when that might happen, but we could not get anything out of him. None the less, I can assure him and the House that we will keep pushing on the issue, because justice demands that it is resolved.
It is also worth commenting on the fact that one in three houses sold in the north-west in the past 10 years is leasehold. There has been much talk about levelling up. Who can doubt that a person’s home is the biggest investment they will make? So it is simply unacceptable for so many homes in my part of the world to have been built off the back of an exploitative and unjust business model. Surely, if levelling up is to mean anything, it should at the very least mean that people’s homes are owned on the same basis wherever they live in the country.
The ending of ground rents for new homes is a positive, but it will create a strange situation. There will be houses within a stone’s throw of one another that have a different form of ownership. That will just add more weight to the sense of injustice that existing leaseholders feel, which is why I am so keen for us to push on and deal with that issue.
As many Members have said, a lot more needs to be done. A whole range of issues have been mentioned tonight. We have, for example, barely touched on park homes. There are so many scandalous things going on there, and we really should be paying them more attention. For homeowners, we see the following: management fees, which are a rip-off; non-transparent service charges; the cost of enfranchisement; insurance scams; obscure penalty clauses; and other costs that appear everywhere we turn in a lease. They are all baked into the business models of those avaricious companies which, let us not forget, are still out there building houses.
I am a little concerned that the companies on which we rely to build the houses that we need are responsible for many of the injustices that we have discussed tonight. We need to keep a close eye on their practices in future. I still think that we need an inquiry into the whole industry. We have previously discussed some of the things that we touched on tonight, and the question of how close lawyers were to developers and whether they were acting in the best interests of their clients needs further examination. We need to look at the lenders and surveyors and what the developers were saying to people, often first-time buyers, who were misled about what they were buying. We need to make sure that the system is examined thoroughly so that there is no repeat of the scandal that we have seen over the past five years.
People who buy a home should have a right not to expect it to become an ongoing income stream for a third party. If we have that as our guiding principle we will not go far wrong, so let us crack on with legislating so that that can become a reality for everyone. As many Members have done, I want to acknowledge the fantastic work of the many campaigners who have been active in bringing this issue to the fore including, as we have heard, the Leasehold Knowledge Partnership, Martin Boyd, Sebastian O’Kelly, the late Louie Burns, the National Leasehold Campaign, Catherine Williams, Katie Kendrick, Jo Darbyshire and many others, with the Father of the House being one of the biggest cheerleaders. There are many people who have contributed to bringing the issue to the attention of the House, but there is much more that we need to do. It feels at times as if progress is painfully slow, but that should not dim our determination finally to consign leasehold to the dustbin.
Sir Peter Bottomley
We know about some of the abuses, because people who were working in firms that I would respectfully declare to be dodgy provided information anonymously. Will the hon. Gentleman join me in saying to Richard Davidoff, who might take defamation action against people who have blown the whistle on practices that we would condemn, that the courts should not be used to stop people blowing the whistle on practices that are questionable, if not completely wrong?
Justin Madders
As always, I find myself in agreement with the Father of the House. Whistleblowers should be able to speak up freely. With my other hat on, it is probably time that we had a review of whistleblowing legislation to make sure that people are adequately protected. We owe a debt to people who are prepared to speak up and put their head above the parapet, possibly at great personal expense. The scams have to be stopped, and people need to be supported.
On that note, we have made a little progress tonight, and I want to keep making progress. I am sure that the majority of the House will want leasehold finally to enter the history books, rather than being something that we deal with on a day-to-day basis.
Theresa Villiers
I shall begin by highlighting the investment property in my entry in the Register of Members’ Financial Interests, which is a flat held on a long leasehold basis. Like everyone else in the House, I recognise the need to deal with abusive practices in relation to leasehold and ground rents, but I fear that the blanket abolition of ground rents for every single new building could have significant negative unintended consequences.
