The Minister of State, Home Office and Ministry of Housing, Communities and Local Government (Lord Greenhalgh) (Con)

- Hansard -

Copy Link

- - Excerpts

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.

Lord Greenhalgh (Con)

- Hansard -

Copy Link

- - Excerpts

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 Greenhalgh (Con)

- Hansard -

Copy Link

- - Excerpts

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 Greenhalgh (Con)

- Hansard -

Copy Link

- - Excerpts

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 Greenhalgh (Con)

- Hansard -

Copy Link

- - Excerpts

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.

Lord Greenhalgh (Con)

- Hansard -

Copy Link

- - Excerpts

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 Greenhalgh (Con)

- Hansard -

Copy Link

- - Excerpts

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.

Lord Greenhalgh (Con)

- Hansard -

Copy Link

- - Excerpts

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.

The Minister of State, Home Office and Ministry of Housing, Communities and Local Government (Lord Greenhalgh) (Con)

- Hansard -

Copy Link

- - Excerpts

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.

Lord Greenhalgh (Con)

- Hansard -

Copy Link

- - Excerpts

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 Greenhalgh (Con)

- Hansard -

Copy Link

- - Excerpts

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 Greenhalgh (Con)

- Hansard -

Copy Link

- - Excerpts

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.

Lord Greenhalgh (Con)

- Hansard -

Copy Link

- - Excerpts

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 Greenhalgh

- Hansard -

Copy Link

- - Excerpts

That the Report be now received.

Clause 1: Regulated leases

Amendment 1

The Minister of State, Home Office and Ministry of Housing, Communities and Local Government (Lord Greenhalgh) (Con)

- Hansard -

Copy Link

- - Excerpts

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 Greenhalgh (Con)

- Hansard -

Copy Link

- - Excerpts

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.

Lord Greenhalgh (Con)

- Hansard -

Copy Link

- - Excerpts

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 (Con)

- Hansard -

Copy Link

- - Excerpts

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 Greenhalgh (Con)

- Hansard -

Copy Link

- - Excerpts

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.

Lord Greenhalgh (Con)

- Hansard -

Copy Link

- - Excerpts

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 Greenhalgh (Con)

- Hansard -

Copy Link

- - Excerpts

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 Greenhalgh (Con)

- Hansard -

Copy Link

- - Excerpts

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 (Con)

- Hansard -

Copy Link

- - Excerpts

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 Greenhalgh (Con)

- Hansard -

Copy Link

- - Excerpts

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 Greenhalgh (Con)

- Hansard -

Copy Link

- - Excerpts

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.

Lord Greenhalgh (Con)

- Hansard -

Copy Link

- - Excerpts

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 Greenhalgh (Con)

- Hansard -

Copy Link

- - Excerpts

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.

Lord Greenhalgh (Con)

- Hansard -

Copy Link

- - Excerpts

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 Greenhalgh (Con)

- Hansard -

Copy Link

- - Excerpts

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.

The Minister of State, Home Office and Ministry of Housing, Communities and Local Government (Lord Greenhalgh) (Con)

- Hansard -

Copy Link

- - Excerpts

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

- Hansard -

Copy Link

- - Excerpts

That the Bill do now pass.

Lord Greenhalgh (Con)

- Hansard -

Copy Link

- - Excerpts

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 Greenhalgh (Con)

- Hansard -

Copy Link

- - Excerpts

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.