Measures specifically targeted at unfair practices such as a code of conduct, a potential cap on ground rents and a ban on selling houses on a leasehold basis could be effective in stamping out wrongdoing, but without the negative potential consequences of the Bill’s widely drawn approach. As drafted, the Bill will see professional freeholders exit the market. It is disappointing that the Government have not responded to the calls on Second Reading to consider an exception in the Bill to enable ground rents to continue to be an option for large, complex apartment blocks. If we remove the choice to use ground rents for buildings of that kind, all the responsibility for ensuring the safety and long-term viability of the block will fall on leaseholders. That will inevitably lead to higher costs, since individual residents groups will not have access to the kind of specialist expertise and collective buying power that professional freeholders have when they buy in services to repair, maintain and enhance buildings.
There is evidence that after the removal of professional freeholders in Scotland, the lack of professional oversight and accountability has meant many more buildings falling into disrepair. A 2019 report for the Royal Institution of Chartered Surveyors highlighted that many residents in Scotland had great difficulty in securing agreement from fellow flat owners to fund essential work on the fabric of their building. That can slow down remedial work, greatly adding to costs. Even identifying and contacting fellow flat owners may be difficult, for example if they are buy-to-let investors living overseas, and that is even before we get to the point of trying to secure agreement on the work that needs to be done, how much it will cost and persuading everyone to pay up. Disputes have left some leaseholders in Scotland having to threaten their neighbours with legal proceedings, generating even more fees to pay.
Without professional freeholders, flat owners in large blocks will have to take on myriad financial and legal responsibilities and keep up to speed with a rapidly changing and complex regulatory environment. These onerous obligations are an extra burden to be shouldered by ordinary people on top of busy lives holding down jobs and looking after their families. Some leaseholders might prefer to pay a modest regulated ground rent so as not to have the hassle and risk of taking on these responsibilities, but the Bill denies them that choice for new buildings.
Buildings that involve business as well as residential use will be especially difficult for residents to manage. Even the Levelling Up, Housing and Communities Committee recognised that exceptions to the ground rents ban should be considered in such circumstances.
I find it hard to comprehend a Bill whose main effect will be to reduce professional oversight and responsibility for residential buildings at a time when we have a building safety crisis. This is also an era where we urgently need investment in our building stock to make the changes to insulation and heating systems needed to meet climate change commitments. That is another reason surely to try to retain professional freeholders, not shut them down. It is worth remembering that the investors behind most of these professional freeholders are generally the pension funds that are so essential to providing us all with security in old age.
I close by asking the Minister to pause, reflect on this legislation and consider whether an exemption can be allowed for large, complex apartment blocks. The system of freehold interests and ground rents has come under sustained criticism, including this evening. It has even been described as “feudal”, but England’s laws on real property have successfully underpinned economic activity for centuries, providing a crucial foundation for economic prosperity and development. That was made possible by adaptability and inventiveness, including the capacity to slice up different rights over land in a way that maximised the incentive to use the property constructively and efficiently.
Put simply, there is a reason why English land law has deployed the concept of a freehold interest for the past 900 years. It makes sense for someone to have stewardship of the long-term future of a building, and it makes sense for their economic interests to be aligned with maintaining the building and investing in it for the long term. Yes, we need to crack down on the unscrupulous activities of morally suspect developers abusing the ground rent system, but I fear that the approach in this Bill is too blunt an instrument. We would be better off with the regulation of professional freeholders, not the de facto abolition of professional freeholders. I hope that the Minister and the Secretary of State will give that the most serious consideration.
Question put and agreed to.
Bill accordingly read the Third time and passed.
Leasehold Reform (Ground Rent) Bill [HL]
Monday 7th February 2022
(2 years, 2 months ago)
Lords ChamberRead Full debate Leasehold Reform (Ground Rent) Act 2022 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 101-I Marshalled list for Consideration of Commons amendments - (4 Feb 2022)
Lord Greenhalgh
That the House do agree with the Commons in their Amendments 1 to 5.
“(but see subsection (5)).”
“(5) Where there is a deemed surrender and regrant by virtue of the variation of a lease which is—
(a ) a regulated lease, or
(b) a lease granted before the relevant commencement day, subsection (1) applies as if paragraph (b) were omitted.”
The Minister of State, Home Office and Department for Levelling Up, Housing & Communities (Lord Greenhalgh) (Con)
My Lords, before I turn to the Commons amendments, I will take a moment to remind us all of what the Leasehold Reform (Ground Rent) Bill will do. The Bill will put an end to ground rents for most new residential leasehold properties as part of the most significant changes to property law in a generation. The Bill’s provisions will lead to fairer, more transparent homeownership for thousands of future leaseholders.
Throughout the Bill’s passage, there have been helpful discussions with Members of both Houses and with key stakeholders in the industry and from consumer groups. This has been crucial and has led to a number of refinements being made to this Bill during its stages in the other place. At our last opportunity to debate this Bill, in September 2021, changes were suggested by noble Lords to help improve it. I undertook to ensure that these would be made; and as promised, this was done. I hope that noble Lords will agree that the Bill returns to this Chamber in an even stronger position than when it left. We meet today to consider these amendments as made in the other place, and I beg to move that the House do agree with the Commons in its Amendments 1 to 9.
Commons Amendments 1 and 2 relate to the process known as a “deemed surrender and regrant.” Taken together, these amendments mean that a lease can have a peppercorn rent after it has been regranted, even where no new premium is paid. Especially for the noble and learned Lord, Lord Etherton, I can confirm the provisions in the amended Clause 6, Amendments 1 to 5, are amended also to apply in the case of a deemed surrender and regrant by operation of law where there is an extension of the term of a pre-commencement lease or the addition of further property. Commons Amendments 3, 4 and 5 are also connected to the “deemed surrender and regrant” process. But more specifically, they clarify the matter raised by the noble and learned Lord, Lord Etherton with regard to a lease variation.
As noble Lords may remember, it was pointed out very diligently that the legislation as drafted was perhaps not as clear as it could be in relation to permitted rent within leases where they replace a pre-commencement lease. The noble and learned Lord, Lord Etherton raised his concern that it was unclear whether the Bill as then drafted would require that any existing ground rent in such leases would be reduced to a peppercorn. I thank the noble and learned Lord for bringing this to my attention. I can confirm that the amendments made in the other place make it clear that, where the property demised is changed, the resulting surrender and regrant will not reduce the ground rent on the remaining term of a pre-commencement lease to a peppercorn. Any extension to the term of the pre-commencement lease will be required to be a peppercorn. Crucially, this amendment ensures that freeholders need not withhold consent for a lease variation unnecessarily. I hope noble Lords will agree this is a positive development.
I turn to Commons Amendment 6. Noble Lords will remember that on Report an amendment was passed that inserted a new clause into the Bill, the “duty to inform”. It placed a statutory duty on landlords to inform an existing leaseholder of the changes introduced by the Act ahead of commencement and linked this duty to the Bill’s enforcement penalty regime, should a landlord fail to comply. Of course, we recognise the importance of leaseholders being aware of their rights and that they are therefore not rushed into lease extensions before this Bill takes effect. I thank the noble Baroness, Lady Grender, who is not in her place, and the noble Lord, Lord Stunell, for raising the important matter of consumer awareness, which the Government take seriously.
I support the principles behind the original Lords amendment. It is vital that there is transparency in the leasehold system. However, the Government continue to have doubts as to whether placing a duty to inform in the Bill would be the most effective and expedient means of meeting the objective that noble Lords set out to achieve. We remain of the view that this can be accomplished without the need for further primary legislation. The reasons for leaving out the duty to inform include legal and practical considerations that I hope noble Lords will allow me to explain a little.
As drafted, the duty to inform, although well intentioned, is unworkable. The original amendment placed a duty on all landlords, even if they were not residential, and did not specify how each landlord may satisfy their legal duties contained within the clause. Including the clause would require the penalty enforcement process for the duty to inform to align with the rest of the Bill; for instance, the duty to inform clause provided no mechanism for landlords to appeal and did not offer a concrete explanation of the means for enforcement, such as notices and requests for written representations. To make this clause workable would take up further parliamentary time and cause delay to the implementation of the new peppercorn rents that we all want to see. Furthermore, in terms of practicality, the clause related only to the short period between Royal Assent and the peppercorn limit coming into effect. It would therefore place a quite significant burden on enforcement authorities if it was included in the Bill.
Again, I thank both the Labour Front Bench and the Liberal Democrats’ spokesperson, the noble Lord, Lord Stunell, for their recent engagement on this matter. As I have said before, they can rest assured that I agree with them on the principle behind the amendment. We all understand how important it is to ensure that these changes to leasehold law are publicised for the good of leaseholders. However, I appreciate that noble Lords may want a little more. We have looked very closely at how to achieve the objectives that informed the original new clause, so I wanted to share some of the detail on measures that we will take ahead of commencement to close the gap.
We are developing a suite of communications activities, from social media to encouraging the broader press to cover these changes. We will work closely with our partners such as LEASE, the body that provides free and independent advice to leaseholders, as well as National Trading Standards and, of course, our industry partners, to do what we can to raise awareness of the coming changes. We will also contact our friends in the Leasehold Knowledge Partnership. Everyone who can help to communicate should be brought on board. We are also preparing updates to existing government guidance for consumers and will publish new detailed guidance for enforcement officers in England. We expect Wales to produce separate guidance, which should mirror any guidance that we publish for England, and we will work closely with Welsh colleagues to ensure that we get this right.
After Royal Assent, we will write to solicitors, legal executives, licensed conveyancers and relevant professional bodies, detailing the new peppercorn restrictions. We should also contact those who represent property agents and managing agents—ARMA—as I mentioned in our discussions. Nigel Glen has a tremendous database, as does the Institute of Residential Property Management, where Andrew Bulmer can also help communicate the message.
I hope that this is reassuring to noble Lords who have raised concerns about the importance of accurate, independent legal advice to leaseholders. More generally, as part of the enforcement of the Bill, National Trading Standards will assist with advising local enforcement authorities. The department will fund National Trading Standards’ implementation costs from our budgets. We are in discussions with the Local Government Association on this. As I have stated previously, I am open to working with anyone across the House on any further activities that they believe we should pursue.
I hope noble Lords are sufficiently reassured that the Government are serious about raising awareness of the Bill among consumers ahead of it coming into force and can agree that the suite of actions we are taking represent the best course of action. On this basis, I ask that your Lordships agree to Commons Amendment 6.
Lord Stunell (LD)
My Lords, I rise to speak on the amendment in my name, which refers to Amendment 6, to which the Minister has just spoken. I hope I am fully in order to do that.
The Deputy Speaker (Lord Geddes) (Con)
If I could interrupt the noble Lord, the Question to the House was that we agree Amendments 1 to 5 en bloc. We will then come to Amendment 6.
Lord Greenhalgh
That the House do agree with the Commons in their Amendment 6.
Lord Stunell (LD)
My Lords, I rise to speak on Amendment 6. I should start by saying that I am the joint owner of a leasehold property, but we got our lease extension some seven or eight years ago—outside the scope of the Bill. Also, both now and earlier the Minister has been very generous with his time in discussing the progress of the Bill. I very much thank him for that and for the great courtesy and good humour he has always shown in doing so.
Clause 8 is a duty to inform the tenant. I was very disappointed to find that the Commons, led by the Government, thought that that was an appropriate safeguard to take out of the Bill. I have listened carefully to what the Minister said by way of a substitution and I will cover that in my further remarks.
First, the Minister has accepted the evidence that the noble Baroness, Lady Grender, among others, brought forward in Committee: that there really is a loophole and it needs to be tackled. The loophole is one that may be exploited by unscrupulous landlords—a minority of landlords, certainly, but ones who are well practised in being unscrupulous. It is a real-world issue. Of course, they are often aided and abetted by their in-house or tame lawyers who are helpfully acting for both parties and do not necessarily spend too long explaining what the hapless leaseholder is being invited to sign.
We hope very much that the Bill will outlaw that practice, but it will not do so immediately. The purpose of the original amendment that your Lordships sent back to the other place was to effectively freeze the imposition of any such unfair terms meanwhile. The Minister has understandably exaggerated the difficulties of Clause 8, but it actually requires that, when a tenant and landlord are about to commence negotiations, the landlord has a duty to inform the tenant of the existence of this Act and the fact that, in a short period of time, they would essentially be able to carry out their transaction for free, whereas in the intermediate period they would do so under the existing regulations, where it is commonplace for escalation clauses and so on to be built into a lease, which would then be an enduring one. There is clearly a temptation for the unscrupulous to do that. You can see the marketing pitch: “New lamps for old”—or rather “New leases for old”—an offer of a VIP lane to leasehold extension, with legal fees waived if you do it by 31 July. Unwary leaseholders could well fall for that, perhaps prompted to go for it by the knowledge that they have only, say, 20 more years on their lease, and perhaps overlooking the fact that it would essentially be free if they waited until 31 July.
I have chosen that date purely for illustration, because the fact is that the Minister has not told us when the new provisions will become operational; I hope he will be able to enlighten us on that point shortly. The window of opportunity for this unscrupulous behaviour to carry on is between now and the moment when this provision comes into force. I want to hear exactly what the Government intend to do to shut that window at the earliest possible opportunity.
What is being offered instead? Superficially, it certainly sounds very plausible, and I hope that it will turn out to be as robust as the Minister hopes it will be. I hope that it will reach every leaseholder, because what is being substituted is an intention in Clause 8 that is a transactional one that would come into play only if a particular lease was going to be extended or was thought likely to be extended, for a general one—so we have a popgun firing at every leaseholder rather than simply providing a provision for landlords to act on at a time of leasehold extension.
I am very pleased to hear about what the Minister had to say about getting in touch with legal firms and those who represent leaseholders and others. I find that a very satisfactory part of his reply.
I would say that a couple of press releases in the ordinary course of business are unlikely to be very effective. The Minister might perhaps like to emphasise how this communications plan will take place. Is there a budget for it? Is it a real-life thing or just a piece of ministerial gloss? I know that the Minister does not go in for ministerial gloss, but I would like an assurance that we will see a real effort made to make sure that this is closed.
When exactly will it be closed? Clause 26(2) says that this will come into force
“on such day as the Secretary of State”
determines. Is that soon, shortly, in the summer, this year, next year, sometime or never? The longer the window stays open—the longer the gap between now and when the Bill’s provisions come into force—the more the risk and the more difficulty there is.
So I would like to hear an assurance from the Minister. Can he give us a date on which this provision will come into force so that we can hold him accountable? Perhaps he could also comment on whether we will get the second leasehold Bill, which he spoke of frequently, in the forthcoming Queen’s Speech? I look forward to hearing what the Minister has to say in respect of this and will listen carefully. I beg to move.
Baroness Hayman of Ullock (Lab)
My Lords, I have not previously spoken in the debates on this Bill, but I will be brief. I start by thanking noble Lords who have done a lot of work to improve this much-needed legislation. The amendment in the name of the noble Lord, Lord Stunell, is a welcome reminder that the Bill lacks any obligation for landlords to alert leaseholders in advance of changes relating to ground rents and leasehold extensions. We fully support the noble Lord’s amendment, which seems to be an entirely proportionate measure and in no way presents an obstacle to the core provisions of the Bill.
The Government have been unable to bring forward any safeguards to address this specific power imbalance at the expense of leaseholders. Without it, we believe that the legislation remains flawed. The relationship between leaseholders and landlords should be defined by the principle of transparency and accountability—as, in fact, the Minister agreed in his opening remarks—but this is simply not possible without provisions such as these. So I ask the Minister, even at this late stage, to provide further assurances that have not previously been forthcoming to allay the concerns from across the House.
Lord Greenhalgh (Con)
My Lords, I am not sure whether we have moved all the amendments up to Amendment 9—because then I can wind up, so to speak. I can appreciate the—
The Deputy Speaker (Lord Geddes) (Con)
If I may interrupt the noble Lord for a moment—we have moved only Amendments 1 to 5. We are now discussing Amendment 6, and we will then come to Amendments 7, 8 and 9.
Lord Greenhalgh (Con)
Okay. I am just getting used to this process. On Amendment 6, it is really helpful that the noble Lord, Lord Stunell, raised the issue of timing. Of course, in order to start the gun, if you like, we need Royal Assent, and then there needs to be a commitment around commencement, which means having all the regulations in place. So let us get this Bill on the statute book as quickly as possible. I have already made a commitment—which perhaps goes beyond where I should have gone because I am, perhaps, a little naive—that, within six months of Royal Assent, we will have commencement. So we know what the window is, effectively, because I made that commitment at the Dispatch Box and I do not want to let anyone down. That is the timeframe: let us get Royal Assent and then, within six months, we will have commencement—and that is the period of time we should be concerned about.
We have very genuinely tried to respond to the issues that have been raised to ensure that the greatest number of people are aware of the dangers and the risks of carrying out a lease extension in that window in a way that would be detrimental to their interests. That is why we have that suite of communications measures. I hope, therefore, that with that and a better understanding of the timeframe, the noble Lord, Lord Stunell, will withdraw his amendment.
On the timing, I have now been in post and responsible for leasehold reform for nearly two years—I have survived one reshuffle—and it is fair to say that both Secretaries of State, particularly the right honourable gentleman in the other place, are absolutely committed to the second wave of leasehold reform, which will be far harder than this modest ground rents Bill. I cannot give a commitment about what will appear, but my expectations are that leasehold reform will be front and centre around his ambition for a wider reform of housing.
The Deputy Speaker (Baroness Barker) (LD)
My Lords, the Motion is that this House do agree with the Commons in their Amendment 6. As many as are of that opinion will say “Content”. Lord Stunell?
Lord Stunell (LD)
Well, if that is the Motion being put to the House, that is fine. I beg leave to withdraw my amendment—although I do so a little grumpily and I shall be keeping a very sharp eye on the Minister.
Lord Greenhalgh
That the House do agree with the Commons in their Amendments 7 to 9.
“(a) where the penalty was imposed in relation to a lease of premises in England, to the Secretary of State, and
(b) where the penalty was imposed in relation to a lease of premises in Wales, to the Welsh Ministers.”
Lord Greenhalgh (Con)
My Lords, I have a few words in conclusion to thank everybody who has worked so hard to get the Bill to this stage. I thank particularly the noble and learned Lord, Lord Etherton, who has been helpful in tidying up this Bill, the noble Earl, Lord Lytton, with his knowledge as a professional surveyor, and my noble friends Lord Young of Cookham and Lord Hammond of Runnymede, who have been extremely insightful.
I probably should put on record, because I forgot to do so until the very last moment, my residential and commercial interests. I want to make sure that I have declared them, although they are properly set out in my declaration of interests.
I also thank the Benches opposite. I have had to deal with changes and am sorry to have lost the noble Lord, Lord Kennedy, who I believe has gone off to be Chief Whip. Then Labour sent the noble Baroness, Lady Blake of Leeds, from Yorkshire. and now we have the noble Baroness, Lady Hayman of Ullock, who has an incredible reputation in the other place for being fair-minded and constructive. It is marvellous to work with her.
It has been great to work with the Liberal Democrats as well. I will even thank the noble Baroness, Lady Pinnock; she described herself as a Yorkshire terrier, which is why my ankles seem to get bitten quite a bit when she intervenes; she does so on behalf of the interests of leaseholders and fighting their corner, which is appreciated.
The noble Baroness, Lady Grender, who is not in her place, raised the issue of the gap in the first place. I know the noble Lord, Lord Stunell, is representing her, but she raised an important matter, and it is to her credit that the Government have responded to those genuine concerns. I thank everybody—the Opposition Benches, the Liberal Democrats and the Cross Benches—for a very constructive approach to the Bill.
No Minister should ever leave the Dispatch Box without thanking the officials, many of whom are in the Box and have been simply tremendous in supporting me. We should all be proud of what this House is putting forward in legislation, which is much improved because of the contributions of noble Lords. I commend the Bill to the House.
Royal Assent
Tuesday 8th February 2022
(2 years, 2 months ago)
